My holiday travels this season brought me through the Hartsfield-Jackson Atlanta International Airport (ATL) with about an hour and a half between flights. I grabbed some lunch at the food court area and headed toward my gate to relax and await my boarding time. That’s when the larger than usual trash cans caught my attention. At first I wondered if the Philly BigBelly’s had made it to Atlanta but then discovered the logo GreenSortATL.

It’s as simple as their slogan: “You Trash. We Sort. It’s Recycled.” According to the Hartsfield-Jackson News feature article, “Atlanta Airlines Terminal Corp. (AATC), the Airport’s facility management company, manages the recycling program. Solid-waste handling company Waste Pro USA transports waste via an alternative-fuel truck to a material recovery facility (MRF), where it is sorted. All recyclable materials are recycled, and the rest is sent to landfills.” All passenger, employee and business waste goes into these containers eliminating the need for separate recycling bins; can it get any easier?

ATL generates almost 70 tons of paper, plastic, food and other trash every day. The GreenSortATL program plans to reduce the amount of trash sent to the landfills by 50% within the first year, 70% by the end of the second year and become one of the largest programs of this type in the Southeast.

Kim Vagher, AATC executive director stated, “The solution, developed in partnership with Waste Pro USA, exceeded our expectations. The implementation of an MRF not only solved all of our operational and financial obstacles; it creates opportunities.” One of the opportunities the recycling program brings is the creation of 28 new jobs. I’m pleased to have learned about yet another green operation and now wish I had taken a picture to include in this blog! Check out the rest of the article to see the Airport’s other sustainability program initiatives.

It doesn’t have much to do with sourcing or business practices, but the attempted terrorist attack on Christmas day did get me thinking about the use of intelligence, and how our government really does a poor job managing it.

There has been a lot of coverage in the media on this latest attempt, much of the discussion focusing on the government response and the new safety procedures that have been added to make sure an attack like this never happens again. The government acted quickly, and now we have more intense screening at the security line and more bomb sniffing dogs at the airports. The most interesting new rules involve what happens after you get on the plane. Here are a few I have read or heard about over the last few days.

Passengers are not allowed to get out of their seats for the last hour of the flight.

Passengers are not allowed to have anything on their laps for the last hour of the flight.

Airlines have been asked to turn off the screens that show passengers where they are on the flight route.

Passengers must be quick when using the bathroom.

I even heard about a case where a little girl was told she wasn’t allowed to read her book for the last hour of the flight.

The problem with the new precautions is that they are based on this single recent incident, with little or no attention paid to the fundamental underlying problem. Terrorists understand the rules, and then formulate plans to work around those rules. If they know you can’t get up in the last hour of a flight, they will make their attempts before that last hour. If you aren’t allowed in the bathroom for more than a few minutes (sorry Grandpa) then they will get faster, or go to a plan that doesn’t involve the bathroom.

Once a terrorist gets on a plane, the best protection we have is the other passengers. Americans have consistently shown after 9/11 that if someone tries something on a plane, we will take them down, and our success rate is very high. If the government really wants to protect us, the focus should be keeping the terrorists off the planes to begin with. In this case, the FBI was even alerted about the terrorist prior to his entry in the U.S., but the warning wasn’t acted on. The Fort Hood massacre was another example where information was available that could have been used to prevent the incident, but wasn’t. In fact, most of our recent attacks didn’t happen because of a lack of information, but rather a lack of response based on the information.

If you want to make sure I sit still for the last hour of my flight, that’s fine, but it does not make me feel any safer. I would feel safer if I though my government understood the information it collects, and acted on it.

Of course, the leap from government National Security Intelligence to corporate Strategic Market Intelligence is a big one, but the government might want to take notice of how best in class supply chain organizations use and respond to changes in market intel. Over the next few weeks I will be blogging about market intelligence in the supply chain world – what it is, how to get it, and how to use it effectively.

In a post last week I shared some information from the Aberdeen Group suggesting that the finance and procurement functions are becoming more closely related and more highly prioritized within organizations. Basware, a provider of purchase-to-pay solutions, has recently predicted a similar trend to occur over the course of the next decade. According to Steve Muddiman of Basware, “In stepping up to the challenges the new decade brings, these ‘buying and paying’ departments will find that they achieve a much more strategic role in the success of their organization, breaking away from their old perception of an internal service team.”

