February 2014
The fixing/overhaul of Healthcare.gov is a much better story than the botched launch. For one, the details of the website's botched launch have been beaten into the ground, and the lessons for the most part learned (like, vet your bidders on their ability to do the stated work, not win bids). But a really great Time article goes into how the website was saved, and the lessons are great - especially those concerning project management and how management gets in the way of a solid workflow.

The article is 14 pages long, and conceals some key lessons in its many deep dives. So here's a distillation of how a flat management structure helped overcome problems brought about, in part, by a vertical one, and the benefits/concerns.

Focus on G.S.D.

G.S.D. means "Getting Stuff Done" or, if your office is a little more open, "Get S*** Done". In developing fixes for Healthcare.gov, the assembled team of specialists eschewed establish management structure and worked directly with the engineers of the firms responsible for the abomination that was the original Healthcare.gov site. Their reasoning? "If you can get the managers out of the way, the engineers will want to solve things."

The bosses and managers were turf conscious, more concerned with credit and accomplishments. When initial meetings were held after the site faltered at launch, management of the two firms bickered, shifted blame, ducked responsibility, and were more concerned with their professional reputations than the fact that their product was suffering and rapidly declining in the public eye. The engineers, on the other hand, were embarrassed and wanted to fix the problems.

By working directly with the engineers, the team of specialists avoided getting caught up in blame cycles and guarded turf. They could get stuff done.

Collaboration Is Key

The collected specialists first task was to decide whether the existing site could be saved, or if it had to be scrapped and a new one built. When going in to meet with the contractors responsible for the site's launch, and who would be working on the repairs or rebuild, the specialists looked for a willingness to cooperate and collaborate. In describing the scrap/save determination, Mike Abbott, one of the specialists and the man responsible for rescuing Twitter from frequent downtime in 2010, said "The first red flag you look for is whether there is a willingness by the people there to have outside help." Had there not been support, it would have been easier to build a new site as if the existing contractor was not cooperating. But instead, they found support and cooperation. 

Open Up Communication

The teams were spread across several facilities, but communication was open and fluid. Each site had a "war room" with speakerphone on 24/7. It was an open phone line, a continuous conference call, and allowed the teams to speak easily and frequently, spurring the collaboration that was necessary to troubleshoot and problem solve. 

Additionally, the project was focused and operated flat, meaning solutions were put together by who had the skills and/or information, not the title. 

Meetings were minimal, and were "stand-ups". Stand-ups eschew the traditional sit-down-in-a-board-room meeting structure where the meeting leaders take in information then spew solutions. Instead, stand-ups (as the name suggests) involve meetings in open spaces where participants stand. Everyone reports any known issues, the group collaborates on solutions and delegation, the meeting breaks, and reconvenes in the evening. 

In short, the project management takeaways can be summarized in a list of three rules developed by Google Engineer/Healthcare.gov Specialist Team Member and posted in each war room:

  1. The war room and the meetings are for solving problems. There are plenty of other venues where people devote their creative energies to shifting blame.
  2. The ones who should be doing the talking are the people who know the most about an issue, not the ones with the highest rank. If anyone finds themselves sitting passively while managers and executives talk over them with less accurate information, we have gone off the rails, and I would like to know about it.
  3. We need to stay focused on the most urgent issues, like things that will hurt us in the next 24-48 hours.
Shortened and generalized for every day, and not rescue/emergency situations, the list would read:

  1. The focus is to solve problems and achieve goals, not determine responsibility and shift blame.
  2. Solutions should come from those with the information and skills, not rank.
  3. Set priorities by impact, and move forward on them.
Could your organization work under these rules? Would you?
How can firms measure strategic sourcing ROI?

Implementing changes in the procurement process is a major undertaking for any company. Often, long-term cost reductions become possible only after upfront investments are made. These expenditures might include new technologies such as procurement software that can help streamline the firm's sourcing practices, or the enterprise may devote time and capital to realigning its supplier relationships for a better fit.

As such, before new procurement strategies are put in place, businesses must clearly articulate the return on investment they expect to see from these changes. While it's critical to bear in mind the company's broad, long-term goals - and in many ways, these remain the most important factors to consider - firms must also take a more granular approach, analyzing cost-benefit in order to evaluate whether new sourcing practices are working or if they need to be adjusted.

Crunching numbers

Moving toward high-level strategic aims - increasingly sustainability or speeding up operations, for example - is a step-by-step process, and the key benchmarks along the way are often things that need to be measured: cost reduction, ability to get products to market faster, reduced supplier-related disruptions. In a column for the Journal of Commerce, government procurement expert Stephen Bauld discussed how public sector organizations can adopt measurement systems that help increase vendor accountability. For instance, agencies can calculate the actual costs of the goods and services they are procuring in order to ensure that supplier-provided bid prices are fair.

"It is also beneficial to have in place a systematic approach towards rating the capability and performance of contractors and suppliers," wrote Bauld.

Rethinking value 

The principles that Bauld outlined can be applied across sectors. The core of his message is that strategic sourcing must produce real, measurable value. Even if the most important cost reductions will be taking place in the future, it's important to keep track of ROI so that firms can tell whether or not their procurement initiatives are heading in the right direction.

However, in a recent post for GreenBiz, business sustainability strategist Helen Clarkson questioned the methods by which companies make these determinations, especially in an increasingly eco-minded corporate landscape. She criticized the notion of net present value.

"Sustainability is about meeting the needs of both current and future generations, whereas NPV says that the time value of money means that the cost or benefit in the far future (beyond about five years) isn't worth much to decision-makers today," wrote Clarkson.

Procurement management must add value to the business - but firms have to avoid narrow-minded ways of calculating ROI.

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Wide Area Network services such as Frame Relay, MPLS, and Internet connectivity are fairly fundamental commodities at their most basic level. If you’re in procurement, and you are not familiar with these types of services, here’s what you need to know: 1) WAN connections are the data connections allowing site-to-site data sharing, 2) fundamentally, WAN services are pretty straightforward and consistent across carriers 3) Even so, there are still opportunities to secure excellent pricing and terms & conditions, as well as lay the groundwork for tech adoption. It's easy to overlook three simple ways to do more in the marketplace than simply maintain connectivity between sites and the outside world.

1. A network RFP should not only include network services. Every major player in the network space has a complementary portfolio of services including TDM voice (local, long distance), SIP, conferencing, and PBX, routing, and other equipment. By taking the time to review and include your other services, you are able to leverage more volume, and accomplish more with minimal additional effort when soliciting proposals. In other words, you can get better pricing and discounts on both your voice, data, and other services vs. data alone simply by creating a comprehensive RFP. Not all your services need to end up with a single supplier, but harmonizing the supply bases and services purchased will ultimately save money and make management much simpler.

2. Involve other departments in your go-to-market approach. For the reasons above, it's necessary to align the networking team with the voice services and information technology groups if they are not already one in the same. This way, it's possible to get the visibility needed, and make the best decisions about how to present the opportunity to bidders. For example, if voice services would like to adopt SIP in the next 3 years, and IT would like to do a router refresh, all three parties will need to collaborate to identify the requirements for network, SIP, and equipment.

