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Among Procurement's most persistent challenges, talent management is the subject of countless studies, discussions, and thought leadership publications. Last year's Deloitte CPO survey found that more than half of executives lack confidence in their teams. Low unemployment and increasingly fierce competition between hiring managers only complicate matters further.

Struggling Procurement teams can - perhaps - take some comfort in the fact that they're far from alone. A recent study from the Boston Consulting Group (BCG) and the Associate of National Advertisers (ANA) suggests that Marketing teams find it equally challenging to secure, inspire, and retain in-house talent.

"Managing In-House Agency Creative" indicates that in-house Marketing teams are more popular than ever. While just 58% of ANA members employed them in 2013, a whopping 90% did so in 2018. Responsible for both digital and traditional media, they provide for a more flexible and strategic approach to Marketing's daily concerns. Organizations often struggle, however, to maximize the efficacy of these teams. According to the survey, 44% of organizations report obstacles to attracting talent and another 63% consider it difficult to energize their existing in-house teams. In addition to testimonials from respondents, ANA offers suggestions for addressing these concerns.

Attracting Talent

Rising candidate expectations and a record number of job openings mean it's increasingly challenging to stand out from the pack. This is often particularly true when it comes to staffing in-house Marketing teams. ANA encourages organizations to emphasize both the diverse nature and tangible impact of their in-house team's work.

Applicants will naturally feel more attracted to positions that provide an opportunity to work across multiple brands and categories. By promising a diverse workload, organizations can paint a picture of themselves as cutting-edge and exciting places to work. They should also emphasize that in-house teams stand a greater chance of making a tangible impact. "Reinforce," the report advises, "that when working internally, the likelihood of efforts coming to fruition with work actually being produced is much higher than at an external agency." Young candidates, in particular, are eager to make a quick and measurable impact. Organizations would do well to underline each candidate's potential influence whenever possible. Leading organizations will make these arguments both internally and externally. 

Energizing Talent

Attrition can become a major issue for Marketing teams that don't do enough to promote engagement. It's essential, ANA suggests, that organizations present their Marketing resources with a diverse range of projects, a genuinely challenging workload, and ample opportunity to both hone their core competencies and evolve in their role. 

Recognition is also crucial for ensuring new and veteran team members approach their day-to-day tasks with enthusiasm. ANA names "employee showcases" as a valuable opportunity. By highlighting exciting project work during company events, Marketing can not only say 'thank you' to its best performers, but also invite individuals from across the company to provide feedback. Additionally, they direct leaders to celebrate major wins with company-wide communications.

A Common Struggle and a Common Goal

Both Procurement and Marketing units are embroiled in periods of transition. Their roles are evolving, their responsibilities are expanding, and their potential to generate value is earning the attention of leaders at the executive level. Though they are not known for their close relationship, a greater degree of strategic alignment is becoming imperative.

Rather than addressing their respective talent management concerns in a vacuum, both units could benefit from aligning their efforts and working together to apply cross-functional best practices across the business. Many of ANA's recommendations could serve Procurement (and other business units) just as well as they serve Marketing. In particular, exposing Procurement resources to a diverse range of projects can keep them engaged and ensure they're functioning at maximum efficiency. Rotational programs are often as especially valuable method for exposing new hires to the full breadth of Procurement's evolving workload.

What is your business doing to address its talent management concerns?

The following guest blog comes to us from Caryl Anne Crowe of Insty-Prints

Long gone are the days where the direct mail industry was the king of marketing. Today, online marketing has almost completely taken over. But does that mean "snail mail" is no longer effective for today's businesses? Some experts suggest direct mail marketing in the form of postcards, letters and brochures sent to potential customers' mailboxes is still an effective way to market. However, for it to be a successful marketing tactic, business owners have to rebrand the way they go about marketing this way to their customers.

Advertising Benefits of Direct Mail for Any Industry

The main benefit of direct mail is that it is a proven way for businesses to get advertisements into their consumers' hands. According to a study done by Money Mailer, the impact of advertising done with a national satellite dealer found that their direct mail advertisements led to a 35% increase in their website's activities. Additionally, it has been found that many consumers still like to use paper coupons. Although many consumers still rely heavily on using their smartphones, there is a pleasant feeling that comes with using direct mail physical coupons.

