April 2014
Solving the food global sourcing conundrum

Chain restaurants and nationwide supermarkets are faced with the difficult challenge of meeting the demands of educated customers. Now more than ever, consumers living in developed countries desire fresh, responsibly grown produce that wasn't injected with genetically modifying substances. This level of cognizance has led some food companies to hire vendor resource management providers and others to invest in procurement technology.

Adapting to a global economy

Merely telling consumers that a head of broccoli is organic by slapping a label on it isn't necessarily enough. Yet, that doesn't change the fact that supermarkets and restaurants still need to provide customers with particular products that cannot be grown in domestic climates or during an off-season. According to Supply and Demand Chain Executive, this has led many of these organizations to source exotic foods such as bananas and mangos from plantations located thousands of miles away.

Though this process satisfied immediate demand, it exposes firms to a higher risk of contamination, fraud, poor quality and even bioterrorism. As a result, nations such as the United States have imposed stringent safety and compliance regulations in order to deter such instances. However, the source cited a report developed by Frost and Sullivan which showed that 76 million food-related illnesses were recorded in 2013, with the U.S. government spending $40 billion on treatment rather than preventative measures.

What are the options?

Food companies are faced with a couple of choices. Some have discovered that it's best to weigh the pros and cons of outsourcing to third-party logistics providers that can give them a more accurate perception of where their food originates from, while others may find it in their best interest to invest in supplier relationship management software, which gives enterprises diagnoses of a producer or manufacturer's practices.

Of course, there's always the option of prioritizing which products can be locally sourced. MassLive reported that restaurant owners throughout Massachusetts are hiring "food hubs" to connect them with farmers within their area who can supply them with basic produce. Many of these intermediary organizations orchestrate and manage dozens of connections between mom-and-pop diners, chain restaurants and growers throughout the state.

Ultimately, this practice allows kitchen managers to provide customers with more details regarding the food they're serving. In addition, as transporting the goods doesn't take as long, preservatives don't need to be added to products such as tomatoes or spinach due to the fact that the produce will stay fresh for a longer period of time.

Business dictionary defines benchmark data as "information collected from sources to determine how other firms achieve their high levels of performance". This makes it ideal for finding out more about suppliers and the market if leveraged correctly. It is vital in developing a clear, accurate comparison of competition and should be tailored based on the specific category involved.

The first step is admitting that there may be better options that an incumbent supplier in the marketplace can provide. The second step is to learn an effective way to identify those options using data collected from multiple sources. From a strategic sourcing standpoint this process involves balancing price while not compromising the quality or totality of services offered to the business. This involves introducing a sourcing/cost reduction strategy, after analyzing the benchmark data, which still ensures the satisfaction of all the stakeholders and fulfills requirements of the business.

The information relevant to the benchmark will vary based specifically on the type of information needed; such as cost, SLAs, contractual terms and conditions, etc. When completed, the benchmark exercise should detail how well an incumbent supplier is doing compared to its competitors. While robust data collection is a start to effective benchmarking, there are other things to consider for adding more value to benchmark data and assisting in analysis.

  1. Understanding your data source. This begins with understanding its relevance to the scope of the benchmark. By establishing this connection, the data gathered will lead to a better analysis. It is important to understand if the source presents a true "apples to apple comparison" between the incumbent and the competitor. If the category being looked at is not able to show a true comparison, it is important to identify significant differences like geography, size, and market. When conducting interviews as a source of information, it's essential to understand the role and relevance of the interviewee to determine their view on the topic.

  2. Use metrics that matter. Effective benchmarking involves identifying actionable metrics/measures and analyzing/refining those areas for decision making or changes. In order to improve a process, metrics must be identified that are directly related and true performance indicators to that area. 

  3. Customization of approach. Modifications should be made based on processes, industries or other criteria relevant to the category being benchmarked. As an analyst, what I collect varies heavily depending on the sourcing category. Select the best competitor organization(s) for comparison. Perform thorough research to determine this through industry associations, publications and internal insight. There may also be unique request for a certain category. In these instances it is important to think outside the box for ways to leverage data to truly add value. 

  4. Validation of sources. Identify any stakeholders, bottom line figures and problem errors that will have a significant impact on validity. Having reliable sources makes performance/process improvement more obtainable.

  5. Effective data management. Having a clear picture of the data at hand will optimize usage across your organization. It is important to control the information generated during research as it may be beneficial in future benchmarks or in other initiatives. You may be able to work within an existing data-set or have to launch an entire project designed to collect information for a specific benchmark.

A lot of talk has been centered around strategic endeavors and how procurement and sourcing can move into a more centric position and align themselves with the organizations goals. But we realize there are still groups mired in purchasing roles, looking for some semblance of control. So here is a quick guide on establishing a basic procurement process.

Purchasing for a project will proceed smoothly if there is a natural flow to procure the items needed. A formal, professional procurement process saves time, money and risk. So, what is the procurement process and how does it work?

Make a Template
If you are responsible for purchasing materials for a business project, but you do not have access to a procurement specialist, a template would be useful as well as reusable. A template is also helpful if procurement is not part of your core business model. Of course, some procurement experience is much more desirable than none at all.

When you have a project requiring detailed technical knowledge, it is best to know how and where to research for a useful template. Once it is found, it can be useful ad infinitum. The template is somewhat formal, but not as invasive as the formal procurement process appears to be.

The Formal Process

Sometimes, the formal procurement process can be cumbersome and appear bureaucratic in nature. That appearance may just save you from some of the biggest mistakes of your life. It is well worth noting that the procurement process template gives you a framework for purchasing almost anything in business. The template allows you to:

• Save time and still ensure you get the solution that your business needs
• Pay a fair price, which may or may not be the lowest price
• Include all critical steps so nothing needs correction in the future

Using the standard procurement process means that your suppliers are familiar with the steps you are taking. They already know what you expect and will come to the conclusion that you represent a business that is very professional. It is worth remembering that each project is different and the small ones do not need every step of the formal procurement process as a large project will need.

The Five Steps

The procurement process has five general steps. These include:

• Definition of the business need
• Outlining the procurement strategy
• Selection and evaluation of a supplier
• Negotiation and award with initial product evaluation
• Induction and integration

Don’t Stop Here

As an important part of the last step (induction and integration), do not order any goods or services until the signatures on both ends of the contract are in place. This establishes the Purchase-to-Pay (P2P) process is agreed and understood from the start. Pre-determined service levels must have a measurement of success in place. When that measurement is complete, both parties will sign off on it.

Every procurement project follows this same broad, general process. The key is remembering that this process must be adaptable to the project you are working. If you require sub-steps, put them into the outline as it is presented above.
What does the future hold for health care's strategic sourcing?

Managed IT services are quickly becoming an integral part of the health care industry's materials acquisition and distribution strategies. Hospitals, pharmacies and other subsets of the medical economy require a diverse variety of products, from magnetic resonance imaging machines to gaseous medicines. As a result, storing and transporting these items can be tricky. 

Ensuring preservation, eliminating losses 

Warehouse floor managers responsible for monitoring a wide array of goods are sometimes intimidated by the sheer amount of materials stored in their facilities. When it comes to the health care market, these items may require dry storage, sanitary conditions or refrigeration. Neglecting to properly accommodate the needs of each product could be a severe detriment to the procurement process of medical companies. 

