New priorities set to reshape procurement

The revolution in procurement that has happened over the past few years is still ongoing. Sourcing leaders hoping to make further progress improving their departments' effectiveness and overall contributions to corporate success should therefore focus on elements of their operations that can still be improved in the immediate future. The end of 2017 has brought numerous analyses of how far the sector has come and where it should go next.

Becoming a 'procurement master'
"Procurement masters share a few key characteristics."
Recent Accenture Strategy research has a few potential objectives for sourcing leaders to target in the year ahead. The research organization identified a group of experts on the leading edge of the curve, composed of executives who deliver 15:1 return on investment. These procurement masters share a few key characteristics, which ambitious supply chain leaders can emulate.

For instance, high-performing procurement departments draw clear links between their operations and overall corporate financial results.

Establishing such a connection is a good way to stake a place among the other C-suite executives when it's time to set company strategy. When the rest of the company sees the sourcing department as an integrated part of the whole, rather than an isolated silo, procurement's relevance can rise.

Accenture Strategy added that procurement masters tend to lean so heavily into strategic operations through intelligent use of automation. The core functions of sourcing are easier to handle effectively when simple, transactional matters are managed via automated processes. Supply chain leaders with too many manual functions to handle may find competitors are making more progress than they are while doing significantly less hands-on transactional work.

Securing employees with new skills
No technological revolution can take shape without knowledgeable workers ready to adapt to the new style of doing business. According to the Korn Ferry Institute, supply chains will find themselves in need of the right personnel very soon. Buying software is a relatively easy action compared to searching for people who can make effective use of the new applications their leaders have purchased for them. Changes in acquisition and retention approaches may be necessary.

Once new supply chain team members are on the job, they'll need to acquire practical, real-world skills. Schneider Electric Chief Supply Chain Officer Annette Clayton told Korn Ferry decision-making is a major priority for new professionals. Today's procurement and sourcing environments move quickly, and the amount of data available can be severely limited. The supply chain employees who become the leaders of tomorrow will be able to use the information and technology on hand to direct their departments effectively.

Accurate data is crucial for sourcing success even after you've established a baseline.  Procurement's efforts to interpret and act upon their data will dictate the strategies they employ to locate and negotiate with suppliers.

A few weeks ago, Source One's Jennifer Ulrich and Nick Harasymczuk joined the Source One podcast to discuss data collection for facilities management spend.  This week, they returned to discuss what comes next.

Data is everything when it comes time to identify suppliers. Nick and Jen suggest that this information enables Procurement teams to determine, for example, whether they should expand or consolidate their supply bases.  Additionally, it helps point to areas of particular concern.

Don't have time to listen?  Here's a transcript of the conversation:

Source One: Hello, and welcome to the Source One podcast.  Consider us your source for the latest Procurement, supply chain, and Strategic Sourcing insights anytime, anywhere. 

On our last episode, we sat down with Associate Director Jennifer Ulrich and Senior Project Analyst Nick Harasymczuk to discuss the first steps in sourcing facilities maintenance services.  Once you’ve collected data and established a baseline, it’s time to go to market. 

Today, Nick and Jen return to discuss initiating the sourcing process for this complicated spend category. As you’ll hear, data drives the process and dictates the strategies a company will employ for locating suppliers.

Last time, you both made it clear that companies face serious consequences if they fail to assess their Facilities Management accurately.  Let’s get started by discussing some of these, Jen?

Jennifer Ulrich: First, I’ll reiterate that the importance of Facilities Management spend will vary depending on the size, structure, and industry of your company.  A company based in manufacturing, for example, will need to pay closer attention than one in the financial industry.  That does not mean, however, that anyone can afford to neglect this category.  Companies can easily fall into disarray if they let the category go unmanaged for an extended period of time.

They might find that service levels are inconsistent or have decreased over time.  They could also find that costs have gone up and are no longer in line with the market based on their business’ growth and scope of work.

Nick Harasymczuk: Speaking of scope of work, it’s also possible that the scope of work will have either reduced or expanded over time without anyone’s knowledge.  Inefficiencies in the supply base might also go unnoticed.  For example, an organization with multiple locations could discover it’s been leveraging multiple suppliers for the same service.

These are just a few of the issues that can result from neglecting Facilities Management spend.  Unfortunately, getting the category organized and developing a program for total management won’t happen overnight.  Companies will need to develop a plan of action with clear, logical steps to course correct and recoup lost savings.  This process could take years depending on the contracts in place, but it’s impossible to effectively go to market without it.

S1: So, where should companies start?

JU: The first step is always getting organized.  Companies need to determine which subcategories need to be reviewed and prioritize their efforts based on the impact specific categories will have on their overall facilities operations. For example, a company might find themselves looking more closely at Security Services, Landscaping, and Waste Management purchases than HVAC Maintenance, Roof Repair, or Janitorial Services.

S1: If a company has let their Facilities Management spend go unreviewed for some time, it’s likely they’d have trouble prioritizing their spend analysis.  What factors typically play into this process?

JU: Prioritizing subcategories depends on a number considerations.  These include existing contracts and their timeframes, total costs of contracts, criticality to the business (a customer facing category might take precedence, for example), and any concerns over service levels.

Once you’ve developed a plan for tackling crucial categories, you’ll have to collect all the relevant data.  That means assessing contracts, pricing agreements, scope of work documentation, and end user feedback. With this data, you’ll be able to prioritize sourcing efforts based on factors like expiration dates.  Additionally, this data will provide the basis for a baseline.  We all know how important that baseline is for conducting successful initiatives.

S1: And how do these prioritization efforts ultimately affect go-to-market strategy?

NH: An accurate and actionable picture of your company’s needs makes it possible to develop and execute the appropriate sourcing events. Tailoring your methods to the primary drivers within a subcategory promotes greater efficiency and should produce more useful results.