Ways in Which Direct Mail Is Being Rebranded to Be Successful

For a business to stand out from the competition through direct mail, they need to be creative. Boring letters get easily mixed in with bills and junk mail. As an example, one company raising awareness for their campaign created a letter where the words on it only became visible when it was soaked with water. Interactive pieces of direct mail often get more consumers' attention.

Evoke Feelings
Another way to ensure direct mail campaigns are successful is by evoking feelings from the recipients. Emotions are marketer's secret weapons. People rely on their emotions when making buying decisions, not just using logical information.

Why Direct Mail Works

1. It's Tangible - These days, digital noise consumes people's attention. Digital mail can be great at breaking through the digital noise and offering consumers a little moment of peace. It can allow targeted messages to resonate more with the recipients.

2. People Enjoy Opening Mail - Some people view checking their mailboxes as a ritual. For some of those same people, it is more than just a habit.

3. There's Less Competition - Because of the growth of digital marketing, most people have full email inboxes to sort through. Any marketing mail will get lost in the digital pile of bill notices, emails from friends and family and spam mail. Because of this, the opportunity to get your mail noticed through direct mail is easier.

The Intro Of GDPR

General Data Protection Regulation has been a welcomed change for direct mail. As both controllers and processors of personal consumer data, direct mail marketers need to stay aware of how the new GDPR will affect them. Many feel that these changes offer new opportunities to market brands in new innovative ways using the collected data. Brands will not need to get consent from authorities for postal marketing if they can prove the use is legitimate.

Associated Costs with Rebranded Direct Mail

Creative Costs - Businesses can best benefit from hiring a professional copywriter to design their campaigns for the best response rate.

Printing Costs - With a simple design, the costs of the brochures, letters and envelopes can be kept to a minimum. More advanced designs will cost more to print. However, the right design may get better responses.

Mailing Costs - This is often the most expensive cost of direct mail campaigns. Businesses should consider unaddressed leaflet distributions to help keep their costs to a minimum.

Response Costs - This is an optional cost and depends on how you want customers to respond to your direct mail campaigns. If you want to offer reply envelopes with postage paid, there will be more costs. If you want to create a specific landing page associated with a campaign, that will come with its own costs if you must pay someone to create it.

Response Rate And ROI

The basic formula when considering the type of ROI, you can expect from a specific direct mail campaign is to take your total investment costs and divide it by the value of a single sale. This will result in the number of new customers required to respond. In order to assess the success of a campaign more accurately, the value of the full life of a new account would need to be taken into consideration.

Caryl Anne Crowne is a contributing writer and media specialist for Insty-Prints. She often produces content for a variety of marketing blogs.

ICYMIM: July 22, 2019

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 news.

Stop Faking Cultural Understanding
Albert Brenner, Future of Sourcing, 7/17/2019
When it comes to working for a multinational organization, most professionals know by now that international relationships require some research. Cultural differences bleed directly into the professional realm as the social context is always present. Albert Brenner elaborates on this process and suggests business professionals put more effort into understanding the culture of their international connections. Here are 5 tips for building effective relationships overseas. 

How 'First-Mile' Flaws Hinder Last-Mile Success
JP Morris, Spend Matters, 7/18/2019
The first mile refers to the critical period where your company is acquiring the tools to begin conducting business; more specifically, managing your suppliers. A successful organization will need to utilize automated technology in order to best track their processes and avoid financial complications.  JP Morris discusses the importance of ERP data and tracking to cut costs and increase ROI.

Remember that Sustainability Requires a Shared Understanding
Josh Angert, Sourcing Innovation, 7/18/2019
Research and time must be invested to be able to fully comprehend what it will take to make your company "sustainable." Sustainability is not a simple feat for most companies and requires a sense of understanding from all parties involved. Did you investigate the ecological footprint of the raw materials you're using? Are you treating all workers ethically? Josh Angert gives his insight on factors to consider before your business can rightfully claim sustainability. 
In his first statement as President of ISM-Chicago, Rob Mietus expresses his enthusiasm for tackling Supply Management's prevailing challenges and making his organization a "go-to" for career advancement in the space. He recently sat down with the Source One Podcast to expand on his June message, describe his professional journey, and outline his goals for the future of ISM-Chicago.

Rob found his passion early. He jokes that Procurement wooed him with the promise of a hefty salary, but it quickly offered much more. Hands-on experience driving savings and supporting strategic initiatives confirmed for Rob that he'd selected the right major and helped him enter the professional world with confidence. Gaining exposure to everything from direct material sourcing to data analysis to change management, he's spent the last decade-plus building a diverse set of expertise and experiences.