3. With the team fully engaged and maximizing the opportunity for the supply base, it's also important to not only nail down today's requirements, but the plan for the next several years. Again, IT may be thinking about moving the data center -that could have huge implications to cost and timing for a new network rollout. Once the voice group rolls out SIP, bandwidth to many facilities may need to increase, which could warrant a provisioning of Ethernet vs. T1-based services. Gaining alignment for the "day 1" network as well as for a few years down the road will not only help you to ensure you use your total spend volume to leverage pricing and discounts for services you're buying today, but also will make it easier for you to rollout services you may want to roll out in the short term or long term future.

While WAN services may seem like low hanging fruit in terms of cost reduction, a great deal of opportunity can be easily overlooked. It's always worth taking a step back and making sure you are maximizing your leverage in the marketplace, planning for tomorrow and the long-term, and getting the decision makers and end users involved who will ultimately have to own or deal with the results of your sourcing initiative.
Top 3 considerations for supplier management

In the contemporary business landscape, maintaining good relationships with suppliers is both more important and more difficult than ever before. Global sourcing has become widespread, and companies may be aligned with vendors whose practices they know very little about. This presents problems in terms of both supplier selection and the ongoing effort to optimize the procurement process for enhanced profits and operational leanness.

As companies work to ensure that the suppliers they've chosen are the right ones, they'll have to be sure they stick to best practices in order to avoid going off track. What are three of the basic considerations that procurement executives must make when managing vendors?

1. Cost reduction

A key supplier management principle to bear in mind is that "maintaining good relationships" doesn't simply mean keeping everyone happy. While it's true that a displeased supplier could make a business's life more difficult, ultimately, whether or not a procurement relationship is working is based on its cost-effectiveness. If the company can't financially support its decision to source certain goods from a given vendor, that partnership won't be viable in the long term.

In a post for Spend Matters, Hani Alexander of consulting firm Alvarez & Marsal pointed out that while procurement partnerships are often based on forecasted or negotiated savings, executives often fail to ensure that these cost reductions are realized. He recommended that firms use quantifiable criteria, including contract compliance, to determine whether or not these relationships are working.

2. Risk management

Every business partnership is accompanied by a certain level of risk, and minimizing risk is an integral part of procurement management. In a column for CFO, supply chain experts John Bugalla and Kristina Narvaez noted that cutting-edge technologies are helping companies evaluate supplier-related risks more effectively.

"Given the complexity of managing third-party risks across different business units, many companies are turning to predictive analytics to gain a better and more comprehensive view of long, complex supply chain and distribution networks," Bugalla and Narvaez wrote.

3. Strategic alignment

Lastly, it's important to bear in mind how hard-data considerations - how much a given supplier is saving the company in operating costs, how much risk a vendor presents to the business - relate to deeper strategic issues. Does sourcing goods from a given partner reflect positively or negatively on the company? Does the vendor share core values such as sustainability and social responsibility?

Short-term, immediate cost reductions are alluring - but a misaligned partnership can result in long-term issues that turn an apparently inexpensive supplier into a drain on funds.

With the growing need for organizations to cut costs, those not adopting strategic procurement practices and/or looking more deeply into their spend will find themselves at a disadvantage. The actual "how to" for those organizations wishing to implement procurement strategies in previously off-limits categories, however, are not always so clear. In an effort to help, here are five steps to finding savings in one such formerly off-limits category: IT

Step 1: Go and Be Green

Going green is about eliminating waste and reducing energy consumption. Cost savings can be achieved through consolidation, virtualization and equipment upgrades, which will require less IT resources and hopefully reduce the electricity needed to maintain them. Going green can also simply mean turning off lights when it's not in use or turning the thermostat a few degrees up or down to accommodate the temperature when it's not in use.

Step 2: Upgrade

As technology improves across generations, products typically become more efficient and easier to maintain (look at the efficiency gains from CPU processors across generations). Outdated technology and equipment require more energy and upkeep, making it more costly. To piggy back off of the previous step, motion sensor lights and hi-tech thermostats can be implemented to reduce wasted electricity from lights being on but unused, and from inefficient climate control settings. The new technology is more energy efficient and requires little to minimal set up time. A final example of savings through updating technology is more specific than the previous two: printing.  Printing technology continues to improve vastly across generations, and typical black & white copies now cost at least two cents less than they did just a generation or two ago. Keeping equipment and IT infrastructure up to date increases productivity, reduces down time, and cuts costs.

Step 3: Outsource Strategic Tasks

There are companies that can manage IT operations, provide the latest applications, and offer 24/7 support, all at similar quality levels as your in-house resources but at a lower cost. Managed services can consolidate your IT infrastructure and reduce your organization's overall investment, allowing existing in-house resources to focus on those services and issues critical to your organization.

Step 4: Implement a Disaster Recovery Plan

Data breaches and disasters are common occurrences, and it's costly for organizations to deal with the aftermath from lawsuits, loss of customers, and/or damage to their data and IT infrastructure. Data breaches and disaster can affect any business regardless of their size. According to Barbara Goldberg, owner of Back On Track Solutions, more than 25% of small business that close after a disaster will not reopen. Rest assured, affordable disaster recovery solutions are available and it can save your organization when you least expect it.

Step 5: Train Employees

As simple as it may sound, well trained employees get more done and in less time. Employees will not reach their full potential and achieve higher levels of productivity if they are not well trained. Training employees impacts organizational competitiveness, revenue, and affects performance.
Many years ago, I was fortunate enough to have been selected by my employer to participate in a fairly new, very rigorous process improvement program called Six Sigma. Six Sigma was created by Motorola in the 80s, but was popularized in the 90s by GE. I worked for a Fortune 500 at the time; and it seemed all big corporations were trying to follow in Jack Welch’s footsteps after he made the program famous.

Wikipedia says "Six Sigma seeks to improve the quality of process outputs by identifying and removing the causes of defects (errors) and minimizing variability in manufacturing and business processes. It uses a set of quality management methods, including statistical methods, and creates a special infrastructure of people within the organization who are experts in the methods. Each Six Sigma project carried out within an organization follows a defined sequence of steps and has quantified value targets, for example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction, and increase profits."

In reality, a Six Sigma black belt program consists of a combination of intense classroom training combined with real-world projects in which substantial measurable business process improvements must be obtained prior to earning your certification. The classroom training is extremely heavy on statistics, total cost modeling, and learning how to replicate and predict results through procedure. However, by far, the absolute most important thing I got out of the program wasn't learning statistics or how to use Minitab software. No, the most important thing I learned was Change Management. In fact, change management is probably the single most important aspect of implementing a successful Six Sigma program even though in most definitions you don't even see it mentioned.

So why is a Six Sigma initiative's success so dependent on change management?

Because: "We tried it before and it didn't work."

Yes, those dreaded words that we've all heard before and many of us are guilty of using ourselves. I can't tell you how many times I've tried to start a new program, implement a new supplier, adopt a new technology, or change a business process and have been hit with the deal killer “We tried it before and it didn't work”. For many people, especially the less sophisticated workers, that statement becomes the de facto statement for keeping with the status quo. Don't like change, or don't want to do any extra work? Simple, blame the last failure and avoid trying anything different than what we are doing today.

The other day, I was wearing my salesman hat and presented to an IT sourcing manager about the benefits of my firm's telecommunications sourcing solution.  She was very excited about our capabilities and loved what she heard about the market intelligence we would bring to the table, the results we typically obtain for our clients, and the support she would receive in migrating their WAN to a new carrier. But then we talked about budget. It became clear that a typical fixed fee or consulting rate was not aligned with her budgetary restrictions. When I discussed our alternative, our contingency model that funds us through savings, I was hit with the dreaded “We tried it before and it didn’t work”. She didn’t even want to talk it through, her reasoning is that they had a terrible experience with a provider working on contingency in the past and that it was not a good fit for her business, her words “we got burned”. Conversation closed, she liked us, wanted our services, but did not have a budget for a consultant and did not want to explore a contingency model because it didn’t work for her once in the past.