In a recent release to their site, Basware outlines some of the factors that they believe are driving this trend and are critical to business development in the near future. The major areas addressed in the post include process and department integration/fragmentation, buyer and supplier relationships, risk management, and sustainability. Recent economic conditions have caused companies to alter the way they run their businesses. While this sort of integration and reengineering is necessary to evolve and grow over the next decade, it has some potential side effects that create a lack of coordination and planning between “in-line” business functions and so called “service functions”. In the coming years it will be strategies, initiatives, and workflow designs related to the finance and procurement functions that allow companies to reconcile the “way we’ve always done it” with newer, more effective business models.

After reading a few different articles suggesting this sort of transition from fat and happy to lean and mean business processes, I was reminded of a seminar I attended in which the speakers detailed the advancements of “Web 2.0” and the potential applications of “Web 3.0” when it arrives. Once it was explained that Web 2.0 refers to the trends and advancements that have made the internet more interactive and user controlled, an audience member raised her hand and asked, “So what is the difference between Web 2.0 and Web 3.0”. The speaker smiled slightly and said, “Web 2.0 was the creation of all these wonderful advancements and applications. Web 3.0 will be when we clean up the mess and figure out what to do with it.”

Pardon the tangent, but the point I was making is that business process optimization is not a formula or linear plan that can be followed to a stagnate end. Many companies have started taking the steps to integrate departments cross-functionally and reengineer dysfunctional processes. Now, to get to the “Web 3.0” sort of state, they need to look at what they have done so far, evaluate their successes (and failures), and focus their strategies even tighter to hone early successes into sustainable competitive advantages.
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In three past posts, I referred to a semi-international spat that was transpiring over a US “Buy American” policy. Those posts can be viewed respectively here (1, 2, 3). Well, judging from a short article I read today on BusinessWeek.com. These isolationist-type strategies may be spreading. According to the article, China's Commerce Ministry has proposed legislation that will require any government purchases oh high-tech products to include innovation that is “indigenous” to China. In other words, the government is stipulating that Chinese tech companies get priority, by law, for all high-tech government contracts.

In the wake of such a monumental global meltdown, these sorts of policies seem to make sense. If there’s a storm outside, let’s board up the windows, hunker down, and protect what’s ours. Right? Wrong. Globalization has permeated most of the world’s developed countries’ domestic economies to such an extent that “boarding up the windows and doors” will most likely hurt, rather than help domestic recovery.

The Chinese have two good reasons for implementing these policies. For one, it will drive more government business to domestic firms. Secondly, any foreign companies who wish to compete for government contracts would have to transfer intellectual properties to China in order to do so. While these results will most likely help China in the short run, the farther reaching effects could be detrimental to China’s worldwide economic position. Particularly, any number of China’s strategic trading partners could take counter measures to “balance” these laws in other areas of trade. Also, as the global economy recovers it will be difficult for China to regain trade relationships that may be damaged from these measures.

As I said in previous posts about indigenization laws, no one wins in the event of a trade spat. Rather than working together to develop symbiotic trading relationships that make sense for companies from all countries involved, sanctions, tariffs, quotas, and a number of other forms of backlash can throw a wrench in the economic value of trade relationships.
I am wondering what recent brilliant instructor/article/reporter/analyst gave purchasing managers this crazy idea that has been popping frequently...

In the last couple weeks, we have received multiple 'RFP Notifications' from unrelated companies that were looking to bid out their projects. The twist? They require the supplier (in this case, us) to pay for access to the RFP. This access has ranged from several hundred dollars to several thousand dollars, just for the right to view and respond to the RFP. And, we are not talking about government jobs, or projects that a third party or a subscription services gets a cut of (think mfg.com), we are talking plain old RFPs, direct with the buying group.

Scenario 1: We receive a 'RFP Notification' that only provides this bit of information: "XXXX company is accepting sealed bids/proposals from qualified firms to furnish the goods and/or services in the specification document. The Procurement Managed Services specifications documents can be downloaded electronically for a fee of $500. ALL PROSPECTIVE BIDDERS/RESPONDENTS ARE HEREBY CAUTIONED NOT TO CONTACT ANY MEMBER OF THE xxxx COMPANY OTHER THAN THE SPECIFIED CONTACT PERSON" (who can be only identified after purchasing the document). Now, as tempting as this is, no serious consulting firm or supplier would ever even remotely entertain the idea of throwing away hundreds of dollars to gain access to an RFP that may not even be related to their business, when they cannot even speak with or email a contact person to learn summary information of the RFP.

