Time to Say Thanks

on Tuesday, November 25, 2008

It has been the most volatile year that I can remember. The first eight months of the year were all about rising commodity prices. People were scrambling for stable supply in the face of rapidly rising prices. Everyone was talking about the price of oil and gas. It seemed as if it would never end. Then....the crash came.

Prices started falling off the cliff. Suddenly there was supply everywhere. Our leaders were telling us about the end of the world as we know it. Banks were failing, people were losing their homes & jobs and there is no end to the corporate bailouts.

What to do now? Give thanks. As bad as things might seem at times, we still have the highest standard of living in the world. If you have a roof over your head and food to eat on Thanksgiving then you are better off than most of the people on the planet....and if no one is trying to kill you then you are better off than 80% of the people; as many people around the world go to sleep each night in fear.

Last but not least, if you and your family are in good health then you really have a lot to be grateful for.

So, take a break from the stress and say thanks.
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The Bridge Loan to Nowhere

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“Bridge Loan”-this is bankingese for the business equivalent of “can you lend me twenty bucks ‘till I get paid Friday”. Banks approve bridge loans when the bank has confidence that the borrower will in fact have the funds in the amount promised when promised.

But when the lender is Uncle Sam, standard banking practices and even good old American common sense take a backseat to politics. This has never been more present than in the government’s willingness to entertain another plea by the “Big 3” for more good money on bad.

As if it the economic facts of life aren’t sufficiently gut wrenching for Americans, now comes the triple entente of automakers led by the helmsman of the biggest of the big 3, GM Head Cheese Rick Wagoner. I was curious to hear what sort of slick presentation Wagoner would bring to try and bilk the government out of more taxpayers dollars, and can’t accurately express my shock at his performance.

Pardon me, but if I was asking for a lot of billions of dollars, I’d bring all the showstoppers. Legacy retirees, middle aged employees working their last years before social security, core suppliers like Delco, Delphi, and maybe even Dell Computer. I’d paint the picture of the economic despair that will follow the collapse of the American Auto Industry.

Instead, Wagoner gave us the equivalent of “I dunno”. Maybe he didn’t know, but I find that hard to believe. Maybe he did know, but didn’t want to leave money on the table. Or worst of all, maybe he knew that all he had nothing to offer but begging, so he begged.

The fact is, and Wagoner is too smart not to know this, the end is inevitable. The Big 3 aren’t asking for a bridge loan, they asking for a stay of execution. It’s money in the money pit, folks. The reason the industry is in tatters is because the Big 3 have been able to afford to refuse the operational, technological and organizational changes necessary to produce a superior product. Wagoner knows this. He’s powerless to exact the sort of change necessary to revive the crumbling empire. The system is just too hard coded.

But he has an ace in the hole. Because the collapse of the American auto industry will trigger an economic wave unlike any we’ve felt since, okay a month ago, but before that, the 30’s. Mature on-shore industries such as chemicals, lubricants, paints and metals will suffer a tremendous dip, and many will downsize, restructure or collapse. For procurement teams charged with buying in these industries, the landscape will shift dramatically and at a tremendous pace.

Of course foreign manufacturers will be glad to purchase real estate for pennies on the dollar, labor for a fraction of its previous cost, and eventually fill manufacturing the gap. Still, business for the auto industry and its core suppliers will be forever changed. The change will be painful; for many, unbearable. That’s Waggoner’s trump card. How much more hurt are we willing to endure right now, when the banking industry in is shambles and the economy is rapidly contracting.

I thought that Nancy Pelosi’s request that the automakers return with a plan, before any money (if any money) is appropriated, was novel. It’s likely that two things will occur: the “plan” will be ridiculous, and the government will choose the GSB (Government Sponsored Bankruptcy) option that should have taken place in the 80’s. We can only hope anyway. The GSB option will lessen the immediate and crushing impact of a complete collapse while still requiring a measure of fiscal sanity that the foreign manufacturers would implement anyway.

The Sourcerer’s advice is simple, though. For those who live in procurement, you’d better pack your lunch. Start exploring alternative suppliers and alternative products now. Look to expand your approved supplier base in advance. Business as usual is gonna become unusual very soon.
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Next Level Puchasing Expands Offering

on Friday, November 21, 2008

As I mentioned last week, Next Level Puchasing has a few new announcements about their offering to the procurement training marketplace.