Now, as I see it, there are 4 main reasons any initiative can fail:

  1. The supplier (or product/service) does not perform properly 
  2. You (your company) does not perform properly 
  3. The relationship and expectations between you and your suppliers are not managed properly

    And in extremely unlikely situations;
  4. The overall premise for the initiative was flawed and was destined to fail despite the best people, suppliers and efforts in the world.

It’s certainly easiest to take the path of least resistance and blame the supplier (situation 1) when your initiative goes awry. Situation 4, is an incredibly rare circumstance in which all of your assumptions about a product, service, process, technology, solution or supplier were wrong and cannot be resolved through adapting or replacing your attempted solution. But, the reality is, most projects or initiates fail because of one of the first three issues. But, that’s a good thing, because it means that with adjustment you can likely make your initiative successful.

  • If the product fails, find out why. Can the supplier correct it? Is it the right spec? Did something happen in shipping or transportation that caused damage? Can someone else make one that works better? 
  • If the service fails, figure out why. Did you set your SLAs properly? Did you write a contract that committed the supplier properly to those SLAs? Did the supplier staff your initiative properly? Did you flat out choose the wrong supplier? 
  • Did your team drop the ball? Did your team have maverick buyers or rogue employees? Did you not give the supplier what they needed to be successful? Where the assumptions you made incorrect, or did you rely on bad data? Could you implement better internal controls and procedures to make sure next time you are successful? 
  • Does your supplier actually know what is expected of them? Is it documented? ...in writing? Are you treating the supplier as a disposable commodity, or a business partner?

As companies are continuing to feel the pressure to be lean, both end-users and procurement professionals are being tasked with finding new, alternative ways to reduce costs. However, in many cases they rely on the “We tried it before and it didn’t work” solution and seek out the status quo. My previous example of the sourcing manager who “got burned” by a contingency provider in the past is a perfect example of seeking out the status quo.

Think of this analogy. You need a car to get to work. You buy a car from a non-reputable used car dealer based on some poor assumptions. That car turns out to be a lemon, and breaks down the week after you buy it. You also find out that the dealer grossly misrepresented the vehicle as it had been in a flood. The dealer refuses to accept a return or honor the warranty. You take them to court, but they go bankrupt before your court date. For a year and a half, you pump money into repairing the car so that you can get to work, and finally give up. You still need transportation, do you say "we tried it before and it didn’t work"?

Of course not; you likely still need a car to get to work. Instead of giving up, if you have the financial ability, you’ll give car ownership another shot. Only this time, you’ll spend a bit more time researching the car, defining your requirement, researching the dealer (supplier), ensuring that the warranty can be honored in other places, and you may even take your prospective next ‘ride’ to a mechanic for a third-party independent analysis (benchmarking).

So next time a stakeholder tells you to back down because something you are proposing has been tried before, don’t just walk away. Put it on that stakeholder to walk through the reasons why it didn’t work in the past, and don’t settle for a generic answer that it simply will not work or that a supplier failed. Just as you would build out a RFP scorecard, stick to facts and metrics. Quantifying both successes and failures helps you to understand where and how you could adapt a failed solution to make it a successful solution. Without doing so, you’re guaranteed to be overspending.  Change management is as critical of a component to success in Six Sigma projects as it is in procurement and supply chain initiatives.  Without the ability to change thinking, processes and your company culture, you're destined for mediocrity.
Results-driven procurement requires strategic reevaluation

Developing a procurement process that is effectively tailored to a company's unique needs and operations is an ongoing effiort. Especially in today's highly dynamic business landscape, where the cloud and big data are speeding up market shifts and enabling firms to make faster decisions to greater end-results, the factors that determine the best sourcing strategy are constantly changing. Chief procurement officers need to be deeply in tune with other aspects of the business so that they can choose sourcing partners and manage supplier relationships in ways that streamline operations and reduce costs.

In this effort, CPOs will inevitably find that they have to make some tough decisions. Tying procurement management to core business strategies means doing away with techniques that simply aren't working - but first, corporate leaders have to learn how to identify these problem points.

Procurement as strategy

The core principle of strategic sourcing is that the methods and processes by which companies obtain goods and services need to be just as carefully planned for operational excellence as any other aspect of the business. A project undertaken by a group of MBA students provides an instructive example of how reevaluating procurement can provide a key starting point for boosting the effectiveness of an organization, increasing its profit margins and keeping costs down.

In a column for Triple Pundit, Terry Harrison, a professor at Penn State's Smeal College of Business, discussed how students in the university's MBA program are now working with the institution's procurement services department to get hands-on experience in implementing sustainable, cost-effective sourcing practices while also promoting green logistics within the university. The project began in 2008, when interested students in the Sustainability and Social Innovation concentration took over responsibility for sourcing the university's janitorial tissue paper products.

The procurement department had never before undertaken the effort to evaluate suppliers based on a clearly defined list of sustainability criteria, Harrison noted. The students chose new vendors and fostered these relationships. Since then, other procurement areas within the university have moved toward sustainability.

"Aligning existing organizational goals with sustainability goals has become increasingly important, particularly with regard to supplier selection, as organizations become more conscious and proactive in addressing issues in sustainability," wrote Harrison.

Eco-friendliness has become a popular component of business strategy - but this is just one area in which companies can align procurement with their operational goals. The key is for enterprises to think of sourcing as a process capable of transforming the organization for the better.

In business, one of the most important keys to success is to create a sustainable, hard to imitate competitive advantage. Porter's Five Forces, a common tool used in business strategy, gives the business world a guideline to identifying and/or creating this advantage. Two of the five forces speak about "power" as it relates to the buyer and the seller. When strategically sourcing in an effort to obtain better pricing, it’s all about power. In many instances, suppliers have the majority of the power in these negotiations because they are setting the prices and getting your business what is needed. Increasing your buyer power is a competitive advantage. There are ways to regain this power as a buyer that often lead to getting better deals on what you buy.

A tactic to getting better deals for your business is to leverage your spend. When the buyer has a large spend, they become a more attractive business partner to the supplier and therefore increase buyer power. Walmart is a perfect example of buyer power at its maximum. Due to their large spend; Walmart sets the prices on all of their purchases. If the supplier doesn't adhere to Walmart's pricing structure, they'll move their spend somewhere else. This replacement of a supplier is in many cases detrimental to the suppliers business.

One way to go about increasing your own organization's buyer power is to reduce fragmented buying. Fragmented buying is when a business is purchasing the same or similar items from multiple, similar suppliers. Your spend is being stretched too thin and, as a result, holds little weight with the individual suppliers. If you are negotiating pricing for a larger spend over less suppliers you have more power over pricing. Below you will find seven steps toward reducing this fragmentation and increasing your purchasing power.

