Top Strategic Sourcing Articles by Source One:

Top News

Why working closely with supply chain partners is a must

Success in the supply chain industry depends heavily on any company's ability to stay in constant communications with the partners it receives items from, and those it ships to. It is, after all, called the supply chain, and more may need to be done to put the emphasis on the latter word: If there's even one weak link, the whole system can grind to a halt without warning.

The good news is that the majority of the most successful companies in the industry recognize this necessity and continue to actively work toward it, according to Retail Systems Research. In fact, about 2 in every 3 of the most successful companies it examined in a recent study said working with partners to boost visibility into the entire supply chain was among their top priorities, while only slightly more than half of both average- and under-performing firms felt the same way.

Supply chain technology can help everyone get ahead.Supply chain technology can help everyone get ahead.

"We have years of data that points to the fact that supply chains aren't keeping up with the changing world of retail," said Brian Kilcourse, managing partner at RSR. "It's very hard to separate the customer experience from supply chain excellence, and retailers know this. The variability of consumer demand is the most widely reported business challenge in this year's research, but the best performers, what we call 'Retail Winners,' have a very different view of the world. The importance Retail Winners place on varying aspects of inventory - levels, agility and location - as well as social and environmental issues, reveals a vastly different positioning strategy."

Using tech to meet the goal
Companies now have myriad options for increasing visibility into the total supply chain, including data sharing and implementing technology that leverages the internet of things to accomplish this task, according to The Manufacturer. To that end, many increasingly turn to the blockchain, which can assign unique identifiers to individual shipped items or packages. This allows companies to track everything from source to final destination.

Using that information represents not only an improvement for individual tracking, but also big-picture improvements in smoothing out supply chain inefficiencies, the report said. While you can certainly look at the "micro" data to see where a shipment has been, is, or is going at any given time, you can also use it for the "macro" view. That allows you to see where inefficiencies consistently originate, and then work with your partners to deal with those problems - all on an ongoing basis.

Investment opportunities abound
More good news in this sphere: Such technology is widely available and experts say it tends to deliver immediate results, according to Supply Chain Digital. One development giant recently found that when companies implement this kind of management tech, their satisfaction with the visibility they get into their overall supply increases an average of 35%. They are also able to increase order cycle times by 40% and boost on-time deliveries by more than 80%.

The evidence is clear that when companies are able to implement technology that improves visibility, it provides a lot of positives for their business operations. This, in turn, increases the incentive to work with partners to get on the same page in this regard, so that everyone succeeds together.

By now, we are all aware of the challenges of social distancing and working remote. For most, these are only minor inconveniences, albeit major headaches, that remind us of how efficient we can be with the right monitor, workspace, or being able to probe a colleague for their opinion or feedback. The virtual workplace is very much capable of enabling all of us to perform this daily work. Policy and procedure should not be the exception.

When reviewing current policies and procedures, what images come to mind? Is it a set of “rules” or “recommendations,” or is a document that guides through the purchasing process, noting actions and needed steps? An important question to ask when reviewing your policy is, “how often are we reviewing, auditing, or making exceptions?” If you find you are asking these questions frequently, this is likely a sign that your policy isn’t prescriptive enough, or your policy is unfinished or fragmented. Despite our social distancing, policy and procedure and our daily work interactions should still operate effectively and efficiently. To help optimize your policy and procedure—even during social distancing—review the tips below to conduct an effective review of your current state, and implement new practices to improve your current process.

How Prescriptive Do You Want to Be?
When drafting or updating your policy and procedure, establish how prescriptive you want to be. This is the chance to draft step-by-step guidance and documentation, or a chance to take a lighter touch to enable your team to use their discretion. As a general rule of thumb, your policy should be the governing document that establishes the steps and requirements for a given procurement event, while your procedure (or procedure documents) will determine when and how to conduct such events. You have options when determining how to draft these documents, and opinions can vary on how detailed or prescriptive this documentation should be. Be sure to gather the input from
your team early on and iterate while you make that determination.