First, straight from their PR, a little more details on the Procurement Games I blogged about in my prior post....
"The "Million Dollar Savings Game" that we released on November 19, 2008 has already seen over 1000 purchasing professionals from around the world test their skill while trying to attain the maximum cost savings. While this game was released to the general purchasing public for free, we have also added a game to the midpoint of each of our ten full-length procurement courses. The course "14 Purchasing Best Practices" includes a game similar to "Jeopardy" and reviews material from the first four lessons. The student will have three categories to choose from: "Annual Buying Plans," "Supplier Performance," and "Qualifying Suppliers." Each category offers three questions with point values ranging from 100-300 and the student will have two and a half minutes to answer as many questions correctly as possible."

Secondly, and more important to the community, as you do not have to be a customer to find this information, Next Level Puchasing has launched its own channel on YouTube. This channel is the first YouTube channel devoted entirely to procurement and supply chain topics.

See it: The Puchasing Certification Channel
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Preparing Procurement for 2009

on Wednesday, November 19, 2008

“The only constant is change”

Greek Philosopher Diogenes Laertius (3rd Century AD) was the first to coin the phrase although he took the concept from Heraclitus’ Doctrine, penned a few hundred years earlier. Amazing how it stands true today.

As we turn the corner and head for the home stretch of 2008, it wise to start thinking of the dynamics to which we’ll be required to respond in 2009.
  1. Rapid re-integration and de-integration of foreign suppliers
    The recent and rapid descent of oil prices is no guarantee that overseas supply will remain competitive. Additionally, bank restrictions are leaving foreign suppliers unable to get foreign currency to pay for materials or freight. It’s important that organizations establish methods to or remain agile in moving from foreign to domestic suppliers and back again.
  2. Interruption in Supply
    Factors such as political instability, slow or negative economic growth and banking dynamics all mean that suppliers may slow or suspend production. It has never more important to be tuned in to your suppliers’ production plans than it will be 2009.
  3. Supplier failures
    Businesses are failing, which unfortunately will lead to more business failures. It’s sensible to ensure that every requirement has at least a short list of qualified and capable suppliers.
  4. Reduced overseas competition for goods
    Both the Euro zone and China are reporting recessions/slower growth. This means that some of the foreign competition for domestic goods will abate. That may lead to greater domestic supply and price advantages for market savvy buyers.
  5. Frequency/Acceptance of reverse auctions will increase
    Procurement staffs will be pressured to cut costs as deeply as ever, and reverse auctions are an effective, quick turn method. Businesses and markets that once turned away from reverse auctions will accept them as necessary to compete for sales.
  6. Business cases for major purchase decisions?
    The days of line-item, big ticket procurement may soon be a thing of the past. The Federal Office of Management and Budget is already requiring full business case presentations for major technology procurement. It only makes sense that the private sector businesses are embracing the same approach or will be soon to follow.
  7. Shorter product lifecycles = new sourcing cycles
    Sellers continue to upgrade to create competitive advantage, shrinking product lifecycles. This is most present in technology and electronics, but product life cycles are shrinking everywhere. The result, we must re-examine the depth, breadth and frequency of sourcing cycles to optimize value for the dollar.
  8. Increased procurement outsourcing
    The need to execute more robust and more frequent sourcing events will continue to drive (already thin) procurement teams to take on outsourced tools and manpower simply to remain current with day to day work.
  9. Give a hoot, save a buck
    New Recycling programs present opportunities to recover costs. Wal-Mart (Canada) has already partnered with Grace (Canada) to recover and recycle Styrofoam. To that same end, Poly-Pak (US) is embarking on a Grocery Bag recovery program.
  10. Procurement staffing will continue to decrease.
    Simplyhired.com reports that procurement jobs have decreased by 8% since May 2007. With more business contraction yet to come, there has never been a better time for those left standing
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Argh Matey: Blu-Ray Pirates

on Tuesday, November 18, 2008

Since February, when the hacker Arnezami posted the code to crack the primary security DRM at the heart of every Blu-Ray and HD-DVD, the industry has been scrambling to “safeguard” their copyrighted materials from HD pirating. Despite, watermarks, the additional BD+ encryption system, and the randomization of Volume ID’s, the ever-expanding Asian-Pacific pirating ring has been producing knock-off HD discs.