Maybe you’ve observed that services have become decentralized over time and are spread over multiple suppliers in multiple locations.  In this situation, you’ll likely want to focus your strategy on consolidation.  Or the opposite might be true.  Regardless, you can’t develop strategies or conduct effective events without taking the time to thoroughly assess your spend and determine priorities.

S1: But closing and event and awarding business isn’t the end of an initiative, right?

NH: That’s correct, closing an RFX event is just the beginning of a category management plan.   Going forward, the company will need to maintain contracts in a database with automated triggers and manage suppliers through structured SRM programs to ensure compliance with established KPIs.  And that’s just the start!  Their established plan has to include flexibility to account for the unexpected, and they can’t afford to fall back on old habits. 

S1: Maintaining a vigilant eye seems to be key.

JU: Right, no one wants to go through the effort of category cleanup to find themselves doing it all over again next quarter. Compiling accurate data and maintaining efficient supplier relationships are both ongoing processes.  If you get lazy, you could wind up facing challenges like the ones we discussed earlier and suffering serious value losses.

S1Thanks you both.

Next week, Jen and Nick will return to conclude their series.   They'll discuss implementing solutions for better management of facilities management spend.  While you wait, consider reaching out to Source One's cost reduction experts.  They've got decades of experience and unparalleled market intelligence.  Whatever your industry, whatever your spend category, count on Source One to produce long-lasting cost savings. 

Breaking free from supply chain inflexibility

Procurement and other key supply chain functions may determine whether companies succeed or fail in their strategic goals in 2018. Introducing new products, expanding a business geographically and ramping up the scale of production are a few possible ways to make progress as an organization, and any of these approaches may be derailed by a supply chain that can't keep up with leaders' goals.
Becoming better at managing sourcing and procurement, even as a business changes its scale or approach, is an admirable goal for supply chain leaders to hold in the new year. Achieving this aim may mean overcoming historically inflexible practices.

Searching for agility

Forbes contributor Jonathan Webb recently suggested that today's supply chains are often "brittle" and fall into disrepair when levels of demand change quickly. Breaking out of this vulnerable tradition may mean adopting practices such as an agile mindset. Agility, a concept from the software-development world, means constantly iterating on existing processes and rolling out improvements.
"Responsive firms can meet market demand without constantly renegotiating contracts."
Webb added that flexibility can be built into the contracts between buyers and suppliers. When there are changeable and responsive aspects written into contract language, firms can shift their approaches to meet market demand without constantly renegotiating contracts.
Historically, the main concern that has gone into supply contracts is cost. Buyers have driven prices as low as possible, counting the money saved as a sign of success. Webb noted that in the modern era of increased demand and the need for adaptability, flexible agreements may be even more important than rock-bottom prices and therefore worth securing.

Developing elasticity

When naming his top 2018 predications for Supply Chain Management Review, FarEye CEO Kushal Nahata mentioned an overall increase in flexible operations. As with numerous other recent operational changes, technology will enable the move toward better supply chain responsiveness. Nahata mentioned automation tools as the engine powering these changes in the logistics world. Companies that automate many of their key processes will be able to scale their operations up and down more easily than those that resist technological integration.
Meeting the challenges posed by fluctuating supply chain demand is sure to be high on executives' priority lists for 2018. Too much unused capacity is a drain on an organization's budget, and inadequate services lead to lost potential business. Creating a flexible infrastructure that deftly adapts to the needs of the moment, no matter how quickly they change, is a worthy goal for supply chain leaders as they improve their departments.

A few weeks back, Source One Associate Director, Jennifer Ulrich and Senior Project Analyst, Nick Harasymczuk joined the Source One podcast to discuss data collection in the facilities management category. Loaded with complicated subcategories and large supply bases, the category often proves especially challenging to assess.

Today, Jennifer and Nick return to discuss what comes next for Procurement teams working in this spend area. As you'll hear, data’s role isn't over once you've achieved a baseline. Your interpretation of this baseline should help determine priorities and dictate strategies for identifying suppliers.

Procurement teams rely on their data, for example, to determine whether to consolidate or broaden their supply base. With the appropriate strategy, informed by accurate data, organizations can efficiently optimize their facilities management spend.

Check out the episode today, and stay tuned for the third and final installment next week.

Want to learn more about effectively sourcing facilities management services.  Contact Source One's cost reduction specialists today for expert assistance for any industry or spend category.

The procurement department and supply chain in general have had a tumultuous few years, with new technology allowing leaders in these fields to automate many of their traditional tasks and move into higher-level, more strategic work. The brief respite as 2017 turns into 2018 is a great time to take stock of how much has changed - and where the industry appears to be headed next. While the industry is somewhat unsettled now, a clearer picture is emerging.

What do supply pros care about?
In an end-of-year reflection, EBN Editor in Chief Hailey Lynne McKeefry explained that the expanding strategic role of the supply chain became visible in the media in 2017. Companies working on ambitious, new product launches have to ensure their procurement approaches are sound, with every detail worked out at the risk of losing business during key moments.

Of course, even supply chains that are solid when times are good can fall apart due to natural or manmade disasters. McKeefry therefore emphasized the importance of risk mitigation strategies. Extreme weather made its presence felt this year, serving as a constant reminder that unless a procurement strategy has enough redundancy to survive a fire, earthquake or other catastrophe, it is seriously flawed.

"Business leaders who want immediate value from improved solutions can launch pilot programs in the sourcing department."
Not only was tech adoption a major supply chain theme in 2017, but also McKeefry sees the use of new systems and concepts as an area where procurement can lead organizations. Business leaders who want to derive immediate value from improved solutions such as analytics or artificial intelligence can launch pilot programs in the sourcing department. Because the supply chain touches all other areas of business, efficiency and decision-making improvements affecting supply processes can positively impact organizations.

Basic considerations still ring true
While a number of new trends are giving procurement leaders directions to explore in 2018, many supply chain professionals are still aiming for easy-to-understand goals. According to Deloitte's latest research on chief procurement officers, cost advantages and cash flow improvements are still the bread and butter of the supply chain. Traditional efforts to improve contracts and advanced, tech-driven strategies can deliver favorable costs to companies.