Optimize Where You Can
Review your process from end to end and take a look at a standard or typical event. Highlight any areas where there’s an opportunity to optimize. For some, this may mean using E-signature tools, having an approval flow that makes sense, an appropriate delegation of authority (DOA), or reducing the number of emails or handoffs during your process by combining processes. This is especially important in our current environment with social distancing. It may be tough to take an objective look at your process and identify gaps, but your team must highlight these pain points or opportunities for improvement. If you find it difficult to truly identify areas for optimization or to effectively implement these measures, a team like Corcentric and Source One may be the right fit to create effective change within your organization.

Invest in the Right Tools and Solutions
If much of your process is still manual, then it’s time to review the current platforms and solutions that would best fit your organization. This could be a suite of different project management and procurement software solutions, or implementing an Accounts Payable (AP) automation solution. With the right solution, you can automate or optimize many of the gaps identified above and correct your process with these solutions in mind. The right tools should ultimately help establish the appropriate, streamlined process for your organization and would eliminate some the stress associated with our current situation. Corcentric has a suite of tools available to help automate and optimize your procedure.

Grocery supply chain proves resilient under coronavirus

When the economic slowdown around the coronavirus first hit in the U.S., people were used to seeing footage and photos of long lines and empty shelves at grocery stores nationwide. This was a natural effect of people rushing to stores to stock up on essentials and non-essentials alike, including bread, eggs, bottled water, toilet paper, hand sanitizer and more.

Those images also induced fear that shortages of highly in-demand items would be common throughout this period of prolonged isolation, but that hasn't been the case, according to Slate. While food supply chains are certainly a bit more strained than they once were, when there wasn't an extreme level of demand for a relatively small number of items, food producers and supply chain companies are already reacting positively to the shift.

Grocery stores have been hit hard, but suppliers are recovering.Grocery stores have been hit hard, but suppliers are recovering.

While it may still take a bit longer until everyone gets back to the proper levels to truly meet demand in the next few months, consumers and partners alike can rest assured knowing the supply chain will remain strong for the time being, the report said. When it comes to nonperishable food items, similar shortages are starting to be seen simply because producers of those items need to react as well, but they are doing so. That's more of a logistical problem, though, and it should be sorted out within a few weeks.

Bouncing back in unexpected ways?
The supply chain is just like any part of a supply-and-demand system: People stock up on certain items that last a long time (such as toilet paper) that they will go through slowly, meaning that in the near future, it will be common to see stores loaded up with those items once again, according to CNBC. However, that won't likely be the case with food.

While producers are rebounding, this stark shift in buying habits will still result in food shortages - at least for certain items - for the foreseeable future, the report said. Overall, there's no reason to fear any major shortages, especially as companies continue to shift strategies.

"The brand that you normally want may not be available. But, hey, there's some other kind of pasta," Daniel Stanton, a supply chain expert and author, told the network. "Or instead of rice, we're going to have potatoes for dinner. The U.S. produces a huge amount of food. We're also an exporter of food, so we're going to be OK."

How the logistics industry is reacting
Food distribution titan Sysco is also shifting its operations to better meet demand in these trying times, according to FreightWaves. Some aspects of its business have ground to a halt thanks to bans on public gatherings (like sporting events) and school closures, so it has shifted more of its fleet of 14,000 delivery trucks and vans to grocery supply for supermarkets, convenience stores, restaurants and more.

In addition to transporting food, the firm - with more than 69,000 employees - is also getting into distribution of cleaning supplies, the report said.

The more companies in the supply chain can do to work with their partners on strategy shifts in the near term, the better off they are going to be when it comes to weathering this storm.

We are currently living through unprecedented times. One of the most scary/frustrating components to a global event like the COVID-19 outbreak are the uncertainties that accompany it. When the world is unsure how life will be one week, one month, three months or even a year from now, the natural reaction is to start putting plans in motion to help combat potential issues associated with the disruption. The key though, is to still be strategic in that approach and not work outside of the box just for the sake of trying something different.

In a very specific example, we are going to look into the state of marine fuel and how in just three months, the industry has been flipped upside down. All throughout 2019, the industry was preparing for the new regulations that were going into effect on January 1st, 2020. The IMO (International Maritime Organization) 2020 low sulfur regulations were going to increase the cost of marine fuel globally buy a significant amount. The fuel purchased by logistics companies who operate container ships, by travel companies who operate cruise ships or even by local ports services who operate tug boats or ferries, were all going to see their cost of fuel in 2020 go up drastically from previous years. A large amount of the cost associated with the increase would eventually be passed along to end buyers or consumers but in efforts to help combat raising costs, early 2020 saw a good amount of effort by fuel purchasers to hedge.