These pirates have been cracking HD encryption codes, ripping new discs, and re-encoding them with a new format. While these HD rip-offs can actually be burned to regular DVD discs, and do not exhibit quite the same quality as true Blu-Ray and HD-DVD discs, the pirates are dressing them up well enough to full the average consumer.

According to the International Motion Picture Association, the pirated discs, which are encoded in AVCHD format, are the first of their kind to be seized. In my opinion, this should not come as any surprise to the film industry. From floppy discs, to cassette tapes, to VHS, to CD’s, to DVD’s, the pirates have always found a way.

It doesn’t seem as if there will ever be an unbreakable code that can be used for a commercial, mass-distributed form of saved information. The entertainment companies will always have their teams of programmers, but they will always be trumped by the vast network of hackers and pirates who both intentionally and unintentionally collaborate to tare down the walls.

While these failed security measures and the prosecution of the pirates responsible should certainly remain a focal point of industry executives, companies could also learn a lesson or two from operations like Apple’s iTunes. In this way they could begin to develop a network of systems, products, services, and accessories that can be paired and packaged together to create a kind of value that can’t be cracked.

Source Articles:
MPA-I
Wired Blog
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Pre-Negotiated Contracts, Discounts, and Supplier Agreements

on Monday, November 17, 2008

Source One recently announced the launch of MasterNegotiator.com. Master Negotiator is a new Supplier-Cooperative Website. The site is a resource and tool for procurement professionals and business managers that are looking to find quick and easy savings opportunities in some of the most common spend areas.

For instance, Master Negotiator currently lists deals such as:


  • A Guaranteed 10% discount from local carrier's current line rates for local and long distance service,

  • Heavily reduced Merchant Account Rates (credit card payment processing), with no minimum commitments,

  • Free month(s) of service with Qwest, one of the leading providers of T-1 and Data Circuits,

  • Discounts of 60-80% off of published rates for most trucking companies (freight).

The site has a few more deals up already and promises to deliver deals in new categories soon, such as Uniforms and Office Supplies.

The site is a supplier funded cooperative and was created in response to increasing demand from small businesses and self-service strategic sourcing groups that were looking for direct contracts with suppliers and quick ways to reduce their company's expenses without hiring consultants or engaging in lengthy strategic sourcing initiatives.

Learn more and read the Master Negotiator press release.

Visit MasterNegotiator.com and find a deal for your organization.

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Strategic Sourceror Welcomes Next Level Purchasing.

on Friday, November 14, 2008

The Strategic Sourceror is proud to welcome a new sponsor to our site, Next Level Purchasing.

For those of you that do not know, Next Level Purchasing is the provider of the Senior Professional in Supply Management Certification (SPSM Certification). Founded by Charles Dominick in 2000, but with roots dating back to the 90s, Next Level Purchasing has quickly made its positive mark on the industry and is widely considered one of the top certification bodies in the field of supply chain and spend management.

The SPSM Certification was founded around the principals that recruiting true "top talent" in procurement and supply chain was a very daunting task. The few certifications that were available were typically driven by "national" associations and it was difficult for an employer to weed through the thousands of similar resumes that all included some sort of national certificate. Employers needed a way to truly identify the best-in-class employees that had actual skills that they could bring to an organization, not just generic training on procurement, project management or supply chain processes.

So, what makes Next Level Purchasing unique?
  • First, the SPSM Certification was the first globally recognized certification in the purchasing community. In fact, over the past few years, the certification has now reached clients in over 90 countries, in businesses big and small.
  • Next Level Purchasing updates their materials with much greater frequency than most other training or certification courses. In fact, this year alone has seen a 15% increase in new content, without a raise in costs. After all, good purchasing professionals are always looking for more value for their dollar, so Next Level Purchasing delivers.
  • They provide a commitment to creative tools and techniques to make learning more effective, and more enjoyable. You can have fun while being trained, and Next Level Purchasing proves it with "mid-term games" that simulate popular game shows to the tune of purchasing lessons.