Rob's relationship with ISM-Chicago began in earnest when he met Frank Cargill. Then the organization's President, Frank opened Rob's eyes to the full scope of ISM-Chicago's mission. What had once looked like just a resource for professional certifications revealed itself to be a diverse network of like-minded professionals and valuable opportunities. Attending a strategy session soon led to a spot on the board and an increasing level of impact and responsibility.

Historically, ISM and its local chapters have committed themselves to a two-part mission. In addition to driving value and delivering a competitive advantage, the organizations "contribute to a prosperous, sustainable world." At the local level, this means telling Procurement's story, encouraging professionals to advocate for themselves, and securing the function a seat at the executive table.

Rob places particular emphasis on the second component of ISM's mission. He believes Procurement truly has the opportunity to "make the world a better place for everyone and our children." By identifying and addressing instances of labor abuse and environmental destruction, the function is already taking the lead in enforcing ethical practices.

Rob makes it clear that ISM's work is a collective effort. He thanks the host of ISM members from across the country who've helped him build his platform and rise through the organization's ranks. He also calls on emerging professionals to share their own insights. "The more engaged we are with our members," he remarks. "the better we're doing. If one word defines my presidency, I hope it's engagement."

Rather than diverting from ISM's usual mission, Rob hopes to "evolve [ISM's] existing value proposition to ensure it aligns with all the key stakeholders and make sure it's relevant to professionals at every stage in their career. He considers his career "a journey of continuous improvement" and he hopes to bring ISM and its members along for the trip.

Want to hear the rest of the conversation? Check out the latest episode of the Source One Podcast today.

The following guest blog comes to us from Tom Rogers of Vendor Centric

Every company knows that auditing third-party financial statements is an important piece of their due diligence. Financial statements are an endlessly valuable fact finding resource. After all, numbers don't lie. In many instances, however, reviewers are uncertain what exactly it is they're looking for. Getting ready to conduct an audit? Here's a guide to the primary components of an audited financial statement as well as four red flags to watch for.

The Components of an Audited Financial Statement

Audits are intended to provide comfort and assurance. They affirm for an organization that its third-party partners have provided clean, accurate financial statements. A Certified Public Accountant carries out audits to provide "reasonable assurance" that statements are free from misstatements. Typically, an audited financial statement is segmented into three sections. 

1. Auditor's Report: This is the official opinion signed by an external auditor. This section is "owned" by the auditor themselves rather than the company in question. 
2. Financial Statements: These offer a quantitative overview of the company's current financial health. The section is broken into three sections of its own: a balance sheet, an income statement, and a cash flow statement. 
3. Notes to the Financial Statement: This section - featuring additional disclosures and details - provides a more qualitative picture. Notes might includes details related to accounting, long-term commitments, and incoming litigation. 

4 Red Flags to Watch For

Diving into third-party financial reports is an important - and often time-consuming - process. Most organizations can't afford to sink hours and hours into in. If your team is short on time, urge them to focus on these four areas to quickly identify warning signs. 

1. Modifications to the Auditor's Opinions: Ideally, your third-party should have a 'clean' (or unqualified/unmodified) auditor's opinion. This means that the auditor has reached a definitive conclusion that the financial statements are entirely accurate. An auditor would issues a modified opinion if they disagree with the organization about any aspect o the statements, if they haven't been able to carry out the necessary work, or if they are missing crucial pieces of evidence. 

An auditor might also modify their opinion by including additional paragraphs meant to highlight certain sections. These are typically known as emphasis or matter paragraphs. These are always a great place to start your review. If a report includes a number of them, consider bringing in additional subject matter experts from your financial team to assess them. 

2. Declines in Profitability: Profitability is a good place to start your review for obvious reasons. These ratios reflect an organization's ability to consistently earn an adequate return. When assessing a company's margins, take care to compare them with those of the industry. Using rations like profit margin and return on assets, determine whether or not the organization is truly profitable. Declining profitability could signal that the company is losing market share or seeing costs begin to outpace earnings. 