For a lot of companies who spend good money on marine fuel, locking in a price for either a 3 or 6 month stretch, could be a great way to guarantee some stability in their cost moving forward. If there is a shortage of the higher quality marine fuel or if the global economy expands its operations and the need for that fuel could surge even further, the cost would most likely go up as well. So when companies were given the chance to hedge, it was considered a wise move to engage in that fixed fuel contract.

As it turns out, the cost of oil has significantly decreased since January 1st. A roughly 60% reduction in cost per barrel on crude oil has some companies trying their best to rework their fixed contracts. In most cases, unless you are one of the largest marine fuel consumers in the world, there is virtually no chance for any re-negotiating.

The price of oil was already on the decrease but when the Coronavirus hit widespread around the world, the global economy has taken a major hit. The rapid decrease in the demand for oil and fuel has caused the price of oil to hit that 60% drop-off number and now those companies who decided to stick with the spot buying market, really have an advantage once the world begins to resume its more regularly scheduled programming.

Predictive analytics are often critical to buying or sourcing strategies. The COVID-19 outbreak was almost impossible to predict. A lot of unknowns await. Those companies who were willing to roll the dice back in January and trust in their purchasing expertise and overall knowledge of the commodity they buy, in this case marine fuel, have an advantage at the moment. The key will be to closely monitor the next several months and be ready for any sudden change to the system.

COVID-19 has consumed all our lives for the last few weeks – there is no getting around it whether you are directly impacted or indirectly there are a whirlwind of things being done to save lives across the United States. The approaches taken from a government perspective have been haphazard at best. While this post is in no way meant to cast any sort of political viewpoint I want to look at the approach our government has taken to procure vital equipment – ventilators, Personal Protective Equipment (surgical masks, N95 respirators, gowns, gloves and shields), swabs, test kits and other vital medical equipment like hospital beds. We have chosen to take a decentralized approach to obtaining these supplies on a state level with the federal government out in the marketplace as well. You have heard governors frustrated that they are competing against other states and the federal government for these precious supplies driving the price up. The formula is simple: increased demand = increased price. Is a decentralized approach a best practice to procure the largest quantity at the best price? Procurement best practices often rely on consolidation and other methods to leverage larger volume leading to unit price decreases or service cost decreases.

This leads me to an important question: can the government learn a thing or two from procurement professionals and practices? The short answer is yes. Purchasing at a national level would make the United States more competitive on a global level leading to higher volume of fulfilled orders and a more competitive overall price. This would ensure that the leveraged buying power of the entire United States is effectively used to get us what we need, when we need it and for a more reasonable price. In this time of need cost is not necessarily the objective however speed, volume and efficiency are. These aspects can help save lives and make a difference in the community. Robust supply chains and best practices in procurement could be of great assistance in this arena. This extremely difficult situation truly highlights the necessity of a robust supply chain coupled with procurement methodologies to deliver much needed supplies in a crisis.

When all the dust settles and we are through the thick of this, people in power will have to seriously evaluate governmental procurement practices and try to mimic some of the best practices companies across the globe implement. If we were to ever face a pandemic crisis in the future our supply chains and procurement policies must be able to meet the influx of demand in the marketplace while rationalizing cost and efficiency. This will most definitely save lives, keep our healthcare workers safe and result in better outcomes for society. While we should be laser focused on the health crisis and the science behind savings lives in the current day, going forward it is important that we have a holistic approach that ensures effective procurement practices. You hear the word “procure” come out of politician’s mouths exponentially more these days, let’s make sure that they learn from this crisis that effective procurement is vital to an effective response in a pandemic.

The current COVID-19 pandemic we are all experiencing right now has put some hefty financial burden on many businesses. Companies are therefore looking at or have already taken extreme measures to minimize financial loss, ensure ongoing profitability, and at least guarantee job security. However, some companies are being overly reactive without any strategic direction or planning to continue to procure critical business needs while maintaining the resources necessary to preserve operations. Every day I hear about pay cuts, layoffs, or employee furloughs along with service disconnections and supplier contract terminations.