Scenario 2: A company that has been a prospect for a long while reaches out to us out of the blue. They are seriously considering engaging with us, but they developed what they think is a good method on how they will rank us with other providers in our industry.... They identified a specific product that they are looking to make a one time purchase of, in this case the product already has a pretty narrow list of recognized qualified suppliers (less than 5). They are going to go out to bid to the suppliers on their own and will negotiate with them in order to get the best final offers. After this is complete, they will send us the specifications (along with several other consulting firms) and want us to go back (along with everyone else) to the same suppliers and try to negotiate a better deal. They will not provide us with their pricing/efforts/information until after we submit our bids/results to them. If we come back with the best bid, compared to other consulting firms and their own efforts, then they have the option of hiring us based on their own internal qualifications, and there is no guarantee that we will be paid at all, if they feel our commission structure brings the price too close to the price they negotiated. Oh, and one more thing, they require us to pay $2,000 to make sure we have "skin in the game". So, first off, when any company assigns resource to work on an RFP, be it a consulting firm like ours that is going to assign human and electronic resources to a sourcing event, or a supplier that needs to fill out a multi-page RFP document to win business, they already HAVE "skin in the game". Secondly, the idea of sending multiple organizations out to beat up the same supplier list on the same exact items is going to produce ZERO results. In fact, it will do nothing but damage any relationship that organization has with those suppliers.

Collaboration is an extremely important component of Strategic Sourcing and your Supply Chain. This tactic of making suppliers pay for an opportunity to look at your business does nothing to help your position to develop good relationships that go beyond unit cost with your suppliers. You can have the best of both worlds, unit price reduction and improved service levels, but it will not happen by opening up communications with your supply chain with "give me money".

If you are in procurement or sourcing for your organization, please think twice before deploying these "Pay for an RFP" tactics within your organization, because they best organizations are going to respond like we did, "No Thanks". Also, if you missed it before, take a moment to read this previous post "Stop RFP Spamming!!!" I can guarantee you will not achieve the results you are looking for with either strategy.
According to a recent article on CNNmoney.com, the Aberdeen Group has released a new study titled "The CFO's View of Procurement: Work in Progress," which demonstrates how economic turmoil has brought strategic sourcing to the attention of many C-level executives who may have previously considered purchasing a tactical function during easier times. Included in this group is the CFO, who can be a very powerful sponsor for any sourcing initiative.

In most organizations, the CFO’s primary function is to develop financing strategies, and oversea/track the inflow and outflow of cash. While intuition would suggest that the individual responsible for tracking cash flows would have their goals aligned with the CPO, this has rarely been the case over the past decade. While this lack of integration could be attributed to a number of reasons from sloth, indifference, a lack of understanding, or the curse of the “status quo”, one thing is for certain. The worldwide economic downturn, and the shockwaves it has sent through nearly every industry, have caused CFO’s cast a focused eye on the development of strategic procurement initiatives. According to the report, the majority of these CFO’s are beginning to realize that they are only scratching the surface of potential savings that can be realized by optimizing the procurement function.

So what does this mean to the average procurement professional? This white paper is the perfect “light reading” suggestion for C-level executives within your organization to obtain some of the political pull and top-level sponsorship you will need to develop and effectively integrate strategic sourcing programs. In the past CFO’s would rally behind their beliefs about the financial pros or cons of making a capital purchase or plant acquisition, however day-to-day purchasing seems to have slipped off many CFO’s radar. You can use the information in this paper to educate and motivate managers throughout the organization to align their goals cross-functionally with procurement processes.
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Plenty of others have used the Tiger Woods’ scandal as an excuse to discuss another topic, and I’d like jump on that bandwagon. In particular, I’d like to connect the dots between Woods’ mistakes and the need for a tightly regulated banking industry.

Remember the bailout? Supposedly, most of the money we gave to the banks is getting paid back in an effort to prevent government intervention in the day to day activities of banks. The markets have stabilized; we don’t need your money anymore, now lets forget this ever happened. One thing we expected after the bailouts was for the federal government to re-regulate banks to prevent future meltdowns. Most of the regulation is still in committee, but it sounds like what will get passed could give banks even bigger loopholes than the existing laws, and certainly won’t help prevent future meltdowns from occurring. But more on that later.

What if, before he started his crusade of serial infidelity, Tiger was told that his actions would result in a loss of friends, family, colleagues, and reputation? They would also cost him half of his existing fortune, and reduce his future earnings by 80% or more. Do you think he would have even started to engage in this behavior? If so, do you think he would have started thinking twice after 5 affairs? 10? 15?

The human default setting is to take absolutely everything you can get. The consequences of our actions may be evident ahead of time, but unless those actions are well defined, short term gains will always win out to possible long terms consequences.

This is true of Tiger Woods, and it’s just as true as the credit default swappers – banks, traders, and insurance companies. All of them knew what they were doing was wrong. None of them cared, because specific consequences weren’t spelled out ahead of time.