3. Unpaid Near-Term Liabilities: Profitability is great, but ultimately cash is king. Lots of companies look great on paper while hemorrhaging money behind the scenes. A good way to assess a vendor's ability to cover liabilities is taking a look at its liquidity ratios. These provide insights into whether or not the vendor can pay what it owes and keep things on track near-term. A liquidity ratio that trends low over time could be a sign that the company is losing money fast. 

4. Long-Term Solvency Concerns: Solvency ratios are some of the best tools around for evaluation an organization's long-term viability. These help you understand how a company uses its debt to fund operations and whether or not this debt is growing at too quick a rate. A solvency ratio that trends higher over a time could indicate that a company is taking on too much debt too quickly. 

Remember, not every third-party vendor requires a financial statement review. When in doubt, let your third-party risk assessment guide you and determine the scope of your due diligence. 

Retailers aren't only interested in supply chain optimization to keep their customers happy; they're also keen on making the entire shopping journey fun and enjoyable. And many of them are successfully doing so by leveraging state-of-the-art consumer technology.

Nearly two-thirds of consumers believe retailers are utilizing digital device technologies in a manner that has helped make online shopping experience much more pleasurable overall, according to a recent poll conducted by the National Retail Federation. Roughly the same share felt this way about the in-store experience specifically and 80% was similarly sanguine when using the internet.
Mark Mathews, vice president of research development at NRF, noted that consumer-facing mobile technologies are truly omnipresent and have redefined the shopping experience.

"Technology has become part of our everyday lives, and consumers are open to adopting technologies that make shopping easier," Mathews explained. "Retailers know this and are embracing investments in technologies that improve customer service and the customer experience whether it's online, in store or on mobile devices."
"Of those who have used in-app navigational tools, 89% said they would again."
High potential for budding tech
Showrooming - when consumers visit stores in order to "try before they buy" online at a lower price - is particularly commonplace and something retailers have leveraged to their advantage. But they're also deploying technologies that remain in the development phase, such as in-app store navigation and augmented reality. Of those who have used these tools, 89% said they would again if given the opportunity, and 86% said the same for augmented reality.

Yael Zlatin, director of ecommerce at Adtaxi, told Digital Commerce 360 that buyers increasingly want a more personalized shopping experience and some of the ways retailers can go about doing that is by leveraging artificial intelligence and omnichannel marketing.

"A customer might discover a brand's product via a digital ad or social media channel, but purchase the item in a physical store," Zlatin explained. "Using AI during this process can help retailers with audience segmentation, retargeting and creating custom content for personalized experiences."

Beware of hurdles
However, it's easy to make mistakes along the way, Zlatin cautioned. For example, while retailers may succeed in making it easier to locate certain items or check out more seamlessly, they may neglect the other components to convenience shopping, such as ensuring popular items remain in stock.

To overcome these potential stumbling blocks, retailers should avoid going it alone and reach out for help, focusing their energies on what they do well and relying on third-parties to handle what they don't.

"By leveraging outside resources, retailers can access expertise and analytics that can help propel their brand - and sales - forward," Zlatin advised.

Case in point: autonomous checkout. One of the litany of advantages to online shopping is getting to skip the lines associated with buying in-store. Retailers are increasingly adopting technologies by partnering with organizations that specialize in point-of-sale and line-busting software so the advantages of ecommerce are readily available.

Richard Crone, CEO and purveyor of Crone Consulting LLC, noted at a recent NRFtech conference that autonomous checkout technology is gaining traction among convenience and supermarket chains. These systems utilize a combination of cameras and sensors which track buyers in order to narrow down the items they're most likely to select. This enables retailers to get a better idea of what buyers want so they can have an experience that is more customized to their tastes.

"What you experience (in these stores) is a completely free business model where every customer is known, contactable and preauthorized, before they even enter the store," Crone explained.
Will Glaser, CEO and founder of machine-learning technology firm Grabango, added that the advancements in computer vision software is also making it easier and quicker for buyers to grab what they need, check out and be on their way.

July 19, 2019

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

New Podcast:
Conversation with Rob Mietus, President of ISM- Chicago
The Institute for Supply Management (ISM)is a non-profit organization with the purpose of supporting the supply chain management community through education, networking, and communication. Rob Mietus has just begun his term as the president of ISM's Chicago Chapter. In a podcast interview with Mietus, he spoke with us about why he was attracted to the procurement profession and what led him specifically to ISM. He also discusses his plans and goals for ISM and gives us a little clue into how he problem solves.