Coming from a procurement perspective, I suggest taking a more proactive and thought-out position that produces the same objective, considers EVERYONE, and will not negatively affect your business or your employee’s well-being. Therefore, I have identified a few recommendations regarding your telecommunications and IT services and supplier partnerships that could be deployed holistically throughout the business and will result in lowered expenses and the ability to “keep the lights on”.

Most companies have elected or have been mandated to implement work from home policies. That means ensuring employees have the tools and communication resources available at home to be productive and that the business has the bandwidth allowing users to be connected. In return, this should limit the need for specific services at your physical place of business such as basic phone, internet, or cable TV. However, in the expectation we will resume “business as usual” in the near future, you would not want to disconnect the service completely or terminate your supplier relationships. So where does that leave you

Talk to your suppliers. Everyone is going through some type of shift in business models and ability to maintain profitability not to mention stay afloat. Telco companies are more than willing to work with you and offer options to address your concerns without the need to turn down service completely.

  • Interim discounts or price concessions: One-time credits, recurring discounts, or price concessions will help you lower monthly costs while allowing suppliers continued revenue.
  • Temporary suspensions: Suspension without billing, for a period of time, negates the need to disconnect now and activate later where new activation charges or delay in activation may occur.
  • Implement provisional services: As bandwidth requirements will surely fluctuate take advantage of flex services that allow you to turn-up and turn-down on the fly where billing is measured based on actual need versus fixed at potentially a higher recurring cost.
  • Loaner/refurbished products: Instead of purchasing new hardware to accommodate all WFH employees, ask about renting devices versus big dollar purchases even if short-term contracts are needed or look at buying low-cost refurbished hardware that will get the job done.
All of the above considerations can be leveraged within most areas of the business and can not only address immediate issues but help build stronger supplier relationships and prepare you for the future. For example, when revisiting contracts, consider adding in flexibility and clauses that may address these types of situations in the future; hopefully nothing this extreme but along the lines of temporary business impacting events. Regarding the flex service approach, although it might not be viable now based on potential long-term install timelines, it might become feasible during your next contract renewal or service upgrade.

I leave you with this thought; we are all suffering to some degree right now so work collaboratively and be mindful of how your decisions may impact your business, your employees, and your customers.

Now a days there are many activities that we just assume as natural or part of our routine; getting dressed, making a call, taking a vacation, writing on a computer, and getting food at a supermarket are just a few examples of these mundane activities that we take for granted; but have you ever tried pulling yourself away of these normalized behaviors and really wonder why we do them or how they came to be?
Most times we do things because everyone does them or because they feel completely normal, they are part of life, but if you take that step back and ask yourself why and where did they start, you will start realizing that some of these behaviors have somewhat of a prehistoric origin.
If you look at pictures of some off the grid Amazonian tribe, do you ever wonder why they paint peculiar patterns on their faces or why they would ever wear such ornaments in their bodies? The feeling of distance to that culture is huge and in that you are right, you both probably live in very different worlds, but how different are these two worlds in reality?
Today, all cultures use different types of makeup, hats, necklaces, bracelets and other jewelry; so what is the difference? None, the reason is that as cultures become mundane we tend to normalize what we perceive as ours and don’t react to it as we would if we were exposed to it for the first time, but how do you think the Amazonian tribe’s folk would see our use of ties and polished shoes?
As we continue to normalize behaviors we lose track of their true origins and why they came to be. In particular I was interested on why we buy and sell things and why it feels so natural, enough that a whole practice, art, and science has been created around it.
To help me understand this, we have to go back a couple of million years ago when our ancestors basically lived like animals, their sole existence was based on obtaining sustenance, but unlike most animals they had an advantage, this advantage consisted on the use of tools. The use of tools gave way to division of labor, some would hunt and others would gather, this division, in unison with our own particular capabilities led to the development and enhancement of skills, skills that would be used to create more intricate tools and gadgets that would ultimately make our lives more complex, kick starting this cycle of evolution and naturally forming markets where we trade our skillset, products and ideas for others, especially those that we cannot create on our own.
These young markets were basic and based on trading goods and services of equal or similar value, which limited the purchase and sale of all goods and services. The solution was the invention of money; this was a great enabler because it became a medium that allowed any good or service to be broken down into smaller units, allowing the exchange of goods and services of different values.
In today’s highly complex markets, the basic idea holds, for the most part we produce and sell goods and services to be able to acquire others, just like our ancestors did. We are so used to buying and selling that we no longer bother much on understanding why some good or service costs a certain amount; for most purchases in our life, excluding a few situation such as a house or a car, we just trust the price tag and pay. I believe we do this because we don’t have leverage, don’t dare to negotiate, or because of social stigmas associated to negotiating.
In other cultures, negotiation is part of their daily bread, you are able to negotiate for your food, your clothing and everything else, which for most of us is unthinkable.
Thankfully, in the business world things have been taken on a different direction, more and more businesses are walking away from this normalized behavior of buying things at face value and have taken steps to study these goods and services, learn how they are comprised, understand their trends, calculate the effort required for it, and how much it should really cost so that they only trade the exact amount of money that we think that particular good or service is worth.
This level of expertise has led us into being more conscious, especially as markets become more competitive and we are obligated to optimize our resources. Changing the way we look at things might help us understand better what it is we are acquiring and sprout fresh ideas of how to get them. Alternatively, if you don’t feel you have the time and energy, firms like Source One can help you make these decisions using real world data and subject matter expertize to accomplish your savings goals.
It is important to break from this purchasing and selling normalization state we are in, we could all benefit, materially and intellectually from the exercise. The break from normalization is applicable to all sort of exchanges, not just business to business, but also between people to people, business to people or vice versa.
Next time you are looking to buy something try to pull yourself away from the automatic notion that it is fairly price, take a second to look at what gives that product its value, break it down and provide the seller your rationale why it is not fairly priced, you might just save money; if not, at least you learned something about the product, the way it is priced, and even reach the realization that you really don’t need it.