Looking back, you might think what the banks did was criminal, and it probably should have been. Fortunately for them, the Clinton administration, steered by the recommendations of then Treasury Secretary Robert Rubin, took away the consequences and said let the markets bare what they may. But just like Tiger, take away the specific penalties, and the markets will take until there is nothing left.

It only seems natural then, that we put restrictions back on financial institutions in an effort to prevent another meltdown. After all, the original Glass-Steagall Act kept markets relatively stable for 65 years. It only took the banks another 7 years to completely wipe out again after its repeal. It’s been about a year since the bailouts started, where is that regulation?

The problem is, the same folks that helped get the Glass Steagall Act repealed are advising the President now, and they all personally benefited from the repeal of that Act. There is a great article by Matt Taibbi in the December 10th issue of Rolling Stone that discusses the connection in greater detail.

I for one am more hopeful than Mr. Taibbi that we will see meaningful reform out of the Obama administration. The article admittedly can’t make the connection of why Obama would choose to fill his advisory roles with these sell-outs and jokers, and I think the President has plans that we haven’t seen yet. As a country, we just need to make sure it becomes his priority.

Speaking of which, this morning every major news outlet in the country has joined together to make sure I understand that Tiger Woods’ wife is no longer wearing a wedding ring. No mention of a financial regulation bill though.
A few weeks ago I had the opportunity to attend the bi-annual meeting of the Supply Chain Resource Cooperative. You can learn more about the cooperative here, but in a nutshell the program, which is run by North Carolina State University, pairs up students in the supply chain studies undergraduate and graduate programs with businesses that need research help on specific supply chain related projects. The students are assigned to an actual company, given a problem, and then asked to analyze the program and provide recommendations.

The meeting attendees were primarily faculty and staff on the Supply Chain Resource Cooperative, representatives from businesses that are members of the cooperative, and others with an interest in the program. Over the course of two days, students presented the results of their work for that semester. The theme of the meeting was the use of market intelligence in the supply chain, and several speakers gave their take on that topic.

Overall, I was very impressed with the presentations, which drilled into more detail then I have come to expect based on other supply chain related seminars I have attended. The students knew the industry well and the co-op provides them with the real world experience needed to hit the ground running after graduation. We were there looking for talent to recruit, and what we found was a motivated, knowledgeable, and experienced group of potential new hires. If you are lucky enough to be hiring during this recession, I strongly recommend reaching out to the co-op to learn more.
In order to make wise business decisions you need to understand human behavior, in other words it takes one to know one. People tend to act in their own self-interest when making financial or other life decisions. Just as this applies to our personal lives, it also occurs the same in business settings. Companies are always looking for ways to better themselves financially, as well as maintain a good public standing. At least in the cases where public standing is important to the success of the company, then again when it is not a good thing! Businesses want to make the most of any transactions they are involved in, financial or otherwise.

Keeping this self-interest concept in mind, companies looking to service other companies need to also consider how this business frame of mind affects them. When developing a customer support system companies offering both goods and services need to consider what the customers and clients want and need from their business. These needs can vary from the level and type of support provided to the quality and availability of their products and services. Additionally the opportunity cost of providing high quality goods and services has to be considered. In other words, will you see a big enough payoff from the costs that your business expels in order to best serve your customers. Weighing the benefits and the risks involved in cost savings and process improvements is an important step in deciding what areas to focus on. All in all knowing what you and your business are dealing with when encountering other companies and the people in them is essential when making critical decisions for the future of the business relationship.
Shopping, Shopping, Shopping!!! Thought it would be appropriate for the holidays to give a little insight on sale shopping.

So, on Black Friday, I saw a Free People dress at Bloomingdales on sale for $71.68 (originally $128). Not bad, but I am anti-retail and had a gut feeling that if I waited a little longer I might could get the dress for a little cheaper. The next Thursday, they were having another sale and I got the dress for $46.44. Retailers are so sneaky, leading the average consumer to believe that Black Friday is when you will find the lowest price of the season. I know most retailers have a 100% or more mark-up (i.e. buy it for $50 and sell to consumer for $100), so that's why I try to only pay half the retail price on anything I purchase.

So how can I apply this mechanism to my telecom negotiations? When is it better to “shop” for telecom services, wireless services, PBX maintenance, etc. Or does it matter? I am going to tickle my brain and hope to have a response to these questions in my next post.
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I read a great article earlier this morning by John Davies of Greener World Media. The article details the results of a survey of 450 companies conducted this October and makes some interesting points about green procurement trends. I’ll reflect on some of the highlights, but you can check out the full article here.