Upcoming Events:
Procurious Big Ideas Summit | Chicago, IL | 9/18
The Procurious Big Ideas Summit provides an open communication space for procurement professionals to discuss current trends, issues, or new ideas in supply chain management. This networking event gives supply chain leaders the opportunity to gain insight into other professionals findings and ask hard-hitting questions. Source One will contribute to the conversation in our own sessions at the Procurious Big Ideas Summit this upcoming September. Register today.

I wrote previously about the difference between metrics and key performance indicators – and why drawing a distinction between the two is important.

In a nutshell, metrics can only become KPIs if they help track progress towards organizational goals. This context is critical: Tracking metrics that don’t tie back to goals is as useful to forecasting success as reading tea leaves. We simply can't develop real insight on how were tracking insofar as performance.

The natural follow-up question is, “what KPIs are relevant to Procurement’s goals?” See below for a non-exhaustive, yet critically important, set of KPIs every Procurement team should be tracking against.

Procurement Effectiveness

Procurement pros can’t drive company efficiencies if they, themselves, aren’t efficient. Tracking our own effectiveness should be a priority. “Cost savings” is often touted as KPI, but I view it as nothing more than a vanity metric (dud #1). Why? Because it doesn’t speak to either the effort (money) that goes into those savings or other opportunities left on the table.

  • Procurement ROI: Beyond total savings achieved (cost reduction, cost avoidance, or both depending on your organization), how does this compare to the total internal cost of maintaining the Procurement team?
  • Spend Under Management: What percentage of spend is managed directly and actively by the Procurement team (see my definition of spend under management for more here)? How does this break out between direct and indirect spend? How does this break out by spend categories?

Contract/Pricing Compliance

I’ve said it many times before – the greatest deal you’ve ever negotiated means nothing if suppliers don’t abide by it after the ink dries. Measuring the percentage of suppliers under contract is, again, a vanity metric (dud #2). Procurement should establish KPIs that track suppliers against their commitments.

  • LPP vs. Contract Price: How many invoice line items are charged above stated pricing in your agreements? What percentage of spend does this overage make up? 
  • Average Delivery/Lead Time: What percentage of deliveries are on-time according to SLAs? For deliveries that are late, what is the average number of days beyond this period deliveries are received?

Policy & Process Adherence

Suppliers aren’t the only ones Procurement needs to keep an eye on. Look towards purchase habits internally as well.

  • On- vs. Off-Contract Purchases: What percentage of spend goes towards rogue, off-contract purchases when an on-contract alternative exists? How much money would have been saved if on-contract equivalents were purchased instead?
  • Purchase/PO Cycle Time: How many hours are required from the time a purchase request is made to the time a PO is initiated, and how many hours again until the PO is issued to a supplier? 

Are you Chasing Red Herrings?

The KPIs above aren’t the only important measures out there, and your own list will vary based on your organization’s goals. However, ask yourself at a high level, “How many metrics am I analyzing and reporting on regularly? How many actually help me track against my goals?” 

I’ll refer to this final seventh KPI as the “Red Herring Ratio.” If you’re pouring too much time into reporting on metrics that don’t move your Procurement team forward, it might be time to reevaluate priorities.

Procurement’s goal should always be to cut through the fluff and get to brass tacks. Confusing metrics and KPIs is a great way to miss the mark by muddying the waters and over-analyzing metrics that don’t move our organizations forward.

The following guest blog comes to us from Megan Ray Nichols of Schooled By Science.

Every drop in crude prices sends oil and gas companies scrambling to find savings in their discretionary spending and their ongoing expenses. The energy sector is sitting on untapped potential and readying billions of dollars in investments in 2019, but this isn’t always the case. When seasons of slow demand hit, some companies end up shelving their anticipated projects to protect their bottom line.

Making reactionary changes isn’t the way to go, though. Players in the oil and gas industry need to take the longer view to remain stable and solvent. Taking a greater interest in how your company procures replacement parts and other essentials is one great place to begin your push for optimization.

Find Ways to Cooperate and Consolidate

Buyers and sellers can often find ways to cooperate with one another to achieve mutual savings on one-time or ongoing purchases or expenses.

For example, transporting equipment or batches of parts can be expensive. So work with other parties to combine shipments and save on freight. Transportation costs can be a significant expense when remote oil fields are involved, so any opportunity to consolidate such efforts between partners, or rework multiple parties’ schedules for maximum overlap and efficiency, could be a great cost-saving move.