Today, we will dive deeper into the levels of emotional intelligence important to the procurement sector and take a closer look into the benefits of mastering soft skills within this area.

Emotional Intelligence (EI) refers to a person’s ability to recognize, understand, and manage emotions throughout their day-to-day activities. According to Daniel Goleman, there are five key elements of emotional intelligence: Self-Awareness, Self-Regulation, Motivation, Empathy, and Social Skills. Many believe emotional intelligence skills are directly linked to our overall success within the Procurement industry. Investing in your emotional intelligence improves the ability to effectively approach client relationships, manage negotiations, and lead strategic initiatives.

To perform effectively as a procurement professional, communication is key to Supplier Relationship Management. The growth of EI within employees or leaders allow staff to collaborate, innovate, and cope with change throughout an engagement. An effective client relationship is developed through an ability to understand client satisfactory needs and strategically achieve their needs through a collaborative effort. Often, professionals have the tendency to suppress or dismiss feelings primarily when uncomfortable circumstances arise, such as a staff vs. client disagreement relating to a strategic approach. If we’re self-aware of our emotion (e.g. frustration), regulate the urgency to act impulsively, and use this as a motivation factor, this breaks associated road blocks and allows for creativity to become the driver.

In addition, the procurement industry has valued negotiation skills and the ability to drive a bargain as a key skill-set for successful procurement professionals. The pressure to innovate products and services during complex negotiations can invoke emotions of stress during high-stake conversations. This demonstrates how EI is an important concept and should be recognized as a key player during these valued strategic sourcing exchanges. The procurement professional who has the ability to utilize EI is able to identify the source of the stakeholder’s internal resistance and create a dynamic approach without letting their emotions hijack things in an unproductive way.

Adaptable leaders understand the personalized wiring, key differences, and motives of others during collaborative efforts. They often embrace differences, observe reactions, and connect with stakeholder pain points in a nonjudgmental and empathetic way.

Procurement as a function requires stakeholder relationships, sourcing initiatives, and inherently has conflict built directly within engagements. Customers view us as a trusted partner, adviser, and mentor during these collaborative efforts. Maintaining client relationships, influencing stakeholders, and leading initiatives are key aspects of the procurement industry. Mastering our EI can improve how we engage, manage, and lead our partnerships in a productive, cost-effective practice.

Get Started Today!

7 tips to improve organization in your warehouse

When you work in the supply chain, your ability to stay nimble and react to changes requires a top-down organizational approach. Often, a big part of such strategies will require you to rethink your internal processes when it comes to how your employees complete their tasks every day and how efficiently you can run all various aspects of your operations. That kind of versatility and flexibility will serve you well as you try to grow.