According to the survey, over the last year, companies have increased sustainable procurement practices by 63%. These purchases spanned all sorts of categories from office supplies, to cleaning chemicals, to computers. Believe it or not, office supplies led the way, with 78% of respondents claiming to have implemented procurement policies to go green. This figure must be taken with a grain of salt, though. Out of all large companies surveyed ($1 billion plus in revenue) only 53% have claimed to have included office supplies in their sustainability policies. A race for green computer production has also fostered great amounts of competition and cooperation in the computer manufacturing industry that has caused dramatic improvements in producing greener technology.

Another encouraging finding is that 73% of manufacturing firms claim that they have started to screen their direct materials for “green attributes” While 75% of all companies surveyed say they have informed suppliers that these green attributes are important and 59% even include sustainability requirements in RFP’s, it seems that some companies are still unsure how to measure just how green they are purchasing.

The GreenBiz Intelligence panel, which also conducted the survey, aims to highlight and correct this dilemma. In the article Davies cites a great example that demonstrates’ the lack of information and decision support tools that exist for companies to make truly green decisions. A panel member asked, "Is it better to buy a 'compostable' product shipped all the way from China or a recycled Styrofoam product produced in the USA (that will be recycled after use)? Always buying a 'green' product may not necessarily be a 'green' practice."

Panel members and survey respondents have noted that internal measurements such as supplier scorecards and codes of conduct as well as external measures like ISO 14001 certification and certifications from Green Seal, Forest Stewardship Council, and EPEAT have, and will continue to add to the pool of resources executives will need to guide their purchasing decisions.
In the realm of procurement, most improvements require some sort of change from members at various levels of the organization. From upper management all the way down to line workers, any number of stakeholders will have difficulty accepting and adjusting to these changes. If any procurement initiative is going to be implemented successfully the problems that result from change must be identified and effectively managed. Below is a framework for developing teams and task forces that will be able to work together to successfully identify and overcome obstacles that result from change-related decisions.

The first step in developing a change-management team is referred to as Forming. During the forming phase the proper personnel and resource requirements must first be identified. If the initiative is going to have cross-functional ramifications, it is important that the proper stakeholders from across the organization are included in this team. During this phase it is also important to recruit executive commitment and clearly define key goals the initiative will accomplish and create motivation/rewards systems that will encourage team members to work toward developing integrated solutions.

Once the “who we are and why we’re here” is determined a team must enter the Storming phase. This is a phase that, if neglected up front, could have very detrimental effects on the team later down the road. During the storming phase, before any strategies or plans are discussed, each team member gets to voice their concerns, doubts, fears, or potential reasons for resistance. This phase can be difficult, but it is necessary in order for the team to clear the air, allow for healthy debate, and be ready to work as a together (with each others’ concerns in mind) on the same side of an issue.

After the initial Storming phase, it is important that a set of rules and norms are created for team discussions. This phase is referred to as the Norming phase. During this step agendas are set, rules for negotiation are developed, and each group member is made aware of what will be accepted as legitimate forms of disagreement. This seemingly perfunctory step is valuable because it allows group leaders to curb any dysfunctional conflict and keep discussions heading in a positive direction.

Now that the proper mix of personnel is on board, all initial conflicts have been addressed, and the guidelines for discussion have been set, the group is ready to start Performing. This phase represents the “getting down to brass tacks” for which the group was originally assembled. Many teams, particularly ones under the pressure of a deadline, rush into the performing phase without effectively forming, storming, and norming. When this happens, hidden agendas, a lack of resources, and personal conflict can negatively affect the cohesiveness of the team and their ability to manage change.

Although these four steps may seem like common, sense they can act as a checklist to ensure that a team consists of the right people, with the right goals, having the right conversations that will guarantee a change initiative’s success.
When you purchase a product or service that is critical to your supply chain and customized due to unique business requirements, the most important thing you need from a supplier is for them to listen. Yet how many times have you brought a supplier in to discuss a critical aspect of your business, have them nod their head in complete understanding, only to leave and never think about it again?

I spend most of my day explaining business requirements and long term strategies to suppliers, and I would say less than 1 in 5 actually take what I say to heart. The problem is sales people make their living telling people what they want to hear, even if they can’t do what you are asking of them. They want to sell you an easy solution, even when your requirements are complex. Suppliers don’t want to think outside the box, they want business that comes prepackaged, preferably with a ribbon and a card attached.

To quote Peter Griffin, “That really grinds my gears”.