Get Involved in the Design Process

Whenever possible, it’s a good idea for oil and gas companies to get involved in the development and design processes for the parts and equipment they rely on. This provides several advantages.
First, it lets all parties collaborate better in the name of standardization and modular design. Reusing basic designs and features helps avoid uncertainty and complexity, and it ensures current inventories of spare parts work with newer equipment.

Second, working closely with parts suppliers and designers helps reveal opportunities to make cost-saving or expense-reducing design changes or parts substitutions. For example, balancing high-pressure flow against the possibility of equipment damage is a major challenge in this field. A different type of seal in a high-pressure pump could be the switch you’ve looked for to reduce maintenance tasks, equipment downtime and money spent on spare parts that wear out before their time.

Be Open to New Bids and Renegotiation

Comfort is easy. And relying on the same vendors for years at a time is definitely comfortable. If it’s been a while since you actively took a look at new bids from competing alternative vendors, now might be a good time. If you find that somebody else has a better price or more convenient services, don’t be afraid to negotiate with somebody new — or, as the case may be, renegotiate with a party you’re already familiar with.

Insulate Yourself Against Risks

Knowing how to detect and mitigate risks is a huge part of optimizing your parts supply chains. There are a few ways to go about this, including performing supplier audits to better understand their performance over time and the degree of risk they bring to your supply chain.
It’s also well worth taking the time to understand which technologies can bring security to your spare parts supply chain.

Counterfeit goods are a major source of frustration, unnecessary expense and reputational loss in a variety of industries. But solutions built with blockchain already help companies improve the authenticity and traceability of their supply chains and ensure they rest easy in the knowledge that they get what they pay for. Like it does with cryptocurrency, blockchain provides a unique identifier to spare parts during manufacturing, ensuring they can be traced or recalled if the need arises.

Use Scenario-Based Planning

The best procurement teams take a broad view of the entire sector’s outlook and plan for specific scenarios based on the state of the market, competitor moves and any other evolving conditions which may affect the flow of vital parts and materials. Each scenario should include details on every eventuality and how the company plans to react.

Here are some examples of events an oil and gas company may wish to develop scenario-based responses to:

  • Geopolitical shifts
  • Natural disasters
  • Cyclical and unexpected spikes in supply or demand
  • Disruptions to public infrastructure
  • Mergers, acquisitions, and other competitor activity
  • Urbanization and changes in population density and distribution
With the right approach to scenario-based planning, your company could potentially fool onlookers into believing you can see the future.

Engaging in data mapping of these and other meaningful variables in your region, like areas that are booming in terms of re-locations for new jobs, helps companies think a little deeper and more strategically about their distribution networks, potential business partners and supply chains — and have their networks for parts and materials ready so they can hit the ground well before the competition.

Make Cost-Consciousness a Cultural Matter

When crunch time hits and global events send crude prices spiraling downward again, don’t get caught up performing knee-jerk cuts to your budget like buying thinner coffee filters for your worker break rooms. These kinds of cuts will make only a very small difference in the very short term. Worse, they can damage morale.

Instead, cost-consciousness has to happen across the organization all of the time — and that begins with cost transparency. Purchasing can be difficult in this industry because folks in the procurement department aren’t always the people who end up using those tools and parts. Consequently, they aren’t in the best position to tell the difference between “cost” and “value,” or to weigh an expense from one department against what it brings to the rest of the company.

In other words, cost-consciousness requires a holistic view of the organization and its many parts as well as a commitment to cooperation and collaboration.

You may have some procurement pro tips of your own, but hopefully now you have a few other ideas to work with. Keeping any company supplied with the right parts over time is a challenge, but it tends to get easier with the application of logic, some strategy and a touch of cooperation with your business partners.

I have been working in procurement spend analysis and adjacent functions for several years. In that time, I have had the opportunity to implement spend analysis tools across large procurement organizations, directly classify data using various tool, complete manual spend analyses, and build processes around spend analysis tools. To put it succinctly, I have had a bit of experience with spend analysis tools and related processes. I’d like to share some of my insights and tips for navigating a procurement-focused spend analysis.