As opposed to moving down warehouse aisles manually noting the conditions of each item, Modern Healthcare contributor Rachel Landen recommended that distribution specialists implement a cloud-based software system capable of tracking and logging the status of particular materials automatically. Landen noted that Premier Health, an N.C.-based national health care alliance, recently implemented a solution that is expected to save the organization 18 percent of its total capital equipment budget. 

The procurement software allows Premier not only to cover all inventory requirements, but to run analytics tools to help their financing departments deduce where expenses could be reduced or eliminated. In light of the United States' transition to a value-based care delivery system, this program is particularly important for those looking to contract the cost of receiving treatment. 

Growing more complicated 

Scientists throughout the world are researching ways to revolutionize the health care industry, in turn forcing distributors to adjust their delivery and storage methods. According to a study released by online medical journal The Lancet, researchers from Switzerland, the U.S. and Mexico engineered vaginal organs after taking three yearly biopsies from a group of Mexican patients aged 13-18 years old. 

According to the source, the patients suffered from a rare condition that caused them to be born without exterior vaginal properties, which is known as Mayer-Rokitansky-Küster-Hauser syndrome (MRKHS). After autologous tissue was obtained from each girl, the scientists cultured, expanded and seeded epithelial and muscle cells into biodegradable stages. The organs were then grown in an incubator, displaying structural and functional properties. 

If such a procedure were to become widely used by the medical industry, global sourcing for specific, customized organs are sure to transform the distribution chain. Ensuring that these biological materials are stored and transported under sanitary conditions is absolutely necessary. 

On-demand sourcing is a better alternative to BPO

There is an uprising in the world of Source-to-Pay BPO. It’s hard to say when it started – before or after Accenture’s acquisition of their number one competitor in the space – but companies are beginning to gain clarity around what they want from an outsourced procurement service provider. And what they are looking for doesn’t fit the traditional BPO model.

For many years, the business case for outsourcing the Source-to-Pay function was highly saleable due to the immaturity of the procurement marketplace. Once organizations began to realize their sourcing departments were ineffective at current staffing levels and unwilling to invest in additional resources, they naturally turned to a BPO model for support. Firms like Procurian provided a core group of resources with expertise in strategic sourcing and category management, with a backbone of transactional support in low cost countries. BPO’s could provide the additional headcount needed to increase spend under management or a fully outsourced procurement group at a lower initial operating cost.

However, as time progressed, the year-over-year FTE-based cost model of a BPO support team rivaled what clients would pay for in-house resources– and because the requirements were outsourced to a third party, the level of accountability and a clear demonstration of ROI were not always available. The outsourced provider was not aligned with the objectives of the business and to make things more difficult, contractual requirements required organizations to continue utilizing these resources even if they were no longer needed, with limited flexibility to adjust staffing levels down within a contract period due to evolving business needs.

Now Accenture’s BPO lead, Mike Salvino, has changed taken the word “outsourcing” out of Accenture’s vocabulary. “Outsourcing” has been replaced with “Operations”, and according to Mr. Salvino, fee models will be aligned with business outcomes. However, in my mind, the Accenture acquisition simply compounds the issues of scalability and ROI. Because Accenture has purchased their only real competition for U.S.-based BPO staffing in the Source-to-Pay arena, prices for their services will likely go up. In addition, Accenture’s substantial pool of overseas resources means that work currently done domestically may be shifted overseas, potentially resulting in a lower degree of quality at a higher price and further shifting away from the “business outcomes” based model.

The market has matured, and the new direction seems clear. Best-in-class organizations are moving away from the Source-to-Pay BPO Model to more scalable, on-demand solutions. Having 100% access to a large pool of sourcing professionals is no longer required because, once sourcing for a category is complete, the necessity for the ongoing resource is greatly reduced until a contract comes up for renewal again. Customized, scalable solutions – where resources go where they are needed and are not long-term fixed costs– tend to provide for the highest ROI in terms of overall savings as well as the most sustainable cost model. They are also typically more aligned with a customer’s needs, as they are adaptable and flexible versus the BPO one-size-fits-all model.

Sourcing has evolved - it no longer ties neatly into the transactional nature of a BPO offering. Companies want their sourcing groups to drive supplier innovation and create a competitive advantage for their organization. They want support through best practices, market intelligence, and more focused category based service offerings. They want smaller scale engagements and they don’t want fixed costs. Can these new requirements reconcile with the bloated operating model of the traditional BPO? Only time will tell, but so far it doesn’t look like the outsourcing giants have gotten the message.

Want more information on the tailored, on-demand model? Read more about Source One's offering here.
Firms seek production efficiency across industries

Manufacturers throughout a variety of sectors are being faced with similar challenges centered on the efficiency of their procurement services. Subcontractor relationships are under constant strain as new pressures mount - production timelines are becoming crunched as a result of a bolstered economy and heightened consumer demand.

According to a recent article from Aerospace Manufacturing and Design, military and commercial aircraft companies are struggling to find suppliers that deliver materials in a reliable and predictable fashion. This understandably makes for more difficult and fragmented operations. 

"When choosing a supplier, we always want to be sure they are going to provide a quality part, and deliver on time, because we design complex, one-of-a-kind parts that must be delivered in time to meet our customer's schedule," said Russell Gibbon, director, landing gear and hydraulic systems engineering at Triumph Aerospace Systems, according to the news source. 

High-flying industry, higher stakes for suppliers

​Given elements such as landing gear, cargo holds, hydraulic systems and structural elements, the aerospace field is almost unparalleled in the complexity of its manufacturing procedures. This means that supplier relationship management is paramount if companies are to deliver quality products on time and within their budgetary forecasts.

The source pointed out that a specialized procurement process accompanies the aerospace industry's primary assemblies. While some manufacturers have attempted to adopt a cost-driven approach to procurement as seen in the automotive sector, efficiency suffered as a result. 

"If there is a quality problem, we're in trouble. If they're late, we're in trouble," Gibbon continued, as quoted by AM&D. "So, we're always looking for suppliers with a good track record for quality, for consistently meeting schedule commitments, and for having the capabilities for producing the required part using the most efficient technologies."

Wider implications take root in the U.K. 

Aerospace isn't the only field experiencing turbulence with respect to its vendor resource management - the U.K. government is in the process of streamlining its supply matrix to optimize industrial processes throughout its domain, according to Builder's Merchant News. 

"Our association is also involved across the wider supply chain with important work such as the digitalization of construction using Building Information Modeling, the actual-versus-designed performance argument, and ensuring a low-carbon, resource-efficient built environment," explained John Sinfield, chairman of the Construction Products Association, the source reported.

As the economy of the U.K. regains its footing, there will be an increased emphasis on industrial efficiency over the course of the recovery. 

To answer the first part, "what is e-procurement?", it is the business-to-business, business-to-consumer, or business-to-government purchase and sale of work, supplies, and/or services via the internet. It also includes other information and networking systems such as electronic data interchange and enterprise resource planning (ERP). Essentially, it is online purchasing.

Though the road to implementation hasn't been an easy one, it is slowly becoming clear that e-procurement has many benefits for a company or organization. Here are just a few of them:

Cost Reduction - Reduce costs by leveraging volume, structuring supplier relationships, and reducing external spend while improving quality and supplier performance through system improvements, costs can be reduced. E-procurement reduces the amount of paperwork required, reworking, and errors.