My intent here is not to bash sales people – everybody wants easy business, where the level of engagement required is lunch once a month. Business that operates without a lot of hand holding or up front investment is the best kind. The problem is when you have critical, unique requirements, and suppliers continue to look for the easy sale, simplest solution, or worse yet, promise the world with no idea how they will deliver.

Here are a few ways to make sure that supplier can meet your expectations before you sign on the dotted line:

Ask specific questions. Don’t just ask the supplier “Have you done this before?” Ask them to explain a situation where they have encountered similar issues, and how those issues were resolved. Their response will give you a good indication if the supplier understands the complexities of your requirements.

Prep before presentations. If a supplier is presenting their offering to you, give them a detailed outline of your requirements and ask them to customize their presentation based on your needs. If they still come in with their standard sales pitch, you can rest assured they have no intention of meeting your requirements.

Get specific references. Don’t just ask for references; ask for references with similar requirements. When you interview those references, see how similar they really are. If they don’t match, the likelihood is the supplier still doesn’t understand what you are looking for.

Go up the chain. Talk to the boss/supervisor of your main sales contact. Particularly if your requirements are customized, the boss should be relatively up to speed on your account. If they aren’t, chances are your main contact still isn’t clear what you are looking for, or is hoping they can sell a simpler solution.

Doing this homework won’t prevent you from getting the lip service treatment, but it will help you avoid building a relationship with that supplier.
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Anyone who has cooked a turkey for Thanksgiving probably remembers their first time. If this week is your first year, then you’re in luck! Any questions you may have regarding thawing, prep, cooking, presentation and much more can be answered by the Turkey Talk-Line. Butterball has offered this hot line for almost three decades now and is well prepared for the most extreme questions. The hot line receives 100,000 calls including 12,000 calls on Thanksgiving Day alone!

As part of Butterball’s preparation, all newcomers to the hot line go through five days of training appropriately referred to as Butterball University. All that man the phones have degrees in nutrition, food science, or home economics and are armed with a 3” binder full of turkey knowledge.

Before the line goes live for November and December, all workers who have been on the hot line for three or less years also gather for intensive turkey training days including an assignment to make a turkey with a different method so they are familiar with all the ways people might prepare a turkey. According to this AP article, they make the basics: “roasters, ovens, and even grills and deep-fryers, which have grown in popularity.” They train with other brands of turkey as well as Butterball since the hot line is open for anyone to call.

So if you’re cooking a turkey for the first time this year or want to prepare it a different way, call the hot line experts at 800-288-8372. Fifty-five operators are on hand to help you!
An article recently posted in an issue of Supply & Demand Chain Executive briefly detailed the new trends in sourcing and procurement practices. The author discussed the traditional process of setting up the purchasing team within an organization and developing processes and procedures that would ultimately create the most savings for the organization. He continued by examining how new challenges and trends created the need for better practices, and a more strategic approach to spending. By focusing on specific spend categories that are considered strategic to a business, your company is on the right track to establishing better purchasing methods. Categories that are considered strategic are those which have a high risk of supply loss and high value as a product or service. For items that are considered strategic to a business, the main focus is on your relationships with suppliers. By targeting these particular areas, organizations can streamline their savings initiatives and push for much greater efficiency. What the author ends up driving at is that there is more to sourcing and procurement than what we traditionally know. He states that companies need to leverage their spending by collaborating with other businesses to maximize utilization of resources. Outsourcing procurement services provides another approach that can create better efficiency and provide for expertise that will eventually lead to even greater savings. Companies can also join a Group Purchasing Organization (GPO) to consolidate spend with other companies and leverage better pricing. The idea of the article is that organizations need to look beyond their basic means to expand their opportunities. We are in an age of vast knowledge that is at our fingertips, all we need to do is direct our focus. Even the smallest of companies can have multiple suppliers, which means multiple contracts and multiple spend categories. No matter what size company, they can take advantage of leveraging their spend and with the right management they can realize the most potential savings.
According to CNN certain banking companies will begin to raise their employees’ bonuses by an estimated 40 percent in the upcoming months, all in the wake of the financial turmoil in 2008. Many people are concerned that these increases may lead these companies back down the path led previously. The article states that the Fed will be ensuring that the banks are held accountable to the rules that ban excessive pay for bankers. But who or what decides what is excessive? Does the American public get to say, “Hey wait a minute, I think they are getting a little overpaid?” Or will it be the overpaid government determining what the definition of overpaid is?