What else you should know:

  • Next Level Purchasing is more than just a source for training and certification. Charles Dominick also runs one of the most successful and widely read purchasing blogs out there: Purchasing Certification Blog
  • Mr. Dominick, his team, and students also run their own SPSM group on LinkedIn.
  • Next Level Purchasing takes a page from Source One's book and develops free content and tools for procurement professionals. Recently, they launched PurchSearch that is a Google-based search engine that limits results to relevant, approved and recognized purchasing and spend management publications.
  • And, there is more to come. Stay tuned for a new announcement from Next Level Purchasing in the next few weeks.

Please join me in offering a warm welcome to Next Level Purchasing.

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Outsourcing Web Content Development – Be Careful of Plagiarism

on Wednesday, November 12, 2008

As someone that takes pride in their web and marketing content development, one of the most aggravating things that you may (will) encounter is plagiarism. Unfortunately it is a fact of life, especially with information and content so prime for the picking on the web.

After recently dealing with a company that literally completely replicated my corporate website, with the only changes being a “find-replace” of the company name and the overall layout, I decided I would put a quick tips/rant blog post here about it.

Why Website and Marketing Plagiarism Matters

From the Victim’s Standpoint

  • Most of the corporate web has been developed by hard working individuals and companies that have spent countless hours and money to develop marketing messages and original creative content. Any time you see your content, thoughts or ideas stolen and labeled as someone else’s it strikes a blow to morale and stifles future create thoughts and concepts.
  • Your image or your company’s brand is hurt. Your product/service no longer is unique, and you could potentially lose business directly to a competitor that will make profit off of your hard work.
  • Search Engines (Yahoo, Google, MSN) penalize YOUR SITE when they find other sites that have duplicate or similar content. This means, that your hard work and financial investment in getting top-ranked search results could all go away. Search engines are not yet sophisticated enough to determine who the content actually belongs to, or who had it first.

From the theif’s standpoint or a company that hired a thief

  • Ethics - The most intangible but important thing to remember is stealing copryighted work unethical. Not only is it unethical, it is illegal, someone that duplicates content from another site is a thief. They will cause the victim to reevaluate their commitments to delivering new and create content and will overall stifle the progress of electronic message delivery.
  • Money – Copyright infringement can cause you monetary damages. First off, in extreme cases, you can get sued for stealing content. Their have been many lawsuits that have been successful in prosecuting copyright infringement. On an equally important note, there are ways for victims to actually obtain your domain name/website legally, by filing with ICANN if you infrindged on their brand name or trademark. In most cases however, your site will simply be removed from search engines and hosting companies, meaning you spent money for a product/service that you can no longer market.
  • Lost Time – Even if you did not spend much time on the creation of your own website or content, you did dedicate at least a little time. Although cutting and pasting content is quick and easy, if a victim finds that content and has your content removed, you wasted all of your time and effort.
  • Lost Image – Leading companies actively search for copyright infringement and intellectual property theft. Even if you are compliant with their requests (and you were unaware that your outsourced provider stole the content) your company's brand and corporate image is still tarnished.

Hiring an Outsourced Web Development Company

First off, be very careful of offshore web development companies (particularly in Asia). Not that all of them are bad, but 9 out of the last 10 sites that I found that have plagiarized my content were either hosted in India/China or were “developed” by “companies” in those countries. Sure, you may save a few bucks, but when someone like me comes after you for theft of content, you will spend much more money recreating your site and redeveloping your content and could potentially lose your site altogether.

Secondly, when engaging a prospective web development company, treat it as any other supplier that you would hire. First, run a background check, how long have they been in business, what are their revenues, who are their customers, and the big red-flag, how many company names do they operate under. This may take some creative web searching, like finding their address or phone number and then searching the web for that same address and/or phone number. When a company has 2, 3, or 4 names that it operates under, and/or their email addresses are free services such as yahoo or hotmail, you should almost definitely look somewhere else. If a company cannot afford its own domain and email address, or has too many to count, something is wrong.

Third, review their work….carefully. Ask for examples of other live websites that they have done, not examples that they email you as a document, image or pdf. Then contact those companies, find out if they really did do the work for them. It is very easy for a company to take credit for a website that they did not even create, so reach out to their customers and do a reference check. Use search engines to copy random sentences from their example sites and see what other similar hits are out there. Also, use the tools I detail next…

One of my favorite tools, that is free to use, is http://www.copyscape.com/. CopyScape allows you to enter a full url to any page on the web and it will return other pages that it feels are duplicated content. When a prospective web developer gives you examples of their work, go to those sites, copy urls to various sub-pages and run them through CopyScape. Keep in mind that CopyScape only returns results for the single page that you queried, not the entire site, so you will want to manually test multiple pages for each site. If CopyScape is returning results of other sites with identical content, you must research it in much greater detail. Just having duplicate content by itself does not necessarily mean that the developer stole the work, they might have been a victim of plagiarism themselves. So use Whois searches and the Internet Archive to find out who had the content first.