Spend Visibility - A centralized tracking of transactions allows full reporting of requisitions and purchases, order processing, and payments. This also helps with ensuring compliance with your existing as well as established contracts.

Productivity - By allowing internal customers to place online requisitions from a catalog of approved items, your procurement team is freed up from handling low value transactions to focus on strategic sourcing and the improvement of supplier relationships.

Standardization - By standardizing approval processes and workflows, you can ensure that the correct levels of authorization are applied to every purchase. Policy compliance is improved as buyers can quickly locate what they need online from preferred suppliers.

As well as boosting efficiency, the long-term cost reductions will allow you to concentrate on more strategic initiatives. The significant bottom-line benefits such as cost reductions, process efficiency, controls in spending and compliance assurance, e-procurement technology is a wise investment.
Last week I posted a quick discussion on why Benchmarking Data is a critical piece of the strategic sourcing process.   Our new acquaintance, Ron Larimer from Procurement Done Right sent me a note on LinkedIn about, what on the surface, looked to be a complete counterpoint to my article, which you can read here.

But, if you read both pieces, you'll see that we are actually very much in alignment.  So how do I write a piece titled:

and Mr. Larimer posts a piece:

and I say we are still in alignment?!

When I penned my piece, I tried to be concise, since I have to always remember that I'm writing a blog post, not another book.  So one thing that I failed to detail is what exactly I consider a benchmark to be.  I did briefly mention that I think generic grading systems and canned benchmark reports that some (highly respected) sources sell, are pretty much not worth the paper they are written on.  I didn't go into a lot of detail around the topic, but I think this is exactly where Mr. Larimer hits the nail on the head.   With canned reports you risk confirmation bias.

I've definitely seen it before, and unfortunately, I've seen it way too frequently. On more than one occasion (this month alone), I've heard the someone tell me that price they paid was confirmed to be a good price for their industry based on a report they purchased.  In fact, a few weeks ago, I had a purchasing director from a retailer tell me that the price and services they got on their telecommunications services were really good because they "got the same thing that HP got for the same price".  It was difficult for me to keep composure as I explained there was literally no possible way to draw that conclusion based simply on the complexities of telecom infrastructure, service types, taxes, fees, and geographies; but this prospect was insistent that they had a best-in-class agreement because of this generic information that an analyst firm provided them.
But, as Mr. Larimer points out, "You don’t know if the benchmarked company was purchasing a larger or smaller quantity, what the terms were, or their buying power with the supplier, how far the items needed to be shipped, the delivery lead-time, the quality requirements, the suppliers capacity at the time the order was place, how old the data was…"  
and of course a million other tangible things "did they hit a salesperson's quota, did they have a 2 way supply relationship, what does the historical relationshp look like, where there shared members of the board (do they golf together), what do the rebate or signing bonuses look like..." and we could both go on and on.

Simply put, those canned reports, and high-level reviews that some providers can turn around in 24 hours are simply not worth the cost.  More importantly, as pointed out by Mr. Larimer, they lead to confirmation bias.  "Yes, the price I paid was good, I am done negotiating" or "I think I got ripped off" souring a long term relationship, potentially for no reason.

But, I wrote that benchmarking is valuable, so how can I agree with Mr. Larimer? First you must examine the quality of the benchmarking data. I would argue that if you are purchasing benchmarking data, you should do a lot more diligence than simply going with that big firm that your company buys canned reports from.  You are buying access to information and should treat that like any other sourcing event.  Interview your potential benchmarking suppliers, determine their capabilities to provide you data, challenge their canned answers and sales presentation, and make them prove to you that they really have subject matter expertise in the area you need help.   If they can flip you back a generic report in just a few hours, or have a "library" that you can access on demand, that information may indeed be valuable, but you definitely should not use that as your basis for decision making.  Those types of reports can let you know if you are on the right track, and sometimes give you the right questions to ask, but if they are that generic, then they are not catered to your individual needs.

A proper benchmark report is a a two-way activity.  Your benchmarking company will need access to your spend volumes, contracts, agreements and stakeholders in order to understand your entire scope of business.  With that information, they should be able to provide better targets for pricing, service levels and service (or product types).  Without that information, you'll get a generic answer that leads to the confirmation bias that Larimer mentioned.

Good market intelligence (aside from spend and volume) is probably the best negotiation point you can have with any supplier. Benchmarks are not a substitute for your own research, but they should be considered a critical component of the research you will be doing.  Benchmarking is just one tool in the tool bag, don't fall into the trap of using it exclusively to validate your agreements.  Conversely, don't think that your own RFP process is best-in-class just because you found some savings.   Proper outside market intelligence (benchmarking) can help you identify if the strategies you used were appropriate, and go way beyond a simple pricing validation.
Supplier relationship management could help natural gas procurers

Recent extraction methods and a desire for reduced carbon dioxide emissions has led many energy companies to invest in natural gas. Additionally, the fossil fuel has been lauded for being inexpensive. However, recent disruptions throughout the procurement process has raised the overall price of the resource. 

Factors of hindrance

According to the U.S. Energy Information Administration, natural gas futures continued to rise this past week after supplies rose by 49 billion cubic feet, which is slightly more than what market analysts expected. Total stocks now stand at 899 billion cubic feet, up 831 billion cubic feet from the previous year and 1.01 trillion cubic feet below the five-year average. Over all, the resource stands at $4.74 per million British thermal units, increasing by 1.5 cents before the EIA's data was added. 

Though supplies are rising, the speed of which the resource is being produced is hindered by the residual effects of the 2013-2014 winter. In an interview with MarketWatch, energy futures specialist Tim Evans noted that conditions could improve over the summer if the Gulf of Mexico experiences a quiet hurricane season. 

In addition, numerous accidents involving natural gas production and refinery facilities are raising the prices of the resource. The Christian Science Monitor noted the explosion of a natural gas processing plant in Opal, Wyoming, earlier this month. The structure gathered about 1.5 billion cubic feet of gas a day, sending refined materials into pipelines that fuel urban centers throughout the United States.

A better view of procurement 

For city utilities and power providers throughout the nation, it may be in their best interests to weigh the pros and cons of outsourcing to companies that can provide them with an improved perception of their natural gas suppliers. In light of the accident that occurred in Wyoming, it's important that procurers of the fossil fuel know which facilities exercise stringent safety measures that prevent such disasters from occurring. 

Additionally, it's imperative that enterprises within the energy industry acquire materials from natural gas extractors that employ best practices. A study published by the National Academy of Sciences found that methane leaks are a frequent occurrence in natural gas production.

Supplier relationship management tools may be able to help those making use of the fossil fuel to determine which organizations are exercising best practices. Such considerations are important for both their public image (as methane leaks are harmful to the environment) and reducing the cost of procuring the materials. 

As the use of internet enabled devises increases rapidly, the amount of information collected and analyzed by companies has grown exponentially. Frequent shopper cards, mobile check ins, social networking, and online purchases all provide companies information on what, where, and when consumers spend money. This data collection is usually portrayed as a benefit to the consumer in the way of targeted discounts and a way to remember what items you have purchased in the past. As much as this technology can help retailers and consumers, it does raise a privacy concern when this information is unknowingly being collected and sold. The question that companies must ask themselves is how I can effectively use consumer data to help my business without alienating customers.