Additional concerns surrounding the taxpayer bailout are being brought up since many of these companies planning increases were the ones that received bailouts earlier this year. But I think we can all rest assured since they still are not making quite what they were making in 2007, even with the 40 percent increase. As a taxpayer, I can definitely say this news does not make me sleep better at night, how about you? They are saying that the increases come due to the banking industry returning to a level of profitability. I say that we are not nearly out of the woods yet and this risky business needs to be looked at a little closer.
WhyAbe Free Sourcing Software
A small break from our regular blogging efforts for a Press Announcement from our parent Source One:


New Features Added to Free e-Sourcing Site, WhyAbe.com!

Philadelphia, Pennsylvania – November 10, 2009 – Source One Management Services, LLC, who develops and maintains the web’s only completely free professional e-sourcing platform, announced new features to help assist procurement professionals in their e-sourcing events.

WhyAbe.com has built a communication system directly into individual RFP and Reverse Auction events. With this system, buyers are able to log in to any event they have created and email a message to their entire invited supplier base, or to individually selected suppliers. All records of email communications are stored indefinitely with the event in order to help maintain record keeping and accountability.

Editing active and saved events has become significantly easier. WhyAbe.com has incorporated a “WYSIWYG” (what you see is what you get) editor into the dashboard. Now, buyers do not need to know or understand HTML formatting in order to edit and customize their RFX events. The on-screen editor program supports formatting through familiar menu and navigation bars.

A new document uploader has also been added to the buyer’s toolset which allows users to create their RFX event with greater speed and improved system feedback. Now, when a buyer creates or edits an event, multiple attachments can be uploaded in one easy step. By simply holding Ctrl or Shift on the keyboard and clicking the mouse, multiple documents found in the same folder can be quickly attached to your event. WhyAbe has also added visual feedback for end users which indicates the progress of these document uploads.

Recently, the most frequently requested enhancement to WhyAbe was to enable buyers to revoke (remove) bid(s) submitted by suppliers. WhyAbe is pleased to announce that buyers now have the capability to remove bids from a supplier during a live event. Once a buyer removes a bid in a reverse auction, suppliers will see their bidding rank or current lowest bid screens refreshed with the proper information before the removed bid was placed. In order to maintain proper record keeping and regulatory compliance, buyers must enter a reason for removing the bid. All removed bids are stored within the event and event bidding history indefinitely.

In addition to the e-sourcing enhancements, WhyAbe.com has also improved the navigation and dashboard for its contract repository system. Users of the contract repository can now quickly sort their contracts based on pre-established criteria such as, contract amount, expiration date, and contract number. The process of adding new contracts, suppliers, and reviewers has also been streamlined through an improved navigation system.

Procurement Service Provider, Source One, is committed to continually improving and updating the WhyAbe.com platform and series of tools. New features and enhancements are developed based entirely on user requests. Stay tuned in early 2010 for another series of further developments.
If you haven't yet heard of WhyAbe.com, or you still don't believe it is free, keep in mind that WhyAbe is now in its fourth year of operation as the web's only completely free on-demand e-sourcing website and collaborative marketplace. WhyAbe can be used by any organization in any industry, and has a user base ranging from single-person startups to Fortune 500 corporations. Source One also licenses out private label solutions at a low monthly cost if you are looking for a more customized solution for your business.
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One of my favorite episodes of the Sopranos is the one where Paulie tries to hit up a Starbucks for some "protection" money. The Starbucks manager tells Paulie that ""Every last f***ing bean is in the computer".

Paulie's world was changing and soon your world will be changing too. California has a plan to shore up its deficit - an interest free loan from the taxpayer. The state is going to withhold an extra 10 percent out of residents' pay checks. Leaders say state residents will get any extra withholding back in April. Those who would have already gotten a refund will get a bigger one and those who owe taxes will owe less.

After years of mismanagement, California is going to shift more of the pain to taxpayers rather than reduce spending. The problem will only be worse in six months. Why not just make the cuts now? Taking additional tax money from already cash strapped consumers will only worsen the problem. Retailers will see less spending this holiday spending which will result in less tax revenue for Sacramento.

Given that almost every state is in financial turmoil, people that don't live in California should take note - the New "MOB" is coming to a state near you. How much of this are we going to take before we are totally fed up?
What do you think of nowadays when asking “what can I get for $5?” The jingle comes to mind “$5… $5… $5 foot longs!” The in depth Business Week article takes us through the birth of the $5 Subway footlong sandwich campaign. It all started when a franchise owner in Miami came up with the idea to offer every footlong sandwich on the weekends for only $5 (a dollar less than the usual price).