Deloitte noted that procurement leaders can make use of the support they are likely receiving from corporate executives to further improve their own ability to contribute value. Better collaboration with suppliers, efforts to develop a new generation of procurement talent and the march toward better analytical systems are all possible areas for development and expansion in 2018.

As their role in decision-making increases and the tools available to them improve, procurement leaders have the potential to solidify their place as major members of any company's executive team. The year ahead may be a turning point in this ongoing engagement with overall corporate strategy as technology becomes more effective and ingrained roles shift.
Last week, I proposed a New Year’s resolution for us to clean up our spend analysis data. After all, if we’re going to hit the ground running next week, we need a clean foundation to build 2018 sourcing initiatives on.

I recognize this week for the vacation time that it is, so I will keep this brief. In fact, I’d like to view this list as a high-level set of suggestions rather than drilling into a defined process. We all have too much egg nog to drink to bother with a long post.

Data Cleansing Best Practices

Long story short, we need to ensure that we apply a simple “onboarding” process whenever we incorporate a new set of data into our overarching spend analyses:
  • Keep tabs on data sources. As we identify the data sources we need to capture, we’ll get more of a handle on how much of a lift it will be to get them in shape. This will help us allocate needed resources and set deadlines in advance of the cleansing process. Are we pulling general ledger reports? Do we need to go down to a more granular level, such as invoice reports?

  • Collect and consolidate the data. We’re likely going to be working with multiple systems – we’ll want to convert the data to a simple standard, such as excel files. Choosing a single, widely accessible format like this ensures that a wide audience of required resources will be able to access the data. However, this is also one of the first opportunities to fracture our data further…

  •  Don’t put this consolidation on autopilot. Let’s stick with an Excel example. Excel does its best to interpret data the way it thinks you want it to. However, let’s say our data has characters like double quotes (maybe representing lengths of screws in our MRO description field). Excel may misinterpret that double quote and throw our columns out of whack – those screws would screw us! Check your data over for any questionable characters.

  •  Cleanse and normalize. We’ll want to think about standardizing our approach here. It is simple enough to say “correct any errors we find,” but what about non-errors that are still problematic? Let’s go back to or AT&T example – we need to pick a convention (for example, always converting the word “and” to an ampersand) and stick with it.

  • Append. We’ll want to identify what data is important, and ensure we collect it where possible. Not all sources will include all the fields we want; some appending may be in order. In advance of this cleansing, think about what type of data is relevant to your goals. For example, we may want to identify any organizational parent/child relationships – in other words, do we want to retain the knowledge that AT&T Mobility is part of the AT&T family?

  • Set up a schedule. This is not a one-and-done exercise. When we review new data, we validate on an intra-data set basis. We also want to think about the bigger inter-data set picture as well, ensuring rules set today govern new data tomorrow. Schedule regular data-wide reviews to ensure consistent rules are applied. You’ll also want to validate that new data points with previously unseen variables don’t disrupt any current-day automation.

2018, Here We Come!

If I had to boil it all down into a single key takeaway for you to consider moving into 2018, it would be this – Our spend analyses are the foundation of our strategic sourcing initiatives. Spend data are, in turn, the foundation of our analyses.

Keep the GIGO concept in mind, and do what you can to give 2018 the strongest foundation you can.

The concept of sustainable sourcing isn't entirely new, but it is an idea on the rise. In recent years, consumers have become clear about the kinds of companies they want to do business with. Shoppers are interested in buying from organizations that are committed to doing good in the world, rather than just making products or offering services. This demand has given a boost to sustainability in general and green supply chains in particular. If a business is connected to questionable practices through its sourcing choices, it's hard for leaders to present the company as conscientious or positive.

Sustainability and cost coincide
As Supply Chain Dive recently explained, the current view of sustainability in procurement may take the form of a simple trade-off: Companies spend more on sourcing from verified, reliable sources and reap benefits in the form of reputation improvement. The source then added that such an impression is outdated, and the financial math may be more favorable for businesses than they expect. Due to operational changes, sustainable practices are more affordable than ever before, adding an extra incentive to adopt them.

Supply Chain Dive explained that in many cases today, responsible and cost-effective actions are completely in line. When vehicle fleets switch to more sustainable fuel sources, for instance, they create cost-saving opportunities with their high efficiency. The fact that these fuels are also less harmful to the planet over the long term means that businesses can create a green supply chain while seeing cost benefits.

In many cases, taking a longer-term look at cost over time can help drive budget-conscious companies toward more socially and environmentally responsible priorities. Harmful and damaging processes can become expensive in many cases, whether due to ramped-up regulations or the fact that depletion of resources is causing scarcity. Jumping to sustainable models preemptively can present a bottom-line booster.

Where does sustainability fit into the supply chain?Where does sustainability fit into the supply chain?
The state of sustainability
It is worth asking just how close the world's companies are to adopting sustainable practices in great numbers. The Sustainability Consortium's Euan Murray, writing for GreenBiz, stated that despite large-scale setbacks, such as U.S. withdrawal from the Paris climate change agreement, there have been plenty of positive signs indicating progress over the past few years. Murray stated that companies are doing valuable work adopting new and greener supply chain practices and that these efforts are worth more than headline-grabbing actions.

Murray explained that on behalf of his organization and the industry at large, he sees 2018 bringing better data flow, ensuring that companies and consumers alike can trace items back to their sources and determine whether items have been responsibly manufactured. Furthermore, he hopes that there will soon be a greater understanding that population health and environmental protection are connected. Companies that want to defend the former can and should practice the latter.

The strategic sourcing revolution is a change in organizational rather than technological terms, but its current prominence has been aided by several new digital solutions that have rolled out over the past few years. Accepting more strategic input from procurement leaders and other supply chain professionals makes sense only if the old duties of those employees - the day-to-day management of contracts - can be simplified and automated through better IT.