Step 1:  Create Formal Categories for Your Spend
The first step to reducing fragmented spend is to generate some sort of categorization to organize your organization's spend. Many times this lack of spend categorization is what causes buying to be dispersed. For example, say your business buys keyboards (100 at a time) once per quarter. The first three times, Buyer A may categorize this as office supplies and therefore go to a supplier of office supplies where the keyboards are $100 each ($30,000 total). The last time, Buyer B may categorize this as electronics and go to an electronics supplier to purchase the keyboards at $70 each ($7,000 total). Lack of categorization and category confusion, resulted in a wastage of  $9,000 across first three purchases. More importantly, you may have been able to negotiate a better price on the keyboards, say $60 each, with the electronics supplier if you were buying 400 instead of 100. Categorizing spend reduces fragmentation

Step 2: Create Categories for Your Suppliers
The second step relates directly with the first. If keyboards are categorized as electronics and you have suppliers categorized the same way, this will help to match up opportunities and leverage spends with the correct suppliers. Similarly, categorizing suppliers reduces fragmentation.

Step 3: Narrow Down list of Suppliers You'd like to Bid on the Business
Once you have all your spend categories and the suppliers have been categorized, it's time to use judgment in narrowing down suppliers you'd like to re-negotiate pricing with. If you have $100,000 in your electronics spend category and you have 15 electric suppliers, you aren't leveraging your spend very well. Narrow down the number of suppliers based on specific qualifications that are important to your business (you may want to consider using a supplier scorecard with weights). Reducing the number of electric suppliers from 15 to five or even three will allow you to bring more potential spend to each supplier which will increase your power when negotiating on price.

Step 4: Assign Categories of Spend to Suppliers and Begin Bidding Process
Once you've consolidated your supplier list you can now send out request for proposals (RFPs) based on the categories. Make it a point to preface the discussion by telling suppliers you are now coming to them with a larger spend and expect better pricing.A desire to keep business away from a competitor can often be stronger than their willingness to negotiate.

Step 5: Review Bids
Once you've received the pricing back, review to identify supplier with best pricing. This is a way to gauge which supplier is providing the best deals.

Step 6: Renegotiate if Needed
You may need to go back to the supplier on certain items or categories if the deals aren't as good as you expected or to lock in the pricing for a certain period of time. Also, after comparing the bids from different suppliers, you now have a new baseline (lowest bid) and can now give other suppliers the opportunity to beat/match the lowest bid.

Step 7: Award Business
The final step is to award the business to the chosen supplier(s).

Eliminating fragmentation in your spend starts with categorization and may involve supplier score cards in addition to multiple rounds of bidding. The process will allow you to increase buyer power in an effort to get better deals on what you buy for your business. You may not always get a better piece price but on aggregate, you are guaranteed to negotiate better deals with the majority of suppliers if you bring them more spend.

Should businesses turn to sustainable sourcing to increase profit margins?

As sustainability has continued to become a source of widespread concern over the years, one assumption has remained consistent: Eco-friendly products are more expensive than conventional items. This principle remains largely true even in a climate where green energy, carbon reduction and organic materials are matters of greater attention than ever before. For consumers, the question is whether or not the extra investment in sustainable goods is worth it. Does it offer additional peace of mind? Is the product of a higher quality?

However, businesses must take a different angle when evaluating whether a sustainable procurement process makes sense. Green practices and environmentally friendly materials involve increased upfront expenses (which is why they're costlier to consumers), but return on investment is ultimately determined by hard numbers - namely, can sustainable product sourcing keep profit margins consistent?

Green procurement as spend management strategy

Increasingly, companies are finding that they have to seek out ways to ensure that sustainability can coincide with cost reduction and strategic excellence, as reducing environmental impact will not simply boost revenue on its own. But as ecological issues grow more pressing and businesses begin to feel their effects more clearly, the areas of overlap between sustainable sourcing and long-term business viability may grow more natural and easier to identify.

In a post for GreenBiz, sustainable business experts David Meyers and Sissel Waage suggested that business will increasingly need to react to environmental phenomena and incorporate those efforts into their broader strategies.

"As concerns grow about climate change and water, among other environmental issues, internalizing externalities is the name of the game today - with the ultimate goal of creating incentives to avoid risks and create net positive corporate impacts," wrote Meyers and Waage.

But the positive impacts that Meyers and Waage pointed to need to go beyond improvements in brand image - they must be real, measurable budgetary benefits. The Dow Chemical Company, Shell, Swiss Re and Unilever recently published a joint whitepaper that evaluated the respective benefits of green (environmentally focused) versus "gray" (conventional, man-made) infrastructure. The firms pointed out that green solutions are based on "custom-made, location-specific design" and thus more difficult to standardize and replicate, which drives up engineering costs. However, green infrastructure comes with lower overall expenses: Power consumption is minimal, and using as few machines as possible cuts maintenance needs.

In evaluating whether sustainable procurement can increase profit margins, firms should consider how they can implement green logistics in ways that reduce operating costs.

4 strategic sourcing mistakes businesses should avoid

Streamlining the procurement process is no small feat. For many companies, there is an almost inexhaustible number of factors to consider when it comes to minimizing risk and expenditure while simultaneously maximizing the efficiency of their sourcing strategies. This is especially true as global sourcing continues to become the norm, and even small and mid-sized businesses are procuring goods from overseas suppliers.

As such, enterprises must take every possible measure to ensure they don't fall into patterns that result in poor spend management and operational inefficiency. Here are four of the most common procurement mistakes that companies should know and avoid.

1. Not obtaining supplier visibility

Having a clear understanding of supplier practices is essential in evaluating the risks and possible sources of disruption that are inherent in sourcing partnerships. Companies that go into such relationships blindly may find their procurement strategies are misaligned with business goals, slashing profits rather than boosting them. In a column for Forbes, business attorneys Rick Frasch and Charlotte Zhanghaixia Westfall discussed some of the primary mistakes companies make when sourcing goods from Chinese manufacturers and noted that failing to perform due diligence regarding suppliers is one of the most common pitfalls.

Frasch and Westfall suggested a number of strategies that companies might take in order to ensure that they have full visibility into prospective suppliers' operations before signing a contract, including checking online reviews and asking to see licenses. However, they also pointed out that the additional insight provided by in-person supplier visits can be essential.

"When you talk to your potential suppliers face to face, you can often get a better sense of who they are as a person as well as assess whether they would be a good fit, even if you need a third party to facilitate the communications," Frasch and Westfall wrote.

2. Failing to emphasize results

Because procurement is such a necessary business function, it can be tempting not to think of it as a driver of productivity and profit - but strategic sourcing can be critical in cost reduction. In a post for Supply Management, David Noble of United Kingdom Shared Business Services discussed his agency's new procurement role within the UK government. He emphasized the central value of boosting efficiency and demonstrating "real, measurable and substantial results."

"The target to provide good quality care and services in a timely and cost-effective manner is a given, but how to achieve this is a much more complex issue and I don't believe anyone has the complete answer, yet," wrote Noble.

This principle applies equally for private enterprises as it does in the public sector. Like any business process, procurement management needs to impact the bottom line. A broken sourcing strategy is one that doesn't drive results.

3. Overlooking contracts

That said, there are also more mundane mistakes that are easy to make in procurement. Frasch and Westfall pointed out that without written contracts with specific language, businesses won't have adequate protection if a supplier relationship goes sour. Invoices and oral agreements, they noted, are insufficient for this purpose. Furthermore, these contracts should also be reviewed by a corporate lawyer before being signed. Ideally, legal counsel will have a say in the initial contract draft, too.

4. Permitting in-house inefficiencies

Supplier-side processes and their inherent risks aren't the only sourcing factors that can hamper productivity. An inefficient internal procurement process can limit firms' ability to obtain the goods and raw materials they need in a timely fashion. 