A good example of a retailer using customer data to benefit both the customer and the retailer is the My Lowes card which will store what color and finish paint you purchased so you can easily match the same color in the future. These types of programs allow Lowes and similar retailers to adjust inventory, modify distribution routes, and target certain markets more efficiently. This use of information can be beneficial but needs to be used carefully. Check in’s from mobile devises are also commonly used to give coupons or discounts to customers but can also provide important information on what time of day certain buyers prefer to shop. These types of situations are a win-win for everyone involved but sometimes the methods and uses of data collection come into question and raise concerns with consumers.

The negative aspect of the proliferation of data collection and analysis on consumers is when this information is being collected and used against them without their knowledge. A recent article in the Wall Street Journal “BorrowersHit Social-Media Hurdles“ explains how some companies are collecting information on people from social networking sites to help determine their credit worthiness. While sometimes voluntarily given up as part of an application process for people who have poor credit and are looking for a second chance, this data is also largely being used without consent by major lending companies. Targeted marking based on browser history is also a trend that some find unsettling. If you look up an item on google the next time you open Facebook you will usually see an ad from the same retailer for the same item you were just looking at. This is done without the users consent and raises concerns about who else might be seeing your search history.

The market intelligence and customer information available to businesses is a great tool but must be used carefully in order to realize its full benefits without causing concern with customers. The massive collection of information from the web could be a possible legal and public relations issue if it is taken as an invasion of privacy. Being upfront and honest with customers about the collection and use of their information is the best way to utilize this information in a way that is beneficial to all parties involved.

Image courtesy of gfi.com
Why is this important?

Too often employees relent to spending hours on repetitive processes because they have to be done, and there is no way around it. We are used to it, even trained to accept it - consider being taught to brush your teeth each night as a child or organizing your work emails. Over a month of your life will be spent brushing your teeth, and you don’t want to know how much time you spend dealing with your inbox. In fact, the vast majority of your life is spent brushing your teeth, organizing your emails, driving to work, cooking dinner, cleaning, going to the bathroom, making the bed, etc. The clever constantly think about efficiency. They brush their teeth in the shower, and set up email filters to automatically organize their inbox. The benefits they reap are invisible but invaluable - greater productivity, capacity for more work, and additional heavenly R&R.

My point is, mundane tasks are everywhere, and if you’re smart, you reduce it. Now, as an employee or manager, think about how much time (i.e. money) your company spends doing repetitive analysis in Microsoft Excel. There is clearly an opportunity here, can you see it? Are you going to be clever?

What is the Solution?

The trick is using VBA (Visual Basic for Applications) in Excel to write macros that automate the process. If you’re familiar with macros, good. If you’re not, open up Excel and press ALT+F11. In the VBA editor, a user can write subroutines to automatically create, generate and save excel files, run vlookups (or any function for that matter), create, rename, organize and format spreadsheets, create pivot tables, generate and format plots, display and process user-created forms including drop-down boxes, text boxes, buttons, and more. Whatever you know how to do in Excel, it can be done using VBA, and then some. At the click of a button, an hour long (or even day long) process can be completed in seconds. This is powerful stuff, and deserves some attention.

Think of repetitive process that start with the same or similar spreadsheet. Examples include generating billing documents based off of client usage, analyzing routinely published data, and tracking or interpreting market data over time. Your company may have routine internal processes done within Excel as well, such as resource allocation tracking, spend analysis, etc.

When is a Macro the Best Option?

Developing a macro to automate a process with an Excel macro is just like any other ROI problem. On one hand, resources can be spent up-front to develop the macro, and once developed, much fewer resources will be spent on the process. On the other hand, the process can routinely be done manually. Whichever route incurs the least cost wins out.

What are the benefits?

When trying to determine when to develop a macro, some less intuitive benefits should be considered.

  1. Quality Control

    Human error made when manually running a process is mitigated. This not only increases output quality but reduces risks associated with erroneous analysis. This is difficult to value.

  2. Simplification

    The macro will not only speed up the process, but also simplify it. A junior analyst may be able to output what a senior project manager was once required to complete, at a much lower wage.

  3. Developmental Improvements

    The more often macros are developed, the greater the developers speed and quality will be, reducing the up-front cost and increasing the long-term resource savings. Similarly, the complexity of macros employees can generate may increase over time, opening up new opportunities.

  4. Standardization

    The more often macros are used, the more standardized processes may become throughout the company, increasing efficiency beyond the scope of the macro itself.

  5. Employee Insights

    Often, the analysts performing the nitty-gritty analysis are most familiar with areas with the most improvement opportunities. You may be surprised what a employee with deep familiarity with both VBA in Excel and your company processes may be able to save you.

Rail transportation undergoes significant changes

Rail transportation has been a major asset to those heavily engaged in the energy procurement process. Typically, such a practice consists of a double-ended strategy, as businesses relying on trains to distribute oil, natural gas and coal also need to provide capital to fuel the engines themselves. Recent legislative and innovative events would suggest that this routine is about to be disrupted.

According to Manufacturing.net, Canada will require distributors to enforce a three-year phase out or retrofit the kind of rail tankers involved in an grievous accident that occurred last summer in the small town of Lac-Megantic, Quebec. The tragic occurrence resulted in the deaths of 47 people after a runaway train carrying crude oil derailed and exploded near the Maine border. In addition, 30 buildings were destroyed.

In light of the event, an anonymous Canadian official confirmed that any businesses distributing fossil fuels and various other flammable liquids throughout the North American nation will be prohibited from using the DOT-111 tanker cars used to transport such materials.

The source noted that about 70 percent of all tankers consist of the DOT-111 model. As Canada is heavily embedded in the continental strategic sourcing of energy, it's likely that rail companies will require massive production of upgraded cars. This may set off a chain of events that puts pressure on the steel industry to supply manufacturers with the necessary materials to create these hypothetical models.

New energy sources

Some professionals have asserted that diesel will no longer have a place in rail's future. According to a report released by the U.S. Energy Information Administration, liquefied natural gas (LNG) will play a significant role in fueling freight locomotives over the next few years. Recently, the United States witnessed increased production of natural gas, which has driven prices of the fuel much lower than its counterpart, crude oil.

The report noted that seven major domestic rail freight companies consumed more than 3.6 billion gallons of diesel fuel in 2012, amounting to nearly $11 billion in costs for the same year. Those same companies perceive LNG as a less-expensive alternative, and industry experts believe that continued manufacturing will further costs and offset the approximate $1 million incremental cost associated with LNG.

What this change in preference could mean is the transformation of typical procurement management considerations. If locomotives are run primarily on natural gas, other industries may start relying on rail to deliver a variety of different goods.

EU looks to cut back on food waste

Anticipating the demand for food can be especially challenging for those involved in the edibles procurement process. Between magazines praising particular vegetables for their health benefits and the low cost of processed, frozen produce, figuring out what consumers want is quite difficult. In some areas of the world, the supply of food is quite slim, whereas other nations suffer from obesity as a result of overeating. 

Who's to blame? 

Though food companies are typically held responsible for waste, recent studies would suggest otherwise. According to The Guardian, a study conducted by the United Kingdom's House of Lords noted that consumers are responsible for approximately 42 percent of uneaten edibles while only 5 percent of the blame lies on the way in which retailers sell products to households. Though many would attribute lethargy and poor eating habits to the statistics, researchers found that people who typically cook from scratch are often guilty of contributing to food waste. 