Analytics systems are among the most useful tools when figuring out how to improve a procurement department. Working with the data already flowing through the company, these solutions give sourcing leaders a valuable new perspective on their operations.

Where analysis meets automation
Spend Matters recently explained that procurement departments over the years have been equipped with the technology to perform spend analytics but largely unable to shift related work off human employees and onto automated processes. Employees have been stuck with the laborious task of data management if they want to make decisions based on spend data. The latest innovations, machine learning and artificial intelligence, are finally delivering less intensive processes.

According to Spend Matters, adding AI to the existing framework of spend analytics is a major way to open up more time in the procurement department. When people have free time, they can contribute to their organizations in more strategic ways. The activities sped up by the introduction of AI tend to be essential yet time-consuming functions, such as cleaning and processing raw data input. Making those roles automatic is a major accomplishment.

The site added that when sourcing teams take on new analytics systems, they aren't just making their workdays easier and more productive. New solutions powered by AI algorithms are able to combine a huge amount of sources beyond the data recorded during transactions. Adding more data sources promises a depth of insights that goes past legacy analytics offerings.

Procurement data is right there fore the companies able to grasp it.Procurement data is right there for companies able to grasp it.
Decision-making in practice
New and time-saving analytics tools aren't simply a proof-of-concept. Companies are already reaping the benefits of better data-driven insights. Supply Chain Digital recently looked inside the beauty product maker Coty, which has revamped its procurement department to use more automated features and cloud-based architectures to connect its sprawling operational capabilities.

Arya Gupta, procurement director of global chemicals and innovation at Coty, told Supply Chain Digital that the company's recent embrace of technology has improved several of its foundational procurement processes. Coty has seen supplier management improvement, along with better visibility into all lines of business simultaneously. The company is now measuring its procumbent results more accurately than before and performing effective risk management calculations.

New technology and a desire to shake up and improve procurement are complementary elements. The strategic sourcing revolution will rely on both of these factors continuing to influence decisions by leaders across industries.

December 22, 2017

Here's a look at where Source One's cost reduction experts have been featured this week!

Recent Blogs:

Put an (Enormous) Bow on It: The Dual-Sourcing Strategies Behind Holiday Commercials
Jen Ulrich, Sourcing Innovation, 12/20/2017
Holiday commercials portray a wildly simplified version of the Procurement process.  Discussing car commercials - the ones with the huge, red bows - Ulrich examines the dual-sourcing strategy that advertisements typically obscure.  It's unlikely, she suggests, that the families we see are just getting rid of their old car.  She relates the process of familiarizing oneself with a new vehicle to the process of easing into a new supplier relationship. A dual-source (or dual-car) plan minimizes risks by providing for a smooth transition and safe-guarding against the unexpected.

IT Managed Services: Managing Risk and Maintaining Leverage
Torey Guingrich, Outsource Magazine, 12/15/2017
Limited resources and expertise often lead companies to outsource all or part of their IT operations to a Managed Services Provider. IT Procurement expert Torey Guingrich shares tips for ensuring these relationships remain optimal and do not grow beyond their original scope.  Guingrich stresses the importance of setting expectations from the outset.  Establishing consistent communication and developing plans for a potential transition away from the provider are also crucial to a successful relationship.

New Podcasts:

Sourcing Small Parcel Deliveries for the Holiday Season 
You don't have to be a Procurement professional to know that holiday shopping and shipping is usually anything but merry.  Sourcing small parcel delivery services is complicated year-round, and the holiday season only adds more headaches.  Consultant Leigh Merz joins the Source One podcast to discuss her methods for conducting benchmark assessments in this crucial spend category.  It might be too late to apply her tips this year, but they should prove equally helpful as we move into the New Year.

Optimizing Facilities Management Spend - Part 1 (Data Collection) 
Whatever your category, a procurement initiative won't succeed without an accurate baseline.  And a Procurement team can't achieve an accurate baseline without thorough data collection.  This process is always crucial, but it prove more challenging in certain categories than in others. Procurement experts Jen Ulrich and Nick Harasymczuk join the Source One podcast to discuss the data collection process for the Facilities Management category.  With its myriad subcategories and diverse supply bases, this category presents distinct challenges for Procurement groups.  Nick and Jen offer best practices to help companies go to market with confidence.

Bridging the Gap Between IT and Procurement 
Procurement is still considered off-limits to many other departments within an organization.  Historically, IT in particular has proven a difficult department for Procurement to collaborate with.  Strategic Sourcing expert Torey Guingrich joins the Source One Podcast to discuss strategies for eliminating the barriers between the two categories.  The key, she suggests, is for Procurement to prove its value and refute any misconceptions IT might have.  Once perceived as a cost-cutting adversary, Procurement can now function as a strategic decision support unit.

Whether you're an average shopper or the head of a corporate Procurement department, the holiday season can feel anything but merry.  Once you've finally purchased everything on your list, there's still the trouble of organizing delivery.  It's the thought that counts, but that doesn't mean anybody wants to open gifts a day late.

Most of us are lucky enough to feel these headaches just once a year.  Procurement professionals, however, are not so blessed.  Depending on their industry, small parcel delivery services can require close attention and thorough assessments all year long.

Source One Consultant Leigh Merz has helped provide countless clients with the gift of optimized systems for Logistics procurement.  Recently, she sat down with the Source One Podcast to discuss the process of benchmarking in this complex category.  It's a little late to apply her advice for your holiday shopping, but her insights should help companies uncover delivery strategies for 2018 and beyond.

More responsive and intelligent sourcing and procurement processes are a clear ways for companies to work toward their budgetary goals. Creating a model based on demand at other levels of the supply chain is a clear objective for organizations of all types, but reaching this signpost may prove difficult.
The fast-moving and accurate data required to go from forecasting to reacting to demand is a recent addition to the sourcing space, enabled by fast technological development. Companies' levels of readiness to deal with these systems will necessarily differ from one supply chain to the next. These divergent starting points will determine each business's path to demand-driven sourcing.