Lastly, be realistic. If you engage a web development company (or any marketing company) to create original pieces of content and work for you and the price is too cheap, or the quality is over-the-top, dig in a little deeper.

Let’s be real, most of us are barely able to pitch a high-level message about our organizations in a one-hour sales call. But, the web developer has a few emails back and forth with you and a one-hour call and a few days later they produce a 10-15 page website that has your message clearly communicated in detail that you did not provide them. Something is wrong, and the content is almost definitely stolen. Take the draft site that they produced for you and run it through the tools mentioned above to see if it is original work or stolen from your competitors.

As a plug to my company, Source One, hiring a good Procurement Services Provider can help you navigate all of the above points and tips in hiring a web development or marketing firm.

Finding Website Plagiarism:

  1. One of the best tools that I have found for identifying website plagiarism is http://www.copyscape.com/. I detailed the tool a bit above (under Hiring and Outsourced Web Development Company. But simply put, the tool allows you to quickly identify (on a page-by-page basis) duplicate content on the web. Cut and past individual page urls from your site into the tool and it will return other sites that it believes are serving duplicate or similar content.
  2. Do search engine searches. Good old fashioned Google and Yahoo searches work best. Copy entire random sentences from your website and paste them into the search engine. See what comes back and go look at it.

Responding to Website Plagiarism:

  1. Know your rights: Read the Digital Millennium Copyright Act of 1998 (DMCA)
  2. Learn about the Internet Corporation for Assigning Names and Numbers (ICANN), in extreme cases, ICANN can help you revoke a website that infringes on your brand name or trademarks. These guys literally run the web. They control and have ultimate authority on domain names and public ip addresses.
  3. File DMCA Complaints Immediately. Do this before you take any other steps. As soon as you find duplicate content or stolen content from your site, immediately file complaints with the leading search engines. Although the search engine companies may take a long time to respond (if at all) they have the ability to remove the offending sites from their search engine results. (Google DMCA Complaint, Example DMCA Complaint Letter, List of Multiple DMCA Complaint Addresses)
  4. Go after the hosting company (the provider that actually hosts the website). Use a Whois tool to identify where the website is hosted and contact the host (typically an abuse@xxxxxx.com email address). Typically, most companies use a third-party to host their website rather than hosting it themselves. Hosting companies are usually the quickest to respond to complaints because they do not want to be responsible for monetary damages in a lawsuit.
  5. Lastly, contact the company itself. I say do this last, because in many cases they already know they stole the content, and in many cases they will not respond anyhow.

Prevention of Website Plagiarism
Unfortunately, we will never be able to completely stop website and marketing plagiarism. However, you can at least clearly notify people visiting your site that it will not be tolerated. CopyScape recommends the four steps below to help prevent theft of your content:

  1. Put a Plagiarism warning banner on every page on your website
  2. Include Copyright Notices on every page of your site (©)
  3. Use a service such as Copysentry to detect plagiarism as it is happening (this isn’t really prevention, but at least allows you to react quickly)
  4. Address plagiarism immediately. Unethical developers that are stealing your content are unlikely to steal it again if everything they copy gets shut down right away. If they get away with it once, they will do it again and again.
I hope this rant/article was of some use to you. Please drop a comment if you have any other tips or you feel I missed something.
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Ethics of Re-negotiation

on Tuesday, November 11, 2008

Justin Fogarty addressed an excellent question in his October 30 post on supplyexcellence.com. Fogarty addressed the oft raised question of the ethic of renegotiation, specifically during a recession.

While Fogarty raised the question of the ethics of re-negotiation, I left the piece feeling like he hadn’t addressed the ethics issue as much as provide a few options (collaboration, payment terms) to opening up discussions. Options are good, but let’s consider the real controversy.