In addition, a desire to eat well has driven up the demand for fresh fruit and vegetables, prompting distributors to organize their strategic sourcing around obtaining these coveted items. The problem is, people forget that these products can only be preserved for so long in refrigerators. At the slightest hint of decay, consumers may throw out a bundle of kale or broccoli. 

Redistributing waste 

In response to the study, The Poultry Site reported that the European Union Committee of the U.K. called for the redistribution of wasted food and developing a policy that defines a tarnished edible item. Although the task of effectively monitoring and managing such a practice is difficult, members of the House of Lords claimed that something had to be done in order to mitigate the issue. 

"Retailers lie at the heart of this approach," noted the report, as quoted by the source. "They influence the behavior of producers, manufacturers and consumers but, thus far, have failed to take their responsibilities seriously."

A few members of the committee stated that procurement management strategies should refocus on delivering surplus food to charities and the needy. This procedure would necessitate assiduous attention from logistics experts using predictive analytics tools so that excess materials can be anticipated. Other House representatives claimed that wasted food should be redistributed to livestock farms and used as feed. Either way, each option requires a strong team of product supply professionals to orchestrate such endeavors. 

"Too Many Marketing Fingers in the Pie"

Sourcing Innovation just posted a great article on running those first pilot projects following a successful access-gain into the Marketing category. Among some of the tips, notes, and warnings:
  • "You need to have a firm understanding of what Marketing needs and a solid understanding of the lingo used by the Agencies as well as Marketing."
  • "You need to present Marketing with a clear picture of the process you are going to follow up-front and make sure that Marketing understands the process you are using and the critical importance of not circumventing the process, no matter how many times the incumbent Agency representative uses his direct-dial rolodex and asks someone in Marketing to let a requirement slide or just skip straight to the pitch."
  • "You won't be thanked for your many successes, even though proper benchmarking and reporting will have you recognized by the CFO and CEO, you will get all the blame for any and all failures if you screw up just once."
Follow the link above to see the article in full, and for more advice on collaborating with Marketing, check out http://marketing.sourceoneinc.com.

A 1-2 Punch of SRM and Internal Marketing

Your average procurement group - and maybe your procurement group - is inundated with recommendations and advice concerning the pursuit of strategic initiatives. The message is clear that future and long-term success for procurement and sourcing groups is going to be in the form of strategic initiatives that see procurement move from tactical rubber-stampers focused solely on cost reduction to strategic resources focused on the long-term growth of the organization. But many groups are resource-light and are up in the air about which strategic initiatives to pursue in order to get the strategic ball rolling, so to speak.

This article from Buyers Meeting Point, put together from a collection of Source One personnel, details two of the most common recommended initiatives - internal marketing and supplier relationship management, or SRM - and outlines how to optimally pursue them. The result is a 1-2 punch that delivers an early impact, a recognizable ROI, and gets procurement moving towards a position more centric to the organization's overarching goals.

And for more information on Supplier Relationship Management, check out http://srm.sourceoneinc.com.

Image courtesy of Peace Through Pie
You wouldn't buy a car based on a dealer's sticker price alone.  So why do company spend hundreds of thousands or millions of dollars with a supplier when the only market intelligence they have is the results of an RFx.   Procurement and sourcing is evolving.   Companies can't get away with expecting a generic RFx process to be the end-all-be-all to getting the best supplier at the best price.  A lot of things can impact price; raw material costs, natural disasters, supplier capacity, supplier capabilities, service levels, political stability, currency and the brand name of the supplier itself (just to name a few).  Unfortunately, an RFx alone doesn't root out all of these cost components, especially for indirect categories like professional services.

In order to get the best price and the best services, you need market intelligence, as much or more than your suppliers.  You need benchmarking data.

Access to new, more difficult strategic categories
We’ve seen a few trends emerging in the procurement and sourcing world these last few months.   The biggest trend by far is that procurement and sourcing groups appear to be breaking down the walls that traditionally separated different silos within many organizations.  We’re talking about procurement and sourcing groups finally getting a seat at the table to work on spend categories like marketing, human resources and information technology (IT). 

Sourcing teams seem to be getting access to these hard-to-penetrate categories through a variety of different methods. Whether it’s mandated top-down directives where C-level executives are getting tired of hearing from department heads that their suppliers are golden and procurement can’t help; or if it is from the department heads themselves feeling the pressure to get more with their budgets and they finally ask procurement for help.  And in other cases, no one was resisting, its just that their internal teams have simply gotten to all of the low-hanging fruit and now need to move on to more strategic spend categories.

No matter how they got there, the fact remains that more and more procurement and sourcing groups are now getting access to strategic categories that they have not traditionally ever been exposed to.   But, in many cases, procurement groups aren't really prepared for what they are about to see.   These groups are now going to be exposed to spend categories that require a much greater level of subject-matter expertise than they've ever needed before.  I've not met many sourcing people that off the top of their heads can explain the difference between virtual processors, cores, or physical processors; MIPS licenses, named user, or device licenses; and who could simultaneously be able to easily explain the differences between a creative agency and a branding agency and how to get more media exposure for less money. Chances are, if the procurement team already has that level of experience, then they already work in a company where the silos have been broken down and they might have in-house specialists already working on these categories.

So, the sourcing teams are now at a huge disadvantage.  They've got the attention of management and the cautious desire for stakeholders to work with them, but they have to prove their value to both groups?   How do decrease the costs, or improve the output of a creative agency without upsetting the supplier or derailing your internal marketing groups progress?  How do you challenge a supplier proposal for infrastructure or implementation services when you don’t really understand the terms that are being used; and you have a department who’s main concern is up-time, not costs?  

An RFx doesn't generate all of the info you need to make a decision
Procurement groups often start by attempting to apply their standard sourcing methodology to these new spend categories.  And, while that may help produce some minor results on fringe costs, the fact remains that most companies consider “strategic sourcing” to be nothing more than a 3-bid and a buy process. More specifically, they may look at their buying habits, attempt to bundle some spend together, but then ultimate just rely on an RFx process. Companies that rely on software and pre-built RFP templates for their strategic sourcing are even less likely to produce results that will have any positive impact to their business.  After all, if you are really being honest, what does your RFP process consist of?  Is it just a bunch of questions meant to disqualify outlier suppliers and provide a simple scorecard for supplier selection?  In most cases it is.  

Even if your process is a bit more in-depth than that, what you’ll get at the end of an RFP process is likely to be a confusing mishmash of offers with a variety of prices and service offerings.  Good teams will be able to normalize these offers, reestablish communications with the suppliers and refine the proposals so that they have a better basis for equally comparing the proposed solutions.  But, at the end of the process, you really only have two evaluation criteria: The quality/ services of the supplier and price.   And what if, for whatever reason, you can’t go to RFx at all;  you just have an incumbent supplier proposal, or an existing contract and they know they have your business moving forward, what do you do then?  Do you just pick the lowest price supplier (that meets your qualitative needs) and sign a contract?  No, you need benchmarking data.