Predicting the future
Changing with blatant and subtle market forces is the central mechanic of demand-driven supply chain management. In an article he contributed to Supply & Demand Chain Executive, LLamasoft's Jeff Metersky explained that businesses should change the way they think about trends and demand to ensure they're paying attention to all relevant factors.

It's relatively easy to predict how a holiday-season demand spike or the introduction of a new product line will impact sourcing needs and adjust contracts accordingly. Less simple are adjustments based on long-arc shifts in consumer interests and preferences. Metersky explained that demand-driven strategies will have to incorporate the latter factor if they are to succeed.
He also noted that the road to such an advanced supply chain model will fare better if leaders sketch their planned path in advance. Some companies struggle more with reacting to long-term demand now, whereas others should focus harder on changing their operations based on projected impacts of their decisions and strategies. Setting up a design that will move organizations closer to their long-term goals is key in any kind of sourcing change. This step requires first becoming knowledgeable about current capabilities and blind spots.

Scaling up and down based on demand is a useful goal to chase.Scaling up and down based on demand is a useful goal to chase.
Pointing to success
As IndustryWeek pointed out, IDC's recent research on the supply chain of 2020 contained an exciting prediction: By that date, one-fourth of manufacturing firms in select industries will have become truly demand-driven, producing goods at an ideal level according to market forces. The source added that this means organizations will still have access to the optimized processes that dictated speed and effectiveness in the past, but they'll be able to anticipate market movement well in advance and adjust accordingly.

While the predication is for 2020, IndustryWeek suggested that the necessary tech tools are making their way into companies' hands now. Artificial intelligence as a decision-making aid is a potential cornerstone of future supply chains, taking planning beyond the capabilities of the human brain. Furthermore, assets such as 3-D printers and machines that can retool themselves on the fly will make factory spaces more flexible, ensuring infrastructure doesn't go to waste.
Supply chain practices that scale up or down on demand, from purchasing to manufacturing and logistics, are a helpful goal to aim for. Every step companies take toward these idealized operational models will likely lead those businesses to new and valuable business practices, saving money and boosting effectiveness.

Over the last few years I’ve had the opportunity to talk to hundreds of procurement leaders, and in those conversations I always like to ask about the major challenges leaders in our field are faced with in their organizations.  One common theme I have found across many of the procurement executives I talk to is the concern that there is a skills gap in our profession.  In short, what is expected from category managers and strategic sourcing professionals by stakeholders and their leadership, generally speaking, does not match the output they generate. 

If you are in the profession, the concerns these procurement leaders have raised shouldn’t be a surprise to you.  The value of procurement is an often talked about subject, with many bloggers, including myself, championing what we believe is a function that can generate a true competitive advantage to the organizations they support.  Still, we are an evolving function – and the tactical role we have played in the past still rears its (ugly) head, more often than many care to admit.
It seems to me that one reason their continues to be a strong disconnect between the role procurement should fill and the role they are able to fill has a lot to do with the tried and true “basics” for procurement, or the processes and procedures that many have decided are a foundational component of the function.  What do I mean by procurement basics?  It’s the tactics that most procurement people take to heart, things they consider best practices.  I’d like to take a stab at breaking down a few of these alleged best practices in an effort to demonstrate what procurement should be focusing on. 

“Best” Practice:  3 Bids
Traditional procurement departments utilize a 3 bid process for tendering RFP’s.  This means down selecting to 3 suppliers (and no more than 3!)  that will receive the RFP.  In the past, this process was used to ensure that you are getting a range of market pricing and a good understanding of the high/low/average costs for the product or service being produced.  However, this process originated when the process of identifying suppliers was cumbersome (remember the old Thomas Publishing green books) and snail mail made the tendering process very slow.
Today, the diversity of suppliers in the market for most goods and services really mandates that in most cases, more than 3 suppliers should be engaged, and obviously technology has made the process of supplier identification quite a bit easier.  Yet many of the less mature sourcing organizations I meet with maintain the “three bid and a buy” mentality, which minimizes competition and only ensures market average pricing. 

“Best” Practice: Rules-Based RFP Structure
Did you ever receive an RFP and think, based on the bid instructions alone, that the RFP writer must have had a career in the military?  Rigid RFP instructions, typically letting bidders know what they can and cannot do as part of the RFP process (do not contact anyone at the issuing company, do not ask any questions, here is a timeline but do not expect us to follow it), seem to be used to fill up pages in lieu of clear scope definition.  Generic high level questions, requests for financials that are almost never reviewed, and “acceptance of MSA’s without redlines”, even MSA’s that have no relevancy to the product or service being requested, are all elements of a broken procurement process, yet many organizations point to these outdated and cumbersome procedures as “comprehensive” and “thorough”.  Better still, companies struggling to get access to the internal data and requirements needed to properly scope an engagement will tell the suppliers that their “Market Expertise” should be used to determine what the buyer wants – in other words – tell us what we should buy.
A rigid and inflexible RFP process is a dead giveaway of a procurement organization that is running the old school purchasing playbook.    The reality is the purpose of an RFP is to get strong engagement from the supplier community, give them a clear understanding of what you want to buy (so all suppliers bid apples to apples) and to give the supplier the desire to win the business through competition.  This creates much more leverage and an opportunity to reduce costs than a formal negotiation at the end of a process once a supplier is already selected.

Ship Up or Shape Out
There are dozens of other outdated procurement techniques that I could write about, so many in fact it may take a book to get through them all.  Keep in mind I haven’t even touched on negotiations yet!  Most of these techniques can be categorized into three buckets: time wasters, process makers, and things that make people feel important. 

The fact of the matter is, there is a substantial skills gap in our industry.  We pay 6 figure salaries to category managers that have no clue how to manage supplier relationships.  Some can’t even explain the sourcing process, and if they can, they don’t understand why that process exists or what their roles and responsibilities are in managing it.  When things go wrong, they blame the stakeholders and say that their company doesn’t value procurement.  Very few are introspective about the situation they are in.