With that in mind, it's a good idea to strive to improve all aspects of your business from time to time, including the following steps:

1) Reconsider your inventory storage

If you're not properly storing your inventory - with the most popular items on the shelving closest to the packing area, and typically at or around eye level - you may be losing precious seconds on every order, according to Dear Systems. An extra 30 or 45 seconds spent picking items for a given order may not be a big deal, but if it's consistently happening, that's a lot of lost productivity.

Take a bird's-eye view of your organization to improve it.Take a bird's-eye view of your organization to improve it.

2) Label everything

You never want to leave anything to chance when it comes to picking and packing; a single incorrect order can create major logistical headaches, Dear Systems added. With that in mind, it's important to make sure everything is properly labeled (and stored where it's supposed to be) so that even the newest picker on your team knows exactly what they're grabbing.

3) Maximize storage space

It's also a good idea to make sure you're getting the most out of the cubic footage of shelving space you have in your facility, according to Kardex Remstar. Just like every extra few seconds on one picking job, a few wasted cubic inches here and there may not seem like much, but if it's a persistent problem, you might end up running short on space sooner than you expect.

4) Clean regularly

A clean workplace is great for a lot of reasons, both aesthetically and as it relates to keeping workers motivated, Kardex Remstar noted. Moreover, it's also important for employee safety, so you never have to worry about people slipping and tripping, and potentially injuring themselves. After all, when a workplace injury occurs, you may have to shut down entire sections of your warehouse for an hour or more.

5) Train your staffers

Like most businesses, you likely train newly hired workers but may not provide much additional training or guidance beyond that, Kardex Remstar further advised. If that's the case, you may be missing a lot more opportunity than you realize.

6) Consistently assess the state of your equipment

Just like you should consistently make sure your employees are operating at their best, you should do the same for the equipment they use, according to Emerge. A regularly testing and repair strategy will help you stay on top of any emergent issues and address them before they become a problem.

7) Review how everything is working

Finally, it's always smart to ensure you are consistently reviewing all appropriate data and finding areas of improvement, Emerge said. That way, you are never resting on your laurels, organizationally speaking, and help promote ongoing growth and success.

If your organization is concerned about the uncertainty of the economy ahead, an excellent way to protect your bottom line can be through the utilization of GPO programs or consortiums.  This article will help explain the savings benefits of a GPO program and whether or not this solution is a viable option for your organization.

A GPO is an acronym within the strategic sourcing community that stands for “Group Purchasing Organization.”  GPOs carry many benefits associated with them, and this article will help you identify if participating in a GPO program is suitable for your organization.

Is a GPO Right for Your Organization?

GPOs are built upon one simple core philosophy – businesses that buy similar products are able to combine their purchasing power to help establish improved savings via category discounts and unit cost reductions.  For instance, six small market businesses purchasing industrial supplies can establish immediate savings through the utilization of a GPO program connected with a national supplier such a Grainger.

If you are an organization that lacks centralized supplier purchasing within similar categories, has uncontrolled rogue spend across business units, or if you’re an organization that simply wants to understand and consolidate purchasing habits while establishing strong savings then a GPO program could be for you.

Lack of Negotiating Power

As noted above, many businesses that have low or unknown annual sales volumes over the course of a year simply don’t have the leverage to negotiate a strong contract that can provide competitive pricing and discounts.  When coming to the negotiating table with national suppliers your greatest strength is power in numbers, or in this instance annual sales volume.  In fact, many suppliers will provide very minimal unit price reductions and/or category discounts due to low spend volumes, which is where a GPO program can enter the picture and immediately eliminate this hurdle.  Corcentric’s established GPO program has the purchasing power of numerous organization rolled up within it, including strong negotiated category discounts reflective of a much higher annual spend.

Establish a Quick Win for Immediate Savings

The category discounts and unit cost reductions noted previously also help establish immediate savings for participants within a GPO program.  If your organization is concerned with the current economic uncertainties ahead, the utilization of Corcentric’s GPO program will help establish immediate savings and quick wins across multiple categories.  These savings will continue to rise as internal communication and education spreads throughout your organization which will continue to drive compliance.