Let’s look at an RFx process and assume that your company has really good, smart people, and has already done their due diligence in normalizing supplier responses and qualifying the SLAs from a potential supplier.  Now you have one last evaluation criteria or thing to negotiate, and that is price.  But all you really have is other competitive RFx responses to qualify the offer against.  And while, true that you may have some additional information about published market index prices for base components (like metals raw material costs), those things aren’t readily available when it comes to negotiating things like Agency fees, hourly rates for programmers, licensing structure, benefit costs or insurance costs. Getting access to the appropriate benchmark data is the next best thing, it just not in the manner that you might be familiar with when you source direct materials.  

You need real information, not a grading system or generic advice
Benchmarking services, in the generic sense, have been around for a very long time.  Analyst firms like Gartner have been selling them for decades.  Recently, there has also been a huge influx of new companies that offer subscription services for benchmark reports.  But in many cases, those services don’t really provide you with the information you need to effectively negotiate a best-in-class agreement for your company.  Traditionally, these benchmark reports provide high level guidance on if it is the right time to source a category (based on market conditions using revolving around supplier capacity).  Alternatively, they may provide a generic ranking system providing an A, B, C, F grade on whether or not you should source a category right now, but don't consider your exact needs, contracts, or requirements.   Some providers get a little more specific and will review your proposals or contracts and may give you generic responses like “your price is within the 85th percentile of buyers”.

But in many cases, we feel that these providers do little more than stroke the ego of the person that ran the RFx and provide validation that they did an okay job.  Of course, in some rare cases, where the baseline price is obviously wrong, they may point out a significant opportunity, but those situations are rare when you have a competent sourcing process. What those generic analyst firms and subscription reports don’t do is provide specific advice on how to grab further savings opportunities or provide you with the ammunition to enter a negotiation.
Still not convinced you need benchmarking services?  Well, if you were out buying a car, and all things being equal, would you solely rely on the offer you got from going to two different car dealerships and asking for a price? Probably not.  And would the only guidance you get be a news article online that simply states "wait till the end of the model years to buy a new car?" Nope again. But that is what many companies currently do via an RFx process.  In your personal life, you’d likely handle things differently.  You’d probably spend a lot of time researching the cars first and deciding on a make and model.  You’d probably learn about seating capacity, dependability studies, customer satisfaction, gas mileage, horsepower and a variety of other factors.  You’d probably test drive a few first.  Then, you’d look at one of the many resources online to determine if now is the right time to buy.  Are incentives available?  Are there dealer holdbacks?   Should I finance through my credit union or the manufacturer?  What should I pay for a warranty, for how many years, and should I use a third party?  Should I prebuy the maintenance? Should I lease or buy? There is probably over a hundred questions you ask in the car buying process.  But, the information is so readily available (published in magazines and online) that you can knock out the entire sourcing process in a single day, including the test drives.   Buying a car has become such a commodity that people regularly post what they paid, the deals they got, and from where to buy on the Internet.  That, information is benchmark data.  Unfortunately, things aren't as simple as buying a car in the business world.

But, there are firms that can help.  To be very specific, there are actually firms, like Source One, who go way beyond offering a generic ranking system and offer highly-customized benchmarking analysis reports.  A proper customized benchmark report, like the ones that Source One delivers, can give you specific market intelligence about the prices or rates that your suppliers are charging.  They can not only tell you if you are competitive, but give very specific advice on where you can improve.  The reports leverage, the market intelligence of thousands of sourcing events across a variety of industries. Instead of telling you percentiles and grades, you can learn that other similarly sized deals paid $XXX per hour for a consultant’s time or achieved 3 minutes of prime-time viewing on a top rated television show for the same price you paid for 30 seconds.
Customized benchmark reports also review the structure of your proposals or contracts and can point out areas where what you asked for may cause you to overpay or not get the proper level of service.  Can your benchmark partner help with evaluating:
  • Is your software implementation consulting team front loading your development costs? 
  • Are they properly specifying the infrastructure and hosting requirements needed to run your new applications?
  • Are the costs for project management reasonable?
  • Have you requested, or are you being proposed, the right type of license?
  • Can you break out service and product offerings and use multiple suppliers?
  • Are there opportunities to negotiate lower cost resources into the mix such as offshore programmers or junior analysts; or are you paying the highest rates that firm charges regardless of the work that is being done?   
  • Does your digital agency have access to the big data tools and resources to help you identify and target the right demographics? 
Think about this... Most organizations rely on their Human Resource department and Finance department to negotiate the company benefit and health care programs.  If they are lucky, procurement might get a seat at the table during that process.  Those departments rely on an insurance broker, who they've used year over year over year.  That broker assures them they are getting the best price and service offering.  The broker also explains that laws forbid brokers to provide any discounts so you’ll get the same price from each provider no matter which broker you choose. Together HR and Finance have no way to validate that, and like working with that broker, so take they take them for their word, and every year do what the broker tells them. You, in procurement, can do nothing other than negotiate some minor concessions and still would have no basis for comparing the pricing or the mechanisms for soliciting the pricing.   But a third-party firm that is not vested in the interest in you signing a contract like a broker (to earn commissions) can bring true validation to your purchases.

Real benchmarking agencies can help ensure that you are getting the absolute best supplier and best product or service for the lowest cost possible. But don’t be fooled.  When you go out to select a benchmarking partner, be sure what the deliverable will be before you subscribe to their service.  Is an ABC ranking system really going to help you?  Is a percentile evaluation really going to be able to give you the information you need to ask for pricing or contract improvements?  Just like you would properly source any other category, you should do the same with a benchmarking partner.  Don’t just pick them because they have a well known name, validate and choose the right benchmarking provider for your needs.

Shoe retailer gives its inventory a technological boost

Satisfying the needs of customers shopping online and in-store consists of multiple operational factors, but it all starts out with the procurement process. A comprehensive view of all direct inventory enables retailers to determine how shipments should be organized based upon varying consumer demand. This omnichannel strategy is forcing businesses to utilize technology that can provide a real-time vision of all distributed materials. 

Putting the best foot forward 

According to Retail Info Systems News, footwear merchandiser Aerosoles merged its direct and e-commerce avenues to streamline inventory processing, with the goal of having all stock lists housed in one location. Aerosoles Vice President of Merchandising Steve Siebel told attendees at the 2014 Retail Technology Conference in Orlando, Fla., earlier this month that linking core functions such as assortments, warehouses, material management and demand planning has had a profound impact on the retailer's omnichannel blueprint. 

"The organization needs to realign to one customer service team and one allocation team to handle the new demands," said Siebel, as quoted by the news source. "We realized we have to determine what the best level of inventory actually needs to be at each location." 

As opposed to having two disparate procurement software systems - one to handle e-commerce, the other to administrate brick-and-mortar operations - Aerosoles chose a holistic solution that would enable it to monitor fluctuations in consumer demand and compare those changes to current product storage. 

The rise of radio frequency identification (RFID)

The ability to log incoming materials at a warehouse bay and have managers be able to view the inventory changes in real time is one of the benefits associated with RFID. The technology has grown in popularity as companies realize they can sync the information recorded by the system with records management software. When an item arrived at a facility, where it was stored, and the time it left a distribution center can all be entered into a comprehensive solution.

Merchandisers throughout the globe have recognized the significance of RFID, so much so that a conference showcasing the technology - appropriately named RFID Journal LIVE! 2014 - was held in early April. RFID Journal reported that the event attendees displayed RFID-related services at the Item-Level Retail and Apparel Workshop on April 8, displaying how the systems improve inventory accuracy and enable users to adequately meet the demands of customers. 