So what’s the solution?  How do we fix the skills gap?  One way is to create a baseline for qualified sourcing professionals.  Think about this - would you hire someone without an accounting degree to do your accounting?  Probably not, but very few procurement professionals have a degree in supply chain/sourcing/procurement, and there is no industry standard certification (similar to a CPA) required for procurement professionals to do their job.  Right now, very few colleges and universities don’t have formal programs for supply management.  The good news is, more and more schools are developing supply chain programs, and I’m hopeful this will bring a new set of college educated grads to the professional with a baseline set of supply management skills.

In the early 2000’s, a lot of us talked about the vision for 2020, and where procurement would be at that time.  I think it’s fair to say that even our modest hopes and dreams for the industry will still be a work in progress.  But the right training, education and formalization of the function will help us get there, and the faster the better!

The complexities surrounding health care make sourcing and procurement operations in these industries a highly specialized process distinct from other industries. Companies at all levels, keen to compete in budget terms but wary of regulatory issues, have to keep a close eye on the factors directly affecting their future prospects. With overall patient safety and quality of care hanging in the balance, these organizations must optimize their practices within tight parameters.

The hospital outlook
According to Supply Chain Dive contributor Rich Weissman, it's wrong to think of health care sourcing as entirely dissimilar from the way general businesses procure their materials and products. Hospitals are affected by the same forces that impact businesses in fields such as retail and hospitality, and the same modernization practices that are shaking up supply chains around the corporate world may work for care providers, too.

Weissman suggested that hospitals make procurement decisions with the needs of their patients in mind, but that approach this isn't far from what other businesses' executives do when they consider customer experience: improving processes and building relationships with top suppliers. Limiting costs in the health care industry is especially important but comes with considerations beyond those felt by non-medical industries. Hospitals have to cut down on their supply spending while not letting quality of care slip, as people's lives are at stake. Executives need win-win scenarios enabled by new technology.

Going "lean" and embracing constant improvement could be one helpful and transformative approach for hospitals to take. Sticking to old practices because they are time-tested and have served effectively for years could be a compelling way to run logistics within a health care environment, but it may also lead to stagnation and a failure to meaningfully approve. The same kinds of philosophies that are moving retail forward could have valuable applications in health care if leaders let them.

The health care supply chain has its own rules, but some universal concepts still apply.The health care supply chain has its own rules, but some universal concepts still apply.
Consolidation in the pharmacy
According to The Washington Post, care providers and their partners at all levels of the health care supply chain are interested in stoking efficiency through the time-tested strategy of bringing operations in house. They plan to accomplish this goal through a series of powerful mergers. This effort came into public view recently when pharmacy chain CVS purchased health insurance provider Aetna.

The current process of purchasing prescription drugs and pricing them for customers is complex and driven by a series of relationships between multiple entities. This reality could make implementing supply chain best practices difficult under current conditions, but it could also be on the brink of changing. The Post explained that with the specter of Amazon entering the health care field, a period of simplification could be on the way as the online giant tries to disrupt current practices and existing powers to avoid being outmaneuvered.

The newspaper reported that the current state of the health care supply chain involves steps that are rarely seen but have an outsized impact on the eventual customer experience. Entities that negotiate drug prices operate in this space, which may see evolution following an increasing focus on fair costs and the disruptive threats of changing processes.

Whether implementing the results of a procurement transformation initiative or simply taking steps in better managing your indirect spend, creating a sourcing roadmap involves strategic planning to ensure that sustainable change management is a possibility.  Once momentum is flowing amongst stakeholders, it may seem beneficial to start sourcing as much as possible as soon as possible to begin to realize savings, however, this can lead to timing challenges, project cancellation, and overall loss of engagement as the project approaches implementation.  There are a few key steps to consider while planning an initial roadmap.
1. What will the implementation process look like?
It is not uncommon for projects to be on track and successful, and suddenly lose momentum during implementation.  A key consideration when planning the timeline of projects with overlapping stakeholder teams is the resources that will be needed for implementation.  For example, while conducting an initiative for custom corrugated packaging and a separate initiative for pallets at the same time may seem like it could possibly open some synergies or keep stakeholders engaged, it may become problematic to implement both under a similar time frame.  Testing periods for each will require close monitoring of the overall packaging and shipment process and if product failure occurs, it will be difficult to isolate the supplier responsible.  As a result, buyers may prefer to go back to their original incumbent, resulting in a loss of savings that may have been able to be better managed under stakeholders with more capacity.
2. When does contract expiration align?
Contract expiration also needs to be tracked and aligned before planning sourcing engagements.  If multiple suppliers exist within the same category, consolidation opportunity may not be possible until all expiration dates fall under a similar time frame.  This is especially critical if there are significant penalties for cancellation.  The best way to ensure this is to negotiate a month to month auto-renewal for expired agreements to hold pricing and the supplier relationship while scoping the project.
3. Are there synergies within other projects?
Diametric to point number one, it is also important to consider if there are synergies in sourcing two projects simultaneously that outweigh any implementation risks.  For example, Fire Protection Services and Uniform Purchases have overlapping supply bases, while FPS typically falls under a facilities management stakeholder group and Uniform Purchases under MRO/HR.  These could be done in tandem to leverage the full volume with suppliers who can support both without risking stakeholder resource exhaustion during implementation.
4. Is transition feasible?
Occasionally suppliers are so ingrained into the operations of the business, the feasibility of a transition would not be possible without high risk or high cost.  In these instances, developing a strategy that supports a direct negotiation with an incumbent is important to not waste resources on a plan that cannot be executed.  Additionally, once this assessment has been made, steps should be made to undergo knowledge transfer from the supplier to the organization so that in the future, there is a better opportunity for a supplier change in the category, encouraging competition.
It is critical that project timing is planned beyond savings identification through implementation. Having a change management team that contains stakeholders, executive support, and an implementation manager is necessary to truly realize the complete benefits of the strategic sourcing process.  Keeping these items in mind will set you up for an optimal sourcing event from start to finish.