Establish Greater Discounts through Data Collection & Establish CSP

As noted above, when compliance begins within your organization it will lead to the consolidation of rogue spend spread across numerous suppliers.  This consolidation will in turn give your organization the ability to review data identifying top spend items.  Once these top spend items are identified, Corcentric can help lead negotiations for unit cost reduction of these items which can lead to additional savings opportunities.

The examples in this article are just a few instances of how Corcentric’s GPO program can help your organization today.  The sky is truly the limit when it comes to utilizing a GPO for savings opportunities.    Don’t hesitate to reach out to Corcentric today to establish a quick save during tough times.

Companies everywhere have a tough choice to make: start cutting costs now… or cut down on the workforce.

No manager wants to make that call. The Procurement team, however, is in a position to help them avoid the need to let anyone go.

Procurement teams have plenty of strategies to help here – and now is certainly the time to use them. Yet many Procurement pros default to the typical three-bids-and-a-buy strategy. Why rely so heavily on this single technique when we have others at hand? More importantly, why rely on it when so many situations aren't responsive to this approach?

Over the next few days, I am going to examine how supplier relationship management can inform alternative strategies. To do this, I’ll use the time tested Kraljic Matrix as a foundation.

The Kraljic Matrix

So, what the Kraljic matrix and how does it work? Peter Kraljic proposed this matrix as a way of updating supplier negotiations in the early 1980’s. Procurement teams at the time were approaching supplier relationships in a static manner. Essentially, the three-bids-and-a-buy process and checking a few standard negotiations boxes. It worked back then because organizations benefited from relatively stable economic conditions. Kraljic acknowledged in a Harvard Business Review article that such stability was eroding, and gave this warning:
“Now, however, no company can allow purchasing to lag behind other departments in acknowledging and adjusting to worldwide environmental and economic changes. Such an attitude is not only obsolete but also costly.”
Thirty years later, this warning still applies to current world challenges.

To start the process, Kraljic defined two primary dimensions to describe suppliers:

  • Complexity of the Supply Market (Supply Risk) – What does the market landscape look like in terms of product scarcity? Is the market owned by a few (or one) key players or are there low barriers to entry? Are there inherent supply chain risks? Are substitute products or services available?
  • Importance of Purchasing (Profit Impact) – How important is a product or service in terms of value added to an organization’s product? What percentage of that product’s total cost can be attributed to this purchase?

These dimensions separate suppliers in a way that also points to key supplier relationship insights.

We will begin in the“Non-Critical” quadrant.

Non-Critical Supplier Relationships

Purchases in this quadrant share several commonalities:

  • They are largely commoditized: Offerings (and price points) are undifferentiated among competitors.
  • The supply is abundant, with plenty of suppliers able to fill needs.
  • Supplier relationships are short-term, ranging from a single transaction to a year.
  • Purchases are relatively low cost and high volume. 

Many Procurement teams ignore this quadrant. If we need to cut significant costs quickly, this isn't the place: there isn’t enough spend here to move the needle even if we cut costs in half or more. At least when we use a three-bids-and-a-buy mentality.

The flaw in this logic comes down to thinking in terms of price versus cost.

Cost Cutting Strategies for Non-Critical Relationships

Organizations likely spend substantially more money managing the purchasing process than the cost of the products, themselves, in this quadrant. Procurement will therefore cut costs by spending as little time in it as possible.

Consider the source-to-pay process. A requisition must be created and routed for approval. Once approved, a PO is created and, again, routed for approval. Once we confirm goods are received or services rendered, an invoice is received and processed, and payments must be made with a new round of approvals. All for, say, a small office supplies order… a few boxes of pens, some staples, maybe a ream or two of paper.

Think of all the time spent managing this process and the number of individuals involved. Reducing these FTE costs is where we want to focus our energy.

Product Standardization

First, Procurement should seek to minimize the great breadth of purchases in this quadrant. Look for organizational needs that are similar enough in nature that they can be described by a single, unified specification. How many products, across how many suppliers, fit this spec?

Consolidating across products and suppliers offers a few key benefits:

  • More vendors means higher incremental costs to maintain them. If there are fewer supplier relationships to manage, and fewer monthly orders to oversee, we spend less time and money on operational activities.
  • End users won’t need to spend time training or getting used to multiple products – they can focus on a single one. Stock management also becomes easier, requiring less time and bringing increased focus to avoid wastage and depleted stocks.
  • Some hard dollar savings may be instantly realized. Where discount or rebate tiers exist, consolidating spend to a single supplier may bump up to the next tier for automatic savings. This may not be much – but it also requires no effort.