Marks and Spencer Head of Packaging Kim Philips opened the conference's keynote presentation by explaining that RFID will become more prevalent as merchandisers move toward omnichannel practices. 

Protecting data throughout the distribution process
The prevalence of procurement software and other related programs in materials acquisition has obligated users to find new ways to secure their data. Digital intelligence collected from sensors, expense reports and other sources are often aggregated onto cloud servers where the information can be dissected by data analytics. Though this technique provides suppliers with valuable insight, it opens up avenues that hackers could exploit.
Too good to ignore

With security considered, the benefits associated with spend management cannot be ignored. Many of these programs sync with automated invoicing, allowing companies to quickly process and file purchase orders. This electronic workflow allows organizations to quickly and efficiently determine which expenses are congesting budgets and where savings can be achieved.
According to Supply Management, Head of Indirect Procurement at textile manufacturer CWS-boco Marcin Chramega stated that his centralized team managed about 40 percent of the company's $278 million annual indirect spend with the assistance of an expense analysis program. Chramega noted that the software allowed his department to eliminate operational inefficiencies, in addition to helping him deduce how the company can save money.
"I will show all these misses and gaps with the assessment of the data," said Chramega. "This will help me to drive the business and procurement to the next steps."
Where the challenges lie

However, with electronic invoicing comes avenues through which malevolent figures could gain access to company networks, meaning that business account information could be compromised. Dean Wiech, managing director of Tools4ever, a company offering robust identity and access management software, stated in an interview with Manufacturing.net that data protection is just as much a part of distribution as procurement and spend management. Wiech noted that companies should implement policies that allow access to financial information only when it's absolutely necessary.
Although Wiech believes that manufacturers and distributors alike are cognizant of data security, there are three components that they may be neglecting:
  • The use of role-based access control arrangements to prevent unauthorized people from accessing sensitive information. 
  • When a worker's responsibilities shift, firms need to ensure their security permissions are appropriately updated.
  • Once an employee leaves an organization, his or her database entry must be terminated immediately. 
To sacrifice the benefits of automated processing and procurement software would put a distributor at a grievous disadvantage in the marketplace. Rather, they must implement common, non-technical best practices that will protect their data from a variety of different threats.

Who doesn't like good fried chicken? Nevermind that I'm asking this shortly before lunch, the work that goes into innovating the food you eat at your chosen establishments has a lot of parallels with your daily work, and I'm about to break down how. But first, a bit of backstory.

In my work prior to Source One, I was an editor and journalist. My last journalism job was for a startup men's publication running their Philadelphia bureau. The publication was very heavy in the food/drink/"new places to go to seal the deal", so I and my writers found ourselves in kitchens and the back rooms of bars a lot. The food scene in Philly is pretty diverse, but dining establishments can be over-generalized into one of three groups.

The Old Standbys - These range from your chain restaurants, to your mom & pop BYOs, to your diners. Good for a weeknight meal when you just want something familiar, these aren't going to have anything unique or adventurous on the menu - save for maybe that $3.99 steak & eggs "special" at the diner that's adventurous for all the wrong reasons - and no one in the front or back of the house has any culinary training above the mandatory food safety stuff, but they still serve their purpose and make a little money for themselves.

The High End Restaurants - This also includes some better chains, but this is mainly the domain of local restaurateurs who've been at the game for a while and have an education and experience. The chefs in the kitchen have c-school degrees, the front of the house is run by someone with a degree in hospitality management, and the experience is nothing short of what you'd expect. Your steak is expertly prepped medium rare, the flavors of the carb-laden sides complementary, and the decor is exactly what you'd expect from a steakhouse. And you can get that same experience in any of their well-run establishments around the city or region. They are perfectionists at the tactical level and very efficient. In Philadelphia, this is what you get from a Stephen Starr restaurant, or those from Jose Garces, Marc Vetri, and Michael Solomonov.

Boutique and Specialty Locations - These are highly specialized ventures and they run the absolute gamut. Maybe it's an 8-seat counter staffed by a lone chef who has studied noodles his entire life, and he only does ramen but it's amazing ramen. Or maybe it's an out-of-the-way bar run by an eccentric/lunatic who spent years traveling the world for cocktail ideas and inspiration, and learning about liquor. Or maybe it's the gastropub run by a beer expert bartender and a chef with such an in-depth knowledge of food that he's able to pull in unusual combinations that WORK, and a creative streak capable of producing things like deep fried Four Loko or a burger with  foie gras buns.

All three of these options will get you fed. And the High End Restaurants promise a great experience. But the boutiques and specialists, that third group - those are destinations. They are the best at their respective craft, and are able to perform at the highest levels because of the level of control they have over their work - their assigned subject matter - because of their expertise.

So, parlay this into your organization.

The old standbys are just following the same old procurement practices someone else showed them, slinging out three bids just as easily as big-as-your-head portions of chicken parm and just as prone to resorting to cutting down portions when the money gets tight.

The high-end spots have the best tools and educated resources at their disposal, but their methods are nothing new. "Overhead in Department X getting a little high? My MBA professors said to outsource it - Google "BPO" and go with the top result!" These efforts likely produce reasonably good results, but when dining trends change from grilled dishes to sous vide, or when industry trends change and the old school savings methods aren't enough, both are left with useless resources.

The specialist subject matter experts, with the freedom to leverage their expertise and creativity to properly innovate - the sourcing version of the guys in the kitchen going "Our exotic Asian restaurant's covers are plateauing, the move seems to be for more honest, simple food - BAM! Korean Fried Chicken!!" - are the ones who develop and succeed with innovative strategies that produce the next-level results that others soon follow. So, when one restaurant creatively, and successfully, fuses Asian spices with fried chicken wings for Korean Fried Chicken, others follow up with their own Korean Fried Chicken... and Jewish Fried Chicken and Israeli Fried Chicken from a donut stand. And suddenly everyone in Philadelphia is awash in fried chicken. Or, when one company has the supply chain knowledge and vision to see competitive advantages in consolidating their supply chain down to critical suppliers, then working so tightly with those suppliers that their relationships are practically partnerships, and has tremendous success from the resulting competitive advantages - Supplier Relationship Management becomes a hot topic and a sourcing "next step".

So, the next time you're headed out to dinner, and you pick a spot that "does amazing things with chicken", think about why they're able to do that and how that appeals to you as a customer. It just might help you reconsider how you utilize those subject matter experts within your sourcing department and organizing.
The challenges of supplying humanitarian aid

Strategic sourcing for organizations such as the International Committee of the Red Cross often revolves around providing food, basic housing and medical supplies to people living in particularly impoverished regions around the world. Due to the absence of consumer data, obtaining the necessary materials becomes quite a challenge, as Red Cross personnel have to accurately determine which materials are needed.

Working with humanitarian distribution 

Although demand for particular items is prevalent, humanitarian supply is not derived from consumerism, but genuine need. People affected by natural disasters require robust distribution strategies so that materials essential for human sustenance can be readily obtained. National governments are typically charged with maintaining a viable procurement process by providing regular aid, but deducing how much of which particular products are required becomes a challenge

According to Supply Chain Brain, researchers at the Massachusetts Institute of Technology Humanitarian Response Lab are devising new critical situation assessment methods of delivering aid. Jarrod Goentzel, founder and director of the department, claimed that comparing conclusions derived from social media and big data with seaport and highway operability could give organizations a better perception of how essential materials should be transported to areas affected by natural disasters or disease. 