E-sourcing tools can help companies identify potential suppliers for a given product more quickly, in addition to streamlining request-for-procurement (RFP) protocols. Furthermore, RFX management solutions extend RFP processes to other requests that need to be made during procurement, unifying and streamlining documentation and the various approvals that are required in product sourcing.

To succeed in business, you must understand your competitors and keep up to date on market trends. Competitive intelligence is information that has been analyzed to the point where you can make a decision. It is a tool to alert management to early warning of both threats and opportunities. Basically, it helps you to better understand your industry and influences the actions of your company. A company set up for failure is one that only pays attention to its own operations and does not gauge itself against competitors. Competitive intelligence can be tactical or strategic - tactical focuses on short term gains and improvements while strategic focuses on long-term issues, such as large risks. Strategy is essential for any company driven by technology because technology is constantly improving and companies must adapt to this before they become outdated and are unable to compete with competitors.

During the 1980's, Kodak was one of the largest producers of film, closely followed by Fujifilm. A Kodak executive wrote a report in 1979 describing how the marketplace was shifting from film to digital, a huge change in technology. Instead of capitalizing on the new technology, Kodak continued to sell film products and dabbled in medical devices. Kodak stopped investing in film in 2003 and began to shift to a digital-focus, but this transformation occurred too late. Kodak should have paid better attention to its competitors and realized that it should have shifted into the digital marketplace during the same period that its competitors were.

It is clear from commercials and billboards that companies are constantly trying to trump each other to have the better product. Some companies will even directly compare a competitor's product in a commercial to show its product is superior. A perfect example -- smartphones. Every year, we see these phones evolve to have slightly more "hip" and "cool" features. The basis of the product is often the same, but new trends sway the production and design plans for these phones.

When discussing competitive intelligence, one must remember that is not analogous with industrial espionage. Industrial espionage is an attempt to gain access to information about a company's plans, products, clients, or trade secrets. Competitive intelligence involves using ethical and legal means to analyze and utilize publicly available information. Competitive intelligence is important to an organization, similar to a marketing department, finance department, etc. Without competitive intelligence, companies do not reach the strategic height that they can attain with knowledge of other companies' products, plans, or actions.

Competitive intelligence is essential in strategic sourcing because companies must know what other companies are charging for products in order to benchmark and help negotiate lower rates. I think we can both agree that it's pretty difficult to negotiate rates when you have nothing to compare them against. With the correct information, companies can avoid competitor surprises and stay on top of the marketplace. Understanding future trends and market requirements is important in the strategic sourcing industry, so all sourcing companies should keep a keen eye on their competitive intelligence.
Rising software needs present procurement issues

Now more than ever before, software applications play a central role in business operations. Employees are increasingly carrying out their most important daily tasks via programs that provide centralized platforms for company processes and assets. Furthermore, the rise of cloud computing has coincided with an increase in the number of applications at play in many enterprises, a phenomenon that is streamlining the way employees work while also making IT environments more complex.

These changes are having major impacts on the procurement process for contemporary IT departments. Software-as-a-Service solutions are delivered over the Internet rather than through networks maintained on-site, so firms don't need to expand their in-house infrastructures in order to add new applications to their arsenals. As such, strategic sourcing priorities in business technology have moved from procuring physical servers to obtaining software.

How software upturns traditional procurement

As intuitive as this shift may at first appear, given the prevalence of remote cloud hosting in today's enterprise IT environments, companies are beginning to experience some of the difficulties that arise from this development. In a column for InformationWeek, Skookum Digital Works Chief Strategy Officer Josh Oakhurst pointed out that as firms increasingly find they need customized software programs built specifically for their needs, obtaining these resources means rethinking procurement.

"Custom software development is not something you should purchase like paper clips. Procurement departments are wired to haggle over incremental per-piece pricing, volume numbers and delivery dates," wrote Oakhurst.

He also suggested that the need to rethink procurement for custom applications is based in part on the different conception of supply and demand inherent in many software vendors' business models.

"Pre-packaged technology providers have 'inventory' sitting on the self; they sell what's in the box. In contrast, custom technology consultants take pains to map out investment options and craft custom software executions," Oakhurst noted.

Streamlining IT

Procurement departments must consider software sourcing in a different way than they think about obtaining other products: Oakhurst suggested approaching custom application vendors more like management consultants. He also emphasized the need for procurement professionals to prioritize speed of decision-making in their negotiations with prospective software suppliers.

A whitepaper from IT management firm Kaseya echoed Oakhurst's insistence on maintaining operational speed, taking the notion a step further to suggest that companies should also streamline the way they process procurement requests internally.

"Aligning IT operations with business processes and procedures makes stake holders accountable to approvals and keeps the process moving through to next steps," the firm stated.

Businesses should approach software procurement management with the high level of agility that is characteristic of the cloud age.

Diego De La Garza, Kathleen Jordan, and Jennifer Ulrich have all been named Pros to Know for 2014 by Supply & Demand Chain Executive magazine. The SDCE Pros to Know awards honor those individuals from software, service provider, or consultancy firms, or academia, who have helped their supply chain clients or the supply chain community at large meet the challenges presented by a constantly changing business world.

This is the fourth time in five years that Source One professionals have been honored by Supply & Demand Chain Executive and the third consecutive year. It is the second consecutive award for Mr. De La Garza.

Diego De La Garza was awarded for his pioneering work in creating a more thorough understanding of supply chain best business practices with top tier business schools and think-tanks throughout Latin America, as well as businesses throughout the region. He has participated in international congresses, presented at conferences, developed seminars exclusively focused on global supply chain opportunities, and, most recently, developed and starred in a series of Spanish language podcasts designed to prepare Latin American businesses for working with companies looking to nearshore their production.

Kathleen Jordan (formerly Kathleen Daly) was awarded for her work in bringing sales & marketing spend within the purview of strategic sourcing and supply chain groups at several large corporations working with Source One. With one particular client, she helped the company identify an agency of record and establish a single rate card for a number of agencies by seeking out and negotiating directly with the parent agency, and also worked to further cultivate a relationship between the agencies and the company, allowing them to communicate more easily and work faster. These actions optimized the marketing budget and allowed the client’s marketing team to conduct additional initiatives within their budget.

Jennifer Ulrich was awarded for her work with a manufacturing client searching to find value in its direct spend in the establishment and improving of its Supplier Relationship Management (SRM). After a spend analysis that fully detailed the client’s spend and its supplier base, Ulrich and her team utilized market data to illustrate which suppliers could be consolidated, which ones could be replaced, and which ones were producing unique or specialized products. From there, she worked with a team of client stakeholders to implement a relationship-building strategy, fostering communication channels between the client and those supplies critical to its operations. The result was better value in its direct spend budget, and the groundwork has been laid for a partner-like relationship between the client and its critical suppliers.

Incorporating waste reduction into strategic sourcing

The procurement process is full of potential sources of waste. Transporting goods across great distances, for example, often results in product breakage or spoilage of raw materials. Meanwhile, manufacturing is often fraught with inefficiencies, and the use of defective or inexpertly made materials often result in products that can't be sold. 

Especially as sourcing networks become increasingly complex, it's essential that companies look closely at the potential sources of waste in their distribution chains and work to eliminate them. This effort is a critical component of a larger strategy, including spend management and environmental awareness.