Process Automation

Automating parts of a process removes the need for Procurement’s intervention. Organizations have their choice among multiple eProcurement platforms with sophisticated features and tools. For organizations new to automation, there will be time, money, and energy spent in getting these systems up and running. That said, the benefits are huge once this is done:

  • Punchout catalogs allow stakeholders access to purchasing without the need for Procurement to manually escort them through the process. At the same time, Procurement can be assured that stakeholders are buying from pre-approved products.
  • Approval workflows can be automated, in whole or in part (automatic form population and dissemination for human review).  This cuts away a large degree of administrative activity.
  • Reporting needs can be automated as well. Procurement won’t need to spend time building up excel spreadsheets full of data or visualizations by hand. The right tools handle these things by default. 

Group Purchasing Organizations

Many Procurement teams are familiar with the unit cost reduction potential that GPOs offer, particularly for small- to mid-sized companies. However, GPOs also help improve efficiencies and reduce Procurement’s time managing spend.

GPOs offer instant access to a pre-negotiated agreement and pricing. All the effort involved in the strategic sourcing, negotiation, and contracting processes are taken care of, allowing an organization to immediately reap the benefits.

Moving Forward

When looking to cut costs among high-volume, low-priced purchases, think outside the typical three-bids-and-a-buy mentality. This tactic will fail to deliver because there simply isn’t enough meat on the bone. Cost cutting needs to come from another source – in this case, by automating away what we can and streamlining the rest.

The steps above will help Procurement do more than simply cut costs – we are also freeing up resources that will be critical in managing the next three quadrants.

As we round out March and move into April, we’ll continue our review of the Kraljic Matrix to better understand how our SRM approach can yield cost savings. Stay tuned as we move ahead into our next quadrant, “Bottleneck” supplier relationships.

Overcoming legacy software inertia to boost the supply chain

Most companies are trying to get ahead in their industries, but in the supply chain in particular, doing so can be difficult because of how rapidly the sector is evolving. Compounding this issue for many companies is the reality that their operations are based heavily on data stored within or interpreted by legacy software they purchased several years or more earlier.

The fact of the matter is that having old software platforms is a potentially major issue that many companies within the supply chain overlook, according to Manhattan Associates. This entire industry is growing increasingly complex and systems developed a decade-plus in the past just aren't going to be up to the task, especially because you have likely had to customize various aspects of the software, so even if support is still provided by the developer, it's going to be applied in a patchwork at the best of times.

Legacy software could be holding your supply chain business back.Legacy software could be holding your supply chain business back.

Moreover, because you are likely to have several partners or more connecting with you to find success, you need to make sure your systems are compatible with theirs; that becomes more difficult when you're dealing with legacy software, the report said. Consequently, you simply can't afford to go forward relying on legacy software that is increasingly challenging to wrangle.

Getting specific
The problem with legacy software is often that it may seem to be working well enough, but the areas of drag it creates are sometimes difficult to spot, according to Oracle Director of Content Strategy and Implementation Margaret Harrist, writing for Forbes. With that in mind, it's good to think about some of the more common issues you face, and the time you have to spend dealing with them.

If you're like many other companies, these include a lack or shortage of actionable data about the supply or demand you face on either side of your operations, issues related to your ability to pivot off your data to make quicker business decisions, and more, the report said. Furthermore, older software platforms - particularly those that are no longer supported by their developers - tend to be more vulnerable to cybersecurity threats.

Identifying the benefits
Of course, many companies may see the cost of investing in new software to run their logistics operations as prohibitive - meaning too high to justify, according to CeMAT Insider. But what that concern doesn't take into account is the loss of both efficiency and new opportunities that can cost a business significantly, and over a relatively short period of time. For that reason, it's wiser for you to view investment in a new platform as an investment in your broader business.

No matter where within your operations you're using years-old software, you're always going to have an opportunity to improve and, in doing so, become a more critical part of the supply chain as a whole. By working more closely with partners to share and interpret data, you may all be able to get ahead together.