Goentzel also noted the importance of the private sector, stating that brick-and-mortar stores should leverage data to figure how to best meet supply needs. Before a hurricane shakes a region's infrastructure, it's imperative that retailers stock up on necessary items. 

Deducing government intervention 

Sometimes, organizations such as the International Committee of the Red Cross have to deduce how public authorities will hinder procurement management. According to the Sudan Tribune, Sudanese officials recently announced that they were suspending ICRC activities after the organization refused to abide by Khartoum's extortionate demand that funds and resources be transferred to the Sudan Red Crescent.

In addition, the news source reported that the National Islamic Front/National Congress Party regime in Darfur recently expelled the Agency for Technical Cooperation and Development (ACTED), a humanitarian aid organization from France supporting water and sanitation infrastructure for camps surrounding the region of Zalingei. An anonymous UN official told the Sudan Tribune that this move left many charitable sectors without effective spend management or oversight, leaving many of those living in poverty with little to no knowledge of how operations should continue. 

These suspensions and expulsions ultimately hinder materials acquisition. For this reason, it's important organizations such as ACTED and the ICRC take a diplomatic approach to procurement and work with national governments so that aid can be delivered. 

Establishing a formal supplier relationship management program within your organization can be challenging. Some risks that come into play include ensuring the right level of accountability with the suppliers versus the organization, the effect that ill-defined roles and responsibilities can have on the program, and maintaining a successful program throughout the life of the contract. The best way to mitigate these risks is to ensure that the program is well structured from its onset and that the right people are in place to manage the program on an ongoing basis. The following tips will help guide the proper design of a Supplier Relationship Management (SRM) program.

Developing an SRM program starts long before the supplier on-boarding process with effective strategic sourcing. It is critical to select the right business partner – one that shares an understanding of the organization’s culture and goals – especially in more strategic partnerships. Always try to keep in mind the end state vision and future plans when selecting suppliers during the sourcing process, this will help to ensure the supplier will fit into those plans adequately.

Along these same lines is the necessity to have a person or small team assigned to manage the supplier relationship from contract negotiations through the on-boarding process and throughout the life of contract, the earlier they are involved the better chance they have of appropriately establishing the parameters of the relationship. This should include regular communication at the account management level to ensure that service levels are being consistently met, that the scope is being adhered to, and that pricing remains within the agreed upon conditions. These interactions aid in the support of assigning accountability to each side of the relationship. Understanding who is responsible for what in the contract is dependent on the scope of the category and agreement, however typically the supplier is required to maintain such conditions as service level agreements, processes and procedures, quality and on time deliverables, and more. Consequently, accountability is not a one-sided story, the business is typically responsible for maintaining up to date information provisions, processes and procedures, and ensuring that approvals are provided in a timely fashion as to not disrupt the supplier’s timelines, among other things. Communication is the key to ensuring that all involved parties are maintaining their end of the deal. Within these elements lie accurate and well-defined roles and responsibilities. Accountability cannot loosely fall on one party or the other, there needs to be clear assignment of tasks and general duties. Just as in any well-organized plan, without specifically assigned roles and responsibilities, the relationship and subsequent contract can easily become derailed.

Another key element to Supplier Relationship Management is continuity. At the onset of a new contract all those involved typically pay close attention to the contract terms but within months this attention slowly begins to slip away and drive to other priorities. Before you know it the contract is up for renewal and there is a convoluted mess to deal with – irrelevant SLAs, out of date account structures on file, and pricing that does not apply to the scope of work being conducted today. This is another vital reason that a specific team be assigned and held accountable for managing all aspects of the relationship throughout the entire life cycle of the contract. Not only is there a great deal of risk to the business, but there is also much more work involved in renewing an agreement that is essentially obsolete.

Developing and implementing a proper Supplier Relationship Management takes time and expertise. Follow me to learn more about Supplier Relationship Management and Source One’s experience.
Mitigating risk with procurement software

Surviving in the global economic arena necessitates an eye for risk management and an understanding of the capabilities of procurement software. Manufacturers, distributors and retailers throughout the world have to orchestrate profitable relationships while abiding by inter-governmental regulations, considering social responsibilities and exercising sustainable practices. In order to satisfy these demands, market participants must possess a comprehensive view of all material sources.

Assessing risk management requirements

Whenever merchandisers buy a particular product, they're inherently taking a risk. There's no guarantee that the purchased item will be sold, that it won't be damaged or stolen en route or even that it will function properly when it's taken out of the package. The only factor that retailers have on their side is probability. Through assiduous market research and analysis, commodity-based companies deduced that obtaining such a good would result in a return on investment. Consumer demand supports this claim.

Carlos Alvarenga, a contributor to Procurement Leaders, noted that risk management is currently in its nascent stages as it relates to contemporary strategic sourcing practices, but its role is going to become much more prominent in the near future. As of now, charting probabilities primarily consists of conducting qualitative analyses in the form of supplier audits and typically scrutinizes discrete, disruptive and unlikely transactions. However, the future will produce material acquisition that inherently carries out the following tasks:

  • Identify which third-party factors (i.e. governments, associations, competitors) may hinder procurement.
  • Deduce the total cost of risk at the distribution and supplier level.
  • Determine which in-house investments either will or will not produce a return on investment.

Spearheading this movement will be cloud-based software capable of aggregating data from multiple different sources and processing this to form actionable intelligence. Warehouse management systems, port administration programs and other technologies will contribute, providing executives with a comprehensive perspective of all product obtainment practices

Attaining more to reduce expenses

Richard Waugh, a contributor to Spend Matters and vice president for a materials acquisition technology developer, stated that the majority of procurers utilize some form of technology that helps them execute more effective spend management strategies, find cheaper goods for better quality and enhance distribution routes. Looking toward the future, Waugh noted that these organizations are beginning to attain more technology that pertains to specified areas, such as supplier performance measurement and financial savings execution.

However, attaining advanced technology all depends on how much capital organizations have available. A study conducted by Waugh's company surveyed an unspecified number of global enterprises regarding procurement management. Out of the respondents, those that reported higher cumulative savings were much more likely to claim higher software adoption rates. What's even more interesting was that enterprises that encountered such success often reduced operational expense by using computing solutions in the first place.

It could be said that these savings were accomplished by factoring in the risks involved with procuring certain goods from particular sources. For example, a spend analysis program could correlate manufacturing costs in India with those of South Africa and then compare the quality of the goods being produced. In addition, other elements would be factored into the equation, such as:

  • Which ports are more expensive to dock ships at?
  • Are the goods manufactured in politically volatile nations?
  • How do companies producing raw materials treat their employees? (This point is particularly relevant, as many consumers base their purchasing decisions on how socially responsible an organization is.)
  • Do the original source manufacturers utilize automated or manual processes?

Procurement risk management essentially takes basic economic principle and seeks to derive the most information out of probabilities through algorithms. A global enterprise is connected to dozens, if not hundreds, of indirect partners and subsidiaries all engaged in different aspects of the distribution chain. Figuring out which transactions will carry the less amount of risk is imperative.