The foundation for sustainability 

Green logistics has become an increasingly important - even trendy - focus point for chief procurement officers and others involved in product sourcing. Companies are beginning to think about how their manufacturing, production practices and supplier relationships can be more closely aligned with enterprise-wide sustainability strategies that have the dual advantage of reducing long-term costs and improving brand image.

However, in order for firms to think about sustainability in a holistic way, it's important to look beyond the trends and evaluate what is at the foundation of ecologically sound business practices. In a column for Environmental Leader, Schneider Electric's Director of Sustainability for Europe Andy Dewis pointed out that the age-old principle of minimizing waste is central to the concept of green business.

"Many successful businesses have always practiced sustainability; maybe not by converting their fleets to run on biodiesel or installing solar panels, but simply by running as efficiently as possible and reducing waste. ... And running a business efficiently is no fad at all," Dewis wrote.

Waste reduction as strategic centerpiece

Dewis' comments highlight just how interrelated cost reduction and sustainability can be if firms handle these initiatives correctly. But for some executives, eliminating waste may seem an obvious goal that doesn't need to be explicitly articulated as part of a business strategy. This mindset, however, may make companies fail to emphasize the vital role that waste reduction plays in overall efficiency and agility.

GreenBiz recently reported on architect, designer and sustainability expert William McDonough's comments at the 2014 Executive Sustainability Forum webcast. McDonough discussed how firms can develop strategies for avoiding waste as they chart out their plans for eco-friendly procurement. 

"Why make something you can't sell?" McDonough asked attendees, according to the news source. He also emphasized efficiency as a central business value, calling upon firms to rethink waste and investigate how raw materials that might otherwise be scrapped can be re-purposed and put to new uses.

This guest post is provided by Cliff Campeau, a Partner at AARM. 

This past fall, Digiday, a media company serving digital media, marketing and advertising professionals ran an interesting article regarding agency compensation and the “tricks” played by agencies to boost their bottom lines.

In short, the article asserted that; “For ad agencies, it’s harder than ever to get paid. Their services are becoming increasingly commoditized, and their margins are getting squeezed as a result.”  According to the author, Jack Marshall, this in turn is “driving some to get creative with the ways they bill clients, as they exploit loopholes and tricks in an attempt to maximize their rewards.”  Examples of the bad practices employed by some agencies in this particular area include:

  • Artificially inflating the salaries of their employees when developing compensation programs
  • Double-charging clients by including items such as medical expenses in both salary costs and overhead calculations
  • Slow rolling projects and or throwing more people at a project than is required to boost billable hours

Andrew Teman, one of the agency executives interviewed by Digiday for the article suggested that;

“The problem with big agencies is they don’t make money being efficient; they make money billing more hours.”

For practitioners within advertising industry, the aforementioned revelations are not newsworthy.  Attempts to game the system have been ever present and serve as a reminder of the decades long struggle clients and agencies have had in structuring mutually beneficial agency remuneration programs in a post “15% commission” world.

Ironically, advertisers and agencies want the same thing… a fair and efficient compensation program which incents extraordinary performance, good behavior among the stakeholders and which leads to a solid client-agency relationship.  To that end, neither party’s needs are being effectively served by the games and subterfuge described in the Digiday article.  The solution to the issue, which seems elusive, is actually rather straightforward:

  1. Development of detailed scope(s) of work (SOW) to serve as the basis for agency resource investment modeling.  This is an important first step, since it is the SOW which will drive agency staffing and the resulting schedule of charging practices.
  2. Completion of a comprehensive agency staffing plan, with personnel names, titles, functions, utilization percentages and billing rates.
  3. Implementation of an agency remuneration program which aligns the client’s goals with the agency’s resource investment.  Of note, there should be full transparency into the various cost elements used to calculate agency fees, overhead and profit levels.
  4. Reporting and control mechanisms to monitor agency time-of-staff investment, performance and outputs to protect the financial interests of both clients and agencies.

Unfortunately, as straightforward as the solution may appear, few clients and or agencies have effectively implemented the four steps suggested above at a sufficient level of detail as part of their continuous relationship management processes.

Some would suggest that the real challenge has been in effectively scoping the work required on behalf of an agency.  According to Michael Farmer, Principal of Farmer & Company which specializes in assisting advertisers and agencies in developing and implementing accurate, effective Scope of Work practices and tools, “New metrics are required to track and measure workloads, prices and resource productivity. That’s the only way agencies can evaluate and negotiate changes in the fees they are paid in today’s marketplace — and halt the erosion in agency operational health.”

We would suggest that putting in place an effective monitoring program in this area is long overdue at most advertisers.  If not addressed, the institutionalization of the bad behavior referenced in the Digiday article sets a dangerous precedent for treating relationship ailments with trickery rather than frank dialog between clients and agencies.

About AARM

To learn more about how advertising agency contract compliance auditing can enhance advertiser transparency and improve agency remuneration controls contact guest blogger Cliff Campeau, Partner at ccampeau@aarmusa.com. Advertising Audit & Resource Management, LLC (AARM) is a provider of marketing services agency audits and accountability consulting support.  AARM works exclusively for advertisers, including global leaders in the automotive, consumer products, entertainment, hospitality, and technology sectors.  The company is based in San Francisco, CA.
Firms can leverage technology for improved supplier management

As global sourcing continues to become the rule rather than the exception, supplier networks are growing increasingly difficult to manage. Many companies' sourcing partners are in a variety of different countries, each with distinct laws regarding manufacturing processes, workplace ethics and sustainability. Even enterprises with plenty of resources are finding supplier management difficult in this environment.

Meanwhile, the contemporary consumer has grown more informed and globally aware than ever. Companies can't afford to sweep the details of supplier practices under the rug and assume customers won't do the research on their own. Brands need to manage their overseas partners as closely and proactively as possible, regardless of the effort and expense involved - failing to do so might result in lost business. 

The question is: How can firms ensure visibility into their suppliers' processes while still holding to best practices for agility and spend management?

Looking to technology

Recent years have seen new IT technologies drive enormous improvements in a variety of areas within the enterprise, and these tools stand to benefit supplier management as well. In a blog post for Procurement Leaders, 360° Supplier View founder Declan Kearney discussed the way in which digital resources are promoting visibility between companies and their sourcing partners. He outlined his "ideal principles" for the procurement process this year, and chief among them is the ability to put analytics to effective use. 

Kearney insisted that employees need to "analytically literate" in order to utilize these tools to their fullest extent. However, he also insisted that technology must be closely tailored to broader sourcing and business strategies.

"The technology environment is fully aligned with directly related corporate initiatives and supporting systems such as governance, risk and compliance - for example, supplier governance is not treated as a silo of GRC or enterprise risk management in isolation of supplier risk management strategy," wrote Kearney.

The future of procurement

Kearney's emphasis on the importance of technological systems in the procurement process is shared by many in the field. However, in a column for Spend Matters, sourcing expert Jason Busch went beyond Kearney's analysis and suggested that a "systems-driven" approach to e-sourcing and supplier management won't be sufficient. Rather, he argued, firms need to look ahead to a procurement model that "takes what we've learned about supplier management so far and extends it into multiple supply chain tiers."

Whether Busch's vision will come to fruition remains to be seen - but in the meantime, companies can feel confident that technology is their best bet for improved supplier visibility.