Ethics, in the most basic terms, are a set of codes or practices geared toward socially responsible behavior. So the key question should be; what is the effect of re-opening negotiations on all of those involved?

Too often, the ethics card is pulled by procurement pros who use it as a device to avoid uncomfortable negotiations. It’s amazing how purchasing teams manage to live in a vacuum when their suppliers rarely raise the ethical question in determining to pass along necessary price increases.

It’s important not to take an adversarial approach to working with suppliers, and the Sourcerer never encourages antagonistic negotiations. Yet it’s equally important to understand the key ethical component at play. Timing is not the issue, businesses are faced with tough choices in good times and bad. Survival should not be the issue, implementing survival measures usually means you took action too late. There should only be one consideration in re-opening contract negotiations.

Procurement teams must ask themselves; are we being responsible business persons by going back to the table? Are we acting in good faith? Short of an agreement to the contrary, it’s difficult to imagine a reason that precludes the right to revisit a contract. While there are potentially negative consequences to the supplier side, we need to remember that a financially healthy client is in every supplier’s best interest. It’s also important to remember the ethics of responsibility to one’s own employer and co-workers weighed against the impact of negotiations on the supplier.

Re-negotiation is sometimes an easy choice and sometimes difficult, but it should be examined as an act of maximum utility. The best business decisions ultimately equate to the best scenario overall. With that Mantra in mind, we protect the interests of shareholders and stakeholders as well as the common good.

Given the current economic climate; are you renegotiating with your suppliers before the end of the contract term?
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Reasonable Reactions

on Monday, November 10, 2008

In parts 1 and 2 of this blog series, I touched upon the challenges that many Purchasing Managers are currently facing in this dynamic environment. In order to react quickly to the frequent changes, many Purchasing Managers are inclined to respond as they often do.

The RF“X” process is used often to drive competition when the need for cost control or cost improvement arises. This process is a very valuable tool, but may become a great burden as well. This standard response could ultimately discourage suppliers from participating in the process if they are being asked to deliver a great deal of non-essential information and statistics. The biggest problem with the RF“X” process is an over-reliance on its results. It is very likely that suppliers will agree to additional concessions if they are engaged in a collaborative process.

Another reaction of some buyers is to agree to price increases with their incumbent suppliers. Buyers want to ensure that they will receive an ample supply of goods for their organization so as not to interrupt production. This type of decision is generally predicted upon a buyer’s assumption that they already know all of the available sources of supply and that they have good market visibility.

Another safe and commonly used tactic in an unstable economy is relying too much on purchasing technology tools and processes. Usually technology will only automate the inherent problems with the existing processes and will worsen results. Before investing in new technology, existing processes and tools should undergo a thorough analysis to identify opportunities for improvement.

Some Purchasing Managers who are concerned about the challenging business conditions may also take great pains to document to their senior management what the forces are that are driving less than optimum results.

In this series’ final installment, I will discuss how buyers can level the playing field with suppliers as they face a growing “buyer-side” deficit of information. Creative solutions using other available resources besides the lemon may exist. Stay tuned for ways to reach these creative solutions.
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Shifting into Global Gear

on Tuesday, November 4, 2008

In part one of this series, I discussed certain challenges that many Procurement Professionals are currently facing. However, I did not touch upon what may be the most difficult aspect of the Purchasing world – the global marketplace.

The global marketplace and its increasing complexity have made Procurement more reliant on an escalating base of knowledge. With less time and resources to carry out their responsibilities, many Purchasing Managers are also expected to absorb new information about products and marketplaces. Sales teams are generally much better trained in their products and marketplaces than the Purchasing Managers they are selling to. After all, these sales teams are focused on a single product and single market while Purchasing Professionals need to concentrate on several products and several markets.

Another burden leading to more decisions and headaches for Purchasing Managers is the number of purchasing options available today. Many additional considerations must be taken into account. Examples include green packaging, minority suppliers, low-cost countries and rapidly shifting technologies.

As was discussed by the doctor in the blog post “Spend Matters on SCM: If The Prophet is Right ...,” it is essential to not just select the supplier who offers the lowest price available. Some suppliers are merely concerned with the rate at which they produce goods and the amount of orders they take in and nothing else. Sometimes, a slightly higher price right around the corner will benefit your company in the long run more than a lower price overseas will. This usually rings true with most goods. However, in order to fill a large order, only certain suppliers have the capacity to do so and choosing a supplier overseas may be the only option. Also, some companies who outsource their operations have considered moving production closer to end markets. Global energy rates and some raw materials pricing have fluctuated recently and must be monitored very closely.