Contracting in the MRO space is an evolving process that over the last few years has changed significantly. Many of the large name MRO distributors in the Power Transmission space such as Kaman and Motion, for example, have switched from implementing discounts from their published list (or catalog) pricing to more ambiguous cost-plus models. This is a significant change in the pricing scheme for items that were not quoted on a net price basis during an RFx event. In other words, this change only impacts the lower volume and one-off purchase items that had previously fallen under this type program which is intended to ensure pricing competitiveness for your non-core purchases. Not only have pricing model changes occurred, but common contracting mechanisms such as annual rebates and tiered discount structures have been re-branded. With all of these changes, there is a consistent need to adapt your sourcing strategy and subsequent contract negotiations strategy.

For the most part the actual sourcing process for MRO items has remained relatively unchanged. The key remains of data integrity and presenting clean information to suppliers for bid. Having manufacturing information such as manufacturer part #’s and brand name is necessary to ensure bidders are quoting on an apples-to-apples basis. In addition, the unit of measure (UOM) and unit of measure quantity must be normalized and reflected in the bid data. Indicating UOM information acts as a second layer to validating the manufacturer and manufacturer part number when the suppliers are identifying the parts. It is also important to remember to include space for the suppliers to respond with their corresponding unit of measure and unit of measure quantity in order to capture any differences between your Baseline. If there are differences once bids are received, the items must be checked to confirm they are exact match products and the bid must be adjusted to reflect the unit cost per quantity of your Baseline price. Presenting annual volumes also remains standard in order for suppliers to gauge the full scope opportunity and in turn, maximize their discounts with their OEM and second line distribution partners. Lastly, including space for suppliers to propose alternate/cross items to measure the opportunity of changing out like-components for alternative and comparable brands.

Upon receipt of the bids in the aforementioned format, the full bids must be checked for accuracy. Sifting through high variance items to the baseline price, double checking no-bids, ensuring units of measure are apples to apples are all important steps. When conversing with suppliers it is also important to confirm the pricing for items not included in the RFx. This is where pricing historically would be dictated by discounts from their list or web pricing. Now large national distributors are changing to cost-plus models. Effectively this is a different pricing model which achieves the same purpose of a discount from list. Instead of providing a discount off an inflated list or web price, they provide a markup on their internal cost.

Alternate items must also be evaluated to ensure matching units of measure and to confirm all information in order to evaluate the transition to that alternate item is included. Specification sheets are commonly available on distributor’s website where all you need is the supplier part number to be directed to the specification. This process is followed by ordering sample products to test and validate before the transition.

Qualitative factors such as lead times, supporting facility locations, VMI capabilities, etc. are also important to weight and measure as part of the overall analysis and evaluation process. Developing a scorecard is a simple and effective way to carry this out.

Contract negotiations should begin during the RFx process itself. Evaluating pricing structures for non-core items, asking for rebates based on annual spend achieved and potential signing bonuses are all pieces of information that should be gathered during the RFx process. Outside of typical contract pricing negotiations, these savings levers can account for a significant portion of your overall savings achieved. Suppliers will grant pricing discounts, rebates and signing bonuses from the total opportunity presented in the RFx. That’s why it is important to present the data in a clean fashion, making it easy for bidders to quantify the overall business opportunity and provide pricing and incentive programs accordingly. Rebates are now oftentimes referred to as growth incentives by large national distributors. Growth incentives work exactly like rebates in that the customer will be refunded a portion of their total annual spend based on a corresponding rebate percentage at that annual spend tier.

Overall, the MRO industry remains the same in that clean data in, gets you clean data out. The importance of setting up your RFx event in a way that enables apples-to-apples comparison also remains paramount. And even if suppliers change their pricing scheme, or rebrand an incentive program, the fact remains the same that multiple savings levers need to be evaluated, not just unit contract pricing for high volume items in order for savings to be optimized.

For those who have been paying attention, the news has been buzzing lately about the repeal of the 2015 Net Neutrality rules. Previously I wrote about the potential of this happening and what the impact to businesses could be (Net Neutrality & Vendor Selection Criteria) but now the Federal Communications Commission (FCC) chairman, Ajit Pai (with major influence from party supporters and the big telecom companies), has been successful in his pursuits. Pai originally proposed back in May 2017 that he would be campaigning to peel back the open internet order and net neutrality regulations set in place by his predecessor and was able to influence the repeal which was passed by a 3-2 party-line vote.

What does this mean for the future of the internet? While it is still too soon to tell, it is been very evident that there will soon be additional premium services and increased spend implemented by broadband providers. This will inevitably have an impact to big businesses however it’s the little guys (start-ups, small businesses, etc.) that will most likely face the greatest struggle.

This is primarily due to one major factor: money. Not surprising since it tends to be the root of most business and life decisions but where it’s really going to come into play here is around those premium services I mentioned above. The terminology may shift but what I’m referencing are those broadband ‘fast lanes’ that telecom providers will now be able to set up and charge additional fees for. These fast lanes will enable businesses to pay for their content to show up first in a search, load faster, or limit access to customers. Not only will providers be able to throttle the speeds that your content is retrieved but it also gives them the ability to entirely block its access.

Companies like Facebook, Netflix, Spotify, etc. will be effected but have the money to establish agreements with the telecom providers to ensure their platform is ‘safe’ but it’s the smaller start-ups and online innovators will most likely not have the influence or capital to do the same. This also holds true for many companies that traditionally put content out for free and relied on advertisements for revenue. If they’re now paying for their content to be unaffected by the providers, can we expect that cost to be passed on to the advertisers they currently rely on or will the model change and require a monthly fee from customers? Our favorite apps, blogs, news, and social platforms are at risk.