Generally speaking in order to increase revenue companies look to either increase sales or reduce costs without impacting current service levels or quality. One of these is significantly harder to do than the other. You guessed it, increasing profit. Assuming a 5%-10% profit margin in order to net an extra $100,000 your sales would have to increase by $1 - $2 million. This is why many companies choose to look the other direction and turn to industry specialists in strategic sourcing and cost reduction, bringing in an outside consulting firm such as Source One Management Services. Savings can be found in a number of categories including but not limited to telecommunications, IT, benifits and insurance, freight and logistics, waste removal, MRO, office supplies, utilities and professional services. Anything under your current spend umbrella equates to potential savings opportunity.

Since many of these companies are undergoing a cost reduction initiative you may ask, why would you spend money on bringing in an outside consulting firm if you are already struggling financially? This is the primary reason why companies like Source One have developed a fee based contingency model. Meaning you will be charged for only a percentage of the overall hard dollar savings as they are realized. This means you don't have to spend any money up front or for that matter any additional money whatsoever. Essentially, you will be sharing savings with the company that helped you realize them, rather than paying upfront. This alleviates a lot of the pressure of bringing in a consulting firm and having to pay an initial fixed fee or a fee based off an hourly rate.

One thing to be mindful of prior to initiating a sourcing initiative is to ensure that all current contracts have expired or are expiring in the upcoming year. Some common contract terms favorable to the suppliers to be wary of are listed below.

Auto-renew clauses: A large number of contracts have an initial term covered within the Agreement. However, after the initial term expires a clause defined within the contract allows the contract to be renewed if it is not canceled or extended within a certain timeframe. These clauses can be fairly detrimental if they are not caught early enough. For example, you may have a two year contract with a supplier that has an auto-renew clause within it that extends the contract for another two years without being renegotiated, given a two month period prior to renewal. Now you're stuck with that supplier whether you like it or not for another two years, and if it is not caught the next time this issue can be on-going and severally impact your negotiating power.

Volume Commitment: Many suppliers have what is called a volume commitment in order to keep prices at the negotiated levels. The issue here is to make sure that the volume you are committing to is an easily reachable and obtainable goal. If it is set to high and you do no reach your commitment now your prices are going to be reset by the supplier at a premium level of their choosing. In this case, you lose almost all negotiating power and have placed your pricing primarly in the hands of the supplier.

Pricing that is set to Expire Prior to the Contract: This is a situation in which suppliers offer very low and favorable pricing upfront; however, it is not for the full length of the Agreement. Although you are realizing immediate cost savings, on the backend you are going to get hit with pricing that is most likely close to retail cost, diminishing all savings realized during the initial stages.

Not only do strategic sourcing firms help to reduce costs, they ensure that contracts are properly negotiated and that the terms are fair to both parties. This keeps a good working relationship between you and the supplier, and more importantly makes sure that you are realizing savings through the lifetime of the Agreement.
Addressing sustainability issues in retail sourcing

Despite the fact that environmental issues have garnered an increasingly large amount of public attention over the past decade, sustainability remains one of the most problematic aspects of the procurement process. To be sure, companies have made considerable improvements in the ecological soundness of their sourcing practices. Alternative power sources are now more popular and readily available than ever, and sustainable products have moved from the shelves of specialty retailers and groceries to the mainstream of the consumer product market. Meanwhile, companies are also taking a look at the ethical implications of their production processes and suppliers' practices.

However, sustainability is rarely - if ever - easy to incorporate into a strategic sourcing initiative. There are simply too many moving parts in most enterprises' supply and distribution networks for firms to implement a set of green practices and simply forget about them, assuming they'll do the job on their own. Eco-centric procurement requires continual vigilance and investment.

Tackling the troubles of green retail

Companies with complex, high-volume distribution chains tend to find sustainability particularly problematic. Retail is a key example of such a sector. Finished consumer goods often involve a great number of raw materials, each of which needs to be sourced from a vendor that may have its own network of suppliers. In light of the challenges inherent in green retail, businesses are looking for creative ways to surmount the obstacles.

Some firms have called upon the principle of strength in numbers, forming relationships not only with sustainably minded suppliers but also with other retailers committed to green logistics. Sourceable recently reported that Kathmandu - the largest outdoor clothing and equipment retailer in the United Kingdom, Australia and New Zealand - has partnered with the Green Building Council of Australia (GBCA), signing onto an agreement with other companies in the sector to prioritize sustainability in retail.

"The retail sector is a long way behind the commercial sector when it comes to sustainability. Commercial businesses that have taken sustainability seriously are reaping the rewards. The same will be true for those in the retail space," said GBCA Chief Executive Romilly Madew, according to the news source.

Play to the consumer

Another tactic retailers have adopted is to ensure that customers are fully informed about their sustainability efforts - and this is part of the intention of a new program called Directgreen, according to Eco-Business. The program's founder told the news source that the initiative helps retailers promote their "sustainability credential" while making green investments "at their own pace" - which may be an essential spend management tactic for many firms.

It’s fairly common now for organizations of all sizes to be increasingly reliant on outside firms in the operation of their businesses on a daily basis, and for good reason. Strategic outsourcing allows firms to source business operations to specialists in a particular good or service so the firm can concentrate efforts and resources on core competencies. It’s also no surprise that suppliers have benefitted from this uptick in activity and spend. With this modern shift to outsourced operations, however, there is still a strong management requirement – a requirement that is often ignored or de-prioritized, much to the detriment of the organization.

Detriment? Imagine this. It’s Monday afternoon in July and you work for a bank. Looking out across town, your employees see a fire a few blocks away. A few hours later, the news reports that a local business had a fire that destroyed a portion of the building, but the name of the firm is being kept quiet for the time being. Thankfully no one is hurt. The next day, the news reports that the damaged firm is one that your business uses to outsource document and records management. You send a few employees to investigate internally to determine exactly what and how many files your company sends over for document storage. Still no word from the supplier on the extent of the damage. On Wednesday, it’s determined that damage was extensive and affected the supplier’s largest storage room in the building, but still no word on the volume and type of records sent over to the facility from your firm. 

The following week, you find out that the storage facility holds one million customer credit card agreements for customers who have at one time or another been delinquent. Upon further investigation, the root cause of the fire was a glass of water left out near a window which amplified the sun’s rays catching some nearby papers on fire. The fire suppression system in the storage room, which should extract all the oxygen and put out the fire, malfunctioned and was outside its required testing window. Without record of these agreements, principle and interest collection is unenforceable, resulting in millions of revenue lost and because the damages are indirect/consequential, you can’t hold the supplier accountable for your losses.

This is quite easy for me to imagine because this was an actual event.

You can probably imagine many fixes or ways to prevent such a disaster. None of those things happened. A properly implemented Supplier Relationship Management (SRM) system would solve this, as the system is as much about cultural shift in how you treat/manage suppliers as it is about tools and reporting.

Source One's experts are well skilled in conducting market analyses and developing the best practices and next practices your department needs to gain a competitive advantage by implementing a proper Supplier Relationship Management (SRM) strategy. As unbiased consultants with more than two decades of experience, we have worked with tens of thousands of suppliers and fully understand what is important to them in a client supplier relationship. Our experts can work with your procurement team to pass on the knowledge and skills necessary to better your organization's supplier relationship management program. In addition to developing a supplier management strategy, Source One can serve as your Supplier Relationship Management team to identifying revenue drivers, ensuring organizational alignment, mitigating risk, reduce management costs, and developing supplier relationships that will create real value for your organization.

The blog and resource site SupplyChainOpz.com (formerly SCM-Operations) has just announced their "Supply Chain Power 50" award and Source One's own Strategic Sourceror made the list.