Everything starts with the data. Regardless of the tools you use, the firm you hire, or the expertise within your in-house team, if your data isn’t complete and well understood, your spend analysis time and efforts are going to go to waste. It is critical to be able to communicate effectively about the data you intend to assess.
  • Understand your data before asking someone else to understand it - This means knowing what each field of a dataset represents and understanding why some data may be incomplete.
  • Include the level of detail in your dataset that you wish to analyze – If you need to understand where purchases are being made, include the purchasing location data in your data pull.
  • Understand the parameters used to pull your data – You should be able to clearly explain what date fields were used and why, what business units, GL codes, or type of spend were included or excluded and why, and how each dataset relates to the others.
  • Review your data for discrepancies before handing it off to a third party for analysis.

Be reasonable about the insights you plan to glean from the data. Spend analysis is not magic, it is (or should be) a standardized process and methodology for reviewing, cleansing, and classifying data. Again, it comes back to the data. If you have not included business units, locations, GL codes, buyers, etc. you will not be able to analyze data using these parameters. For this reason, your data collection practices are important to understand. If you are not collecting the relevant data before you engage a team for spend analysis, you will need to add to or supplement the dataset(s) you intend to assess. It is important to consider what you want to get out of a spend analysis prior to putting time and resources into a full spend engagement.

Plan ahead, spend analysis takes time. I have yet to see a spend dataset come across my screen that doesn’t need a significant amount of cleansing and review. Just the data cleansing step can take a good amount of time. To avoid unnecessary rework, the data cleansing step must be done correctly, this means allocating the time and human capital necessary to complete the task. Planning should involve understanding the purpose of a spend analysis. Are you looking to identify opportunity for strategic sourcing? Are you looking to get a handle on maverick or non-PO spend? Do you want to assess the effectiveness of your purchasing policies? Are you trying to budget for the next fiscal year? Do you plan on repeating the spend analysis on a periodic basis or is active spend management your end goal? By answering these questions ahead of time, you can more accurately scope your spend analysis steps to achieve better results.

To get the most out of your spend efforts, you should know your data, be reasonable about your expectations, and plan your course of actions before embarking on your spend journey. If you follow these straightforward recommendations, you should see a comparatively streamlined spend analysis engagement whether you are outsourcing the activities or assigning to your internal team.

In May, eCommerce giant Amazon raised the bar (and consumer expectations) once again by announcing that Prime subscribers would soon enjoy free, one-day shipping on millions of items. Amazon's move quickly inspired competitors to take action. Walmart logged onto Twitter to mock their Seattle-based rival. Rather than saving one-day shipping for members, the retailer revealed it would offer the privilege to all shoppers.

The race between retailers has taken the average purchase-to-delivery cycle time from 5.2 days to 4.3 over the last two years. Averaging just 3.2 days, Amazon still outpaces even its most ambitious peers. For consumers, this competition has made online shopping more convenient than ever. In addition to quickly assessing and comparing a host of options, they can now receive their products in just a matter of hours.

Writing for CNN Business, Lydia DePillis examines the environmental costs of this convenience. These costs, she suggests, are still mysterious to a majority of U.S. consumers.

eCommerce can, in theory, prove more environmentally friendly than traditional shopping. A truck traveling to a number of houses on a single route will produce fewer emissions than a collection of homeowners making independent trips. DePillis cites a 2012 study from the University of Washington's Anne Goodchild which found that "grocery delivery can cut between 80% and 90% of carbon emissions." Unfortunately, these benefits become diluted and ultimately disappear as items come from farther away on less forgiving schedules. Amazon's style of delivery, Goodchild remarks, is less like consolidating resources and more like "basically paying someone to make a trip for us."

While eCommerce could have paved the way for a greener, more efficient approach to logistics, lately it's done just the opposite. In 2017, UPS revealed that a surge in online purchases had led to fewer deliveries per mile. In a worst case scenario, DePillis writes, a truck might make one delivery per trip. This would mean mean releasing 35 times the carbon emisisions that a fully-loaded truck would. While uncommon, these situations are not unheard of. Specialty last-mile courier services like Amazon Flex deal almost exclusively in small loads.

Amazon has suggested that its scale mitigates both the financial and environmental costs of faster shipping. DePillis quotes a company spokesperson, "Prime Free One-Day is possible because we've been building our network for over 20 years." Miguel Jaller, co-director of UC Davis' Sustainable Freight Research Center, offers only faint praise to Bezos and company. In his opinion, the company is "less environmentally bad than others," but still far from environmentally friendly. Amazon's recent investment in 20,000 vehicles, for example, suggests the organization is not fully committed to providing both quick and environmentally-friendly shipments.