So if you’re a start-up, innovator, or customer that feels plighted by the repeal of the regulations, what options do you have? Unfortunately, the options are not much. If you feel a provider is not operating in an anti-competitive way, you can enact antitrust laws however, that will most likely require money for legal fees that you might not have. Alternatively, you can also become (more) active in some of the political movements to engage local congressmen and senators to push legislation to overturn the ruling. Both options will require patience and persistence but in the meantime is important to stay aware of how providers are changing your services. 

ICYMIM: December 18, 2017

Source One's series for keeping up with the most recent highlights in procurement, strategic sourcing, and supply chain news week-to-week.  Check in with us every Monday to stay up to date with the latest supply management articles.

Zachary Smith, ThomasNet, 12/12/2017
ThomasNet’s recent survey of Procurement professionals found that 72% prefer to source from local suppliers.  Additionally, nearly half of the respondents said they “rarely or never” prefer moving their supply chain overseas. Smith examines the benefits of local Procurement and finds that increased flexibility and transparency are especially crucial.  Close proximity to vendors allows Procurement groups to consistently assess supplier performance.  What’s more, a consolidated, local supply base makes it easier to implement sudden changes to you Procurement operations.  Smith also suggests that a localized Procurement strategy might offer appealing environmental benefits.   With reduced shipping and storage spend, companies will find it easier to meet both cost reduction sustainability goals.

Michael Lamoureux AKA The Sourcing Doctor, Sourcing Innovation, 12/14/2017
The Doctor displays his trademarked skepticism in this discussion of another would-be Procurement trend. Cognitive Procurement has recently emerged as a hot topic in Procurement conversations.  The Doctor suggests, however, that only the true Procurement leaders can realistically expect to implement cognitive solutions in the new year.  A troublingly high percentage of Procurement groups have yet to enter the modern era.  According to a recent Spend Matters survey, only 13% communicate with their supply base regularly.  Before the other 87% can begin to consider cognitive solutions, they've got to achieve a workable level of market intelligence as well as spend and supplier visibility.

A Primer on the Contingent Workforce and Services (CW/S) Procurement Technology Landscape
Sydney Lazarus, Spend Matters, 12/13/2017
After several stagnant decades, the marketplace for CW/S procurement technology and service solutions is expanding rapidly.  Lazarus provides working definitions for the key categories Procurement groups should consider: Contingent Workforce Management Technology, SOW/Services Management Technology,  Digital Platforms Providing Workers or Services, and Outsourced Services Solutions.  No two Procurement departments need the same things from their contingent workforces. As blended Procurement teams become more popular, however, it's essential that companies consider the benefit of each of these categories to locate the appropriate CW/S solution.

Much like the Walt Disney Company working on acquiring 21st Century Fox, many telecommunications companies strive to acquire opposing businesses to not only eliminate the competition but expand their footprint, consolidate resources and better overall operations. Disney, for example, will gain a better presence in the streaming vertical with Hulu, while growing its name in movie production houses and other cable networks as well as strengthen its leadership pool. Similarly, CenturyLink’s acquisition of Level 3 Communications, Inc. will position CenturyLink as a more robust global network service provider offering a wider range of services and solutions.

What does this mean for the end user? How can these acquisitions help and hurt businesses? My experience in sourcing communication services has proven that businesses can leverage these market changes from both a financial and service standpoint but it can also negatively impact service and cause support challenges putting a higher demand on customer involvement.

Expanded infrastructure and service portfolio The aforementioned acquisition considered the opportunity it would have to offer a wider menu of services for voice and data solutions, further global reach, and improve network capabilities by leveraging each other’s fiber infrastructure investments. Therefore, where companies might have had network constraints resulting in dual network or telco service providers, they now have the ability to consolidate their supply base, services, and support teams. These changes can improve customer operations by allowing for more effective use of services that require fewer resources internally to both support various services and manage multiple providers. These efficiencies offer better use of resource time and lower cost opportunities through leveraging total volumes on a global scale. There will most likely also be a bigger menu of solutions to consider with incumbents where before alternates where always required. In addition, better pricing and incentives can become available due to provider ability to supply and support services that are now considered “native” to their own portfolio.

Better tools and resources – Improved and increased service offerings can be attractive to customers, but having extra hands and user-friendly tools can warrant additional considerations. Technical and customer support assets might have been bare or bad before where the acquisition might result in a more diverse team who can give you the guidance needed to make informed decisions and true “support” based on your unique requirements. Aside from personnel, customers rely on the tools that help manage troubleshooting, orders, and billing. Tools that offer insight into the health of the account and the ability to implement changes or simply pay bills easily can make or break a relationship. If the acquisition produces more advanced yet easy-to-use tools, clients will be more inclined to take advantage and award additional business.

So now you have a variety of services and feel great about moving into the future with your provider; what are the risks you may face with this expanded relationship?

Lengthy integration timelines – There may be a very explicit road-map developed while companies are looking to merge but when push comes to shove, there is no true defined timeline for when will it be implemented. Sometimes it can take months to years before the benefits are reaped in terms of consolidated services, resources, and tools, and customers are still left with multiple providers, different billing platforms, and several account teams. Therefore internal measures and investments are the same and may be more intensive as the transition slowly starts to peak its head.

Resource constraints – What happens if you are assigned a resource who has no clue about your business culture or existing service requirement but was kept on board due to financial considerations or that your rep was simply reassigned? If you are engaged in a merger of networks with limited or uneducated support teams, this can result in both an operational and financial burden you are not prepared to take on.

Billing changes – Although the FCC tries to prevent monopolies from happening, who is to say that once an acquisition is complete, your new “merged” provider won’t leverage its financial investments to rack up the pricing. They might also apply charges differently to each service or start charging you for ad-hoc tools and support services given to you for free before.

At the end of the day, these acquisitions can benefit the provider financially allowing for debt payment and ongoing improvements to its own infrastructure. What is the cost to you, the end-user? Is this headache really worth the risk and wait? Be mindful of what you might be able to accomplish but be prepared for what’s in store.