This new award tracks "The Best Supply Chain blogs of 2014" as defined by Ben Benjabutr of SupplyChainOpz.

Source One founded The Strategic Sourceror in 2008 and since that time has posted over 2,600 topics surrounding procurement, supply chain and strategic sourcing topics.   StrategicSourceror compliments Source One's other free tool for procurement and sourcing professionals, WhyAbe.com, the world's only free e-Sourcing platform.

The Strategic Sourceror provides a unique combination of short, topical supply chain and strategic sourcing news stories scattered with very detailed how-to articles and real-life experiences on sourcing specific categories as experienced by the consultants at Source One.

Learn more about their judging criteria used by SupplyChainOpz, please visit here.

Thank you SupplyChainOpz!

Global flat-pack furniture giant IKEA is facing fierce blowback following its decision to retire its immensely popular EXPEDIT shelving systems and replace them with a new product line called KALLAX. The backlash is from general fans of IKEA who don't like to see change, but specifically from collectors of vinyl records, who have long used the EXPEDIT's 12"x12" chambers to store their records.

IKEA has attempted to assuage the situation by assuring those upset at the change that the internal dimensions of the shelving systems will not change, but that just raises another issue. Looking at what few pictures are available of the new KALLAX system, and from IKEAs own statements, it's apparent that while KALLAX shelves might be the same size, the overall unit will be smaller. Meaning, the outside support pieces of the shelving unit will be thinner. 

As we've pointed out in a previous article concerning an IKEA model change, minimal dimensional changes results in products that can be sold at similar price points but with a lower production cost, and can add up to very large savings for IKEA. The key difference here is the customer base for the products, and their resistance to such change. 

The first model revamp (mentioned in the above-linked article) was for kitchen cabinets. There's not exactly a rabid fan base around kitchen cabinets -- at least, I'm not aware of one; feel free to prove me wrong -- and people don't typically buy kitchen cabinets in shifts, matching them up as they go along. The EXPEDIT/KALLAX changeover involves an insanely popular shelving system used by vinyl junkies and homeowners alike. If you've ever been to a trendy flea or farmers market, or a Yo La Tengo concert, you'll understand the fervor in which record collectors can react. Additionally, EXPEDIT shelves are bought periodically and expected to match. 

In short, IKEA may have to transition some -- or, potentially, a large part -- of the money saved from the slimmer, cheaper-to-make KALLAX to increase public relations efforts and assurances that KALLAX isn't as drastically different from the EXPEDIT system it replaces. Or, the company may bank on the fact that this uproar comes well before the expected April 1 European rollout (and the later US debut) and that the complaints, Facebook campaigns, and Twitter fury will have died out and customers will have accepted the change to the model. 

Manufacturers have long found savings by gently reducing the amount of a product sold for a set price (the ever-present grocery shrink ray), making such a change without consumers really noticing or saying much. In the rare cases where consumers do notice, the potential savings can dissipate quickly -- mitigated by a drop in the consumer base and an increase in the advertising and public relations budgets. 

There are considerable savings to be found in redesigning products to lower production costs, but the risk of consumer uproar is always present.

EDIT: Gizmodo.com is talking about the same thing, and they're willing to guess numbers that I was not. Interesting read. 

Photo courtesy of TheVerge.com
2 ways to think about sustainable food sourcing

Sustainable products and environmentally sound business practices are more important to today's consumers than ever before, and much of the attention when it comes to ecological issues is centered on the food industry. More than any other products in the consumer goods space, food has a clear, unmistakable tie with the environment. Through the meals they eat and the groceries they purchase, even people who live in urban areas have direct interaction with farming and agriculture.

For these reasons, organizations at a variety of points in the food distribution chain have moved toward green practices - but with so much variation in the size and scope of these different operations, it should come as no surprise that there's more than one way of thinking about sustainability in this sector. Among the various strategic sourcing methods eco-minded food producers have adopted, two have proven particularly popular and instructive.

1. Large, sustainable supplier network

Major corporations specializing in food products have had to ask themselves a critical question: How can sustainability be implemented across a large and multifaceted global sourcing network? A number of companies - including industry giants Hershey and McDonald's - have made public commitments to strive toward a more eco-friendly procurement process and align themselves with suppliers that can aid in this endeavor.

Kellogg recently joined this movement by announcing its intention to procure 100 percent of its palm oil from sustainable and traceable sources. The company has set a deadline of Dec. 31, 2015, for suppliers to comply with its new requirements or demonstrate that they are working toward a plan to get their operations in line with Kellogg's expectations.

2. Small-scale, local procurement

Major firms' efforts to adopt green procurement strategies are essential to reducing environmental impact across the food industry. But not all food-related acts take place between consumers and large corporations like Kellogg. Restaurants with smaller supplier networks also need to think about how they'll approach sustainability.

Hyper-local sourcing has been an immensely popular trend among restaurants in recent years, with highly regarded eateries such as Copenhagen's Noma adopting strictly local sourcing policies that involve foraging and fostering close relationships with nearby farms. However, this strategy also presents considerable challenges when it comes to spend management. The Pittsburgh Post-Gazette reported that Trevett Hooper, chef at local restaurant Legume, is rethinking his farm-to-table approach in light of costs, especially as quality products from other sources become available.

Ultimately, the ideal sustainability strategy depends on the specific budgetary and operational needs of the business, as well as the expectations of its customer base.

Tech is both problem and solution for sustainable sourcing

The rapid adoption of new technologies among both businesses and consumers isn't based on a mere wish to stay up-to-date with the latest trends. Smartphones, tablets and other consumer electronic devices have grown in popularity because of the conveniences they introduce into people's personal and work lives. Virtually all types of communication - from emails with colleagues and clients to texts and phone calls between family members - can be now consolidated on a single device.

Meanwhile, mobile technologies have had similar benefits for contemporary enterprises, allowing employees to work in more streamlined, flexible ways. The cloud is allowing computing power and network storage to be distributed remotely, and big data analytics tools are enabling firms to make more targeted decisions through better business intelligence.

As tech gadgets increase in popularity among consumers and technology becomes more essential to corporate operations, it will remain imperative to develop strategic sourcing plans for the resources needed to produce and operate these tools - but often, firms run into snags in the tech procurement process.

Greening procurement for tech devices

Sustainability is one of the key problem areas for electronics and technology sourcing. The complications associated with green logistics become even greater when they overlap with global sourcing and the ethical issues related to procurement.

In a column for GreenBiz, Technology Forecasters CEO Pamela Gordon discussed the difficulties that many firms in the consumer electronics space are having when it comes to sourcing minerals for their processing chips from conflict-free zones. She pointed out that this effort isn't as simple as merely obtaining a list of mines in conflict areas and working with suppliers from elsewhere.

"Your brand company rarely buys these minerals directly. Instead, it's your contract manufacturer that buys from components manufacturers - which buy materials processors, which buy from distributors, which buy from smelters, which buy from middlemen who buy from individual mines," wrote Gordon.

Data equals insight

Gordon's point is that as supplier networks become increasingly spread out and involve a number of different levels, it grows difficult for firms to fully understand where their raw materials are coming from. However, in a post for Retail Info Systems News, SciQuest Product Marketing Director Greg Holt asserted big data technologies can help companies in particularly complex industries, such as retail, understand the various implications of a particular "sourcing event."

The difficulties of tech sourcing are without question, but in many cases, the answer to these issues may be in technology itself, particularly e-Sourcing tools.