Purchasing Managers, depending on where their suppliers are located, may be expected to interact with those located in different countries and different time zones, communicating in different languages and possessing very different cultures. The relationship between a buyer and a supplier is likely to suffer if a supplier’s country’s culture is overlooked and vice versa.

Purchasing Departments are also being asked to provide supervision in spending areas previously outside their purview. Some of the responsibilities that were once delegated to IT, marketing, HR, and finance departments are now burdens on Purchasing.

When under attack by this kind of dynamic environment and accelerating expectations from within our own organizations, it is understandable that many Purchasing Professionals default to traditional defensive tactics. This series will continue with the discussion of these reasonable reactions.
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F and V, for Better Performance

on Monday, November 3, 2008

The US economy shrunk by .3% in the last quarter. Should another negative quarter follow, the government will have to declare what has been obvious to all but the eternal optimists; the US is in a recession. This most recent, long economic downturn calls the relevance of the “shrinking GDP” recession metric into question. The government tinkers with metrics for unemployment inflation and the S&P to obfuscate or forestall bad economic news, so one has to wonder why the GDP metric stands firm. Or maybe one need not wonder at all. The historical nature of the GDP metric ensures that the bad news gets a 180-day delay. That’s one heck of cushion for telling the truth. The moral to the story is “if you don’t like the answers, just change the questions, or at least put them off for a long time”.

But as they say, every cloud has a silver lining. The economic downturn is shining brightly on purchasers of fossil fuel/petroleum and petroleum based products. Those products, as we have mentioned in the past, have a deep and wide reach across price points from the most strategic to completely tactical buys. The shrinking economy will, as the law of supply and demand dictates, drive prices for goods and services down overall. It’s not unthinkable that procurement teams will gather the benefits of these shifts and market them internally as cost savings. But just like the delayed recession story, the cost savings story isn’t the most accurate report. It is important then, that procurement staffs and executive teams dig a little deeper into evaluating the hard dollar results of cost containment/savings efforts. Taking credit for cost savings that occur by incident is precisely as fair as being blamed for cost increases that arise by incident.

Rather than rate procurement performance respective of market shifts, it’s wise to live by the mantra that “only that which can be measured can be improved”. Accurately measuring procurement performance hinges the application of developing market indices and pricing formulas rather than accepting arguments against developing dependable baselines for commodity driven prices on finished goods.

It’s easy to become bogged down in the mindset that procurement’s pricing performance on commodity driven items cannot be measured in light of market fluctuations. But consider the sensibility of that notion from the producer’s side. For instance, take one of the most widely purchased items today, the corrugated box. Corrugated box prices are directly affected, lost often, by market price movements for 42 lb Kraft linerboard. Because linerboard prices are variable, how then does the box manufacturer set the pricing that will ensure profitability? In the most basic terms, the box manufacturer’s performance (profitability) hinges on its ability to accurately measure costs that are predictable or “fixed”.

It stands to reason then, that for procurement, the same rules apply. The fixed and variable cost equation is as fundamental a concept as exists in business (as president Bush would say, “It’s not rocket surgery”). Still procurement teams are loath to employ this methodology in measuring performance because the “code” that teams must crack often requires (insider) industry specific information and can be specific down to the site level. Still, even if the specific inputs vary, the formulas contain the same basic components and a probably just a handful of industry assumptions. Whether one is determining something as basic as the variable cost/ board foot cost for a simple RSC container, versus the fixed cost and thru put economies for that same box, or the volume of natural gas required to cook a gallon of ethylene glycol, side by side with the plant economics, the information exists. It exists and is as dependable a metric for procurement performance as it is for manufacturer profitability.

So for those who haven’t embraced the metric mindset for commodity driven purchase prices, the “make love not war” ethic we see in economic downturns represents a great opportunity to pick your suppliers brains and call them on that “partnership” they’ve been espousing. Their help in cracking the code can go a long way in accurately measuring and optimize procurement performance.

Do you have a commodity price driven purchase for which you need to construct a dependable baseline? Source One can help you. Please contact us for an in depth review.
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