That's not to say that Amazon has done nothing. In an effort to promote efficiency, Amazon now offers customers the option to set an "Amazon Day." This allows the user to consolidate their deliveries to a single day of the week. Additionally, they provide incentives to users who opt for "no-rush shipping."

DePillis encourages eCommerce companies to provide additional "nudges" in order to promote more responsible consumer behavior. A nudge, she writes, "[brings] the power of guilt and social norms to bear on decision making." Nudges could include eye-opening reminders and statistics at check-out. An MIT study has already found that 52% of Mexican eCommerce consumers will opt for slower shipping when reminded that they could be saving trees.

Consumers are interested in doing business with responsible, environmentally organizations. They're also interested in presenting themselves as responsible actors who pride the greater good over their own personal convenience. Organizations like Amazon have an opportunity to leverage these desires without offering additional economic incentives. For example, DePillis says, they could "put slower-shipped boxes in a different color." This would allow consumers to send a message to their neighbors and, ideally, pressure them into taking similar action.

Assessing the true environmental impact of eCommerce is still an inexact science, but it's clear that 'free shipping' is more costly than most shoppers would like to believe. Consumers and corporations alike will need to change their behavior to avoid leaving planet Earth with the bill.

Perhaps no part of a strategic sourcing initiative commands more attention and carries more importance than the 'RFx' stage.  It is here that relationships are formed and product and services are supported. It's never a good idea to go into anything blind, but entering this stage without the necessary information could prove especially costly.

Once you've identified suppliers, the most common next step is to send out an RFI.  The information provided will help to flesh out your understanding of the supply base and hopefully develop a new shortlist of potential suppliers.  Serving as a transitional step between research and sourcing, a good RFI should help you enter the latter phase with confidence.  Consider the following next time you request information from a supplier:

1.  Pick up the Phone

Do not send an email to potential suppliers before reaching out by phone.  The importance of a person-to-person connection cannot be overstated.  A phone call imbues the process with a personal touch, helps establish rapport, and could give you a better sense of how the supplier would like to approach future discussions.

2. Do your Research

You should not count on the RFI to provide all or even most of your market intelligence.  The best RFIs fill in the few gaps left behind after exhaustive research and comprehensive study. Without this research, you can hardly expect to ask the right questions.  Without the right questions, you certainly won't get useful answers.

3. Know When to Skip this Step

It's entirely possible an RFI isn't necessary.  Sometimes comprehensive research provides enough information to confidently move forward.  Remember,  just because it 'wouldn't hurt' to issue one does not mean it'll help.  Sending out an unnecessary RFI reduces efficiency and could even sour your relationship with an interested supplier.

Now that you've received and assessed all the necessary information, you're ready to develop your sourcing strategy and go to market.  Before you send out an RFP, however, you should take care to remember these simple guidelines:

1. Be Supplier Friendly

Present your suppliers with an open-ended RFP.  Avoid convoluted design and language.  A straightforward document will look more inviting and encourage suppliers to present their offers more enthusiastically.  An open-ended format also allows the supplier to provide their own creative ideas and solutions.  By fostering a spirit of collaboration, you increase your chances of building an amicable relationship.

2. More is Less

A needlessly detailed RFP can put strain on a supplier relationship before it's even begun. Imagine the faces of the sales team tasked with leafing through your pages and pages of unnecessary information.  An effective RFP should introduce the buyer and specify their needs as concisely and openly as possible.  Make sure to read the document line by line and remove any fluff before sending it to market

3. Establish Connections

Let your prospective suppliers know an RFP is on its way.  Take the necessary time to explain the process and the role you each play in its completion.  Make sure the supplier knows exactly what to expect.  Follow up throughout the duration of your sourcing event to check in and answer any questions they might have.  Putting in the work to personalize these interactions could mean a stronger and more sustainable relationship with your future supplier.

Putting together an effective RFP is hard work, but those efforts will definitely pay off. Making a good first impression shows potential suppliers that you're eager to enter into a collaborative and mutually beneficial agreement.

Source One recognizes the importance of the finding the perfect supplier. That's why we've spent decades providing the insights and tools necessary for our clients to succeed in strategic sourcing.  Contact Source One's proposal experts today to learn how we can help you attract and retain the supplier you've been looking for.