It’s great that Subway realized the potential and seized the good idea even though it wasn’t created at headquarters. To their reward, according to the NPD Group, Subway’s $3.8 billion in sales nationwide on the $5 footlong alone placed themselves within the top 10 fast-food brands in the U.S.

Sorry Jared but your reign is over. At least with this promotion you can continue your weight loss and realize savings. You will be saving time, gas and money by visiting Subway just once a day to buy a $5 footlong that will last you for lunch and dinner now!

If you get a few minutes I would suggest you read through this article. Be careful if you read it on an empty stomach though, now I want Subway!
A year ago, with the economy on the verge of collapse, and our government basically maintaining a holding pattern, we heard a call that change was coming. Regardless if you bought into it or not, it seemed that the path we were on was unsustainable, and something would be different soon.

I for one was hopeful that we would see some accountability in the government as well as the corporate world. I felt that the bailout(s) would force our government’s hand to start cutting costs – their own as well as the companies they gave billions to. I also thought the trend would be contagious, from the federal government on down to state and local, and from large companies needing bailout funds down to small companies just trying to survive the current recession.

A year later, what do we have to show for it? Not much. Over the last few months we have seen that even during an economic crisis, most people will look to maintain the status quo, for better or worse. It’s ironic that a message of change sold our country, yet most people only want it if it’s not going to affect them.

In my job as a consultant that specializes in cost reduction, I don’t have the luxury of maintaining the status quo. Inherently, reducing costs means shifting away from traditional thinking, or having a damn good reason why you shouldn’t. That role requires accountability – recommendations have to come with solid facts behind them, alternatives need to be explored, and support needs to come from the highest levels – because change doesn’t come easy.

Our federal, state, and local government, along with many companies – from large corporations to small businesses, went into this new year with a noble cause of cutting out the fat, getting more efficient, and changing things that didn’t make sense. But along the way, many didn’t realize they had to be accountable for those actions and actually shift away from the status quo to be effective. Without that accountability, real change won’t take place.

A great example of lack of accountability and status quo protection is happening in the county I live in. Recently, Montgomery County (outside of Philadelphia) embarked on a budget balancing initiative, cutting programs and jobs across the board. One area that took some major hits was at the county building where most workers were stationed. This building included a county run cafeteria and day care center that employees could take advantage of at a discounted cost. County officials decided that the cafeteria and day care center were too costly to run, and outsourced both programs to companies that quickly raised prices for employees. Most of the employees of the county that work in this building do not have high paying jobs, and rely heavily on little benefits such as the low cost daycare center to keep them afloat. It’s recently been announced that these employees will now be required to pay a greater portion of their healthcare costs next year.

On the surface, it appears the county is making some tough choices, but are they really making cuts that will have a long term positive impact on the county? Not really. The likelihood is that many of these employees will find themselves in over their head financially, without the salary or ancillary benefits that allowed them to live and work in the most expensive county in Pennsylvania. Once they do, they will be required to utilize the same state and county services that they provide. The plans aren’t eliminating the cost burden, but simply shifting it be paid at a later date.

Government is not the only one with these problems. A similar lack of accountability in decision making can be seen in one of my customers. Their board of directors issued a mandate to shave $30 million out of the budget by the end of 2009. Even with this mandate, they haven’t allowed their cost reduction consulting firm (Source One) access to the areas where they spend the most – telecom and benefits, because in the past they have been considered “hands off” and politically sensitive, meaning the powers that be don’t want to challenge those who control the spend. Even in times of extreme emergency and dire straits, the first priority appears to be keeping the status quo, because change requires accountability.

From AIG fixing their problems by shifting good investments to a new company and leaving the bad to rot (ala GM), to state governments cutting back on police forces while huge process inefficiencies go unchecked, it is clear that the status quo is still being maintained, and accountability is avoided. On the surface, it may look like we are on the right track, but look under the covers and what you’ll find is a mess. We’re not going to have change anytime soon.
Recently this blog and many others have covered the trend of suppliers rebelling against the RFP process. Particularly in the services industry, suppliers are walking away from business rather than participating in a process that requires a great deal of upfront work (often with strict timelines) and little upfront customer engagement. The weak economy has only compounded this issue, with companies scaling back and requiring more get done with less resource. Sales teams have become selective in reviewing what business opportunities look real and which are long shots, and allocate resources appropriately. In the past, disqualifying suppliers due to a late bid (or no bid) was common practice, but these days you could be severely limiting your competitive landscape with that approach.

So what is a strategic sourcing professional to do when suppliers still need to be evaluated and qualified, but are unwilling to commit to a formal written response? Recently, I’ve started looking for opportunities to shift away from formal RFP’s and utilize supplier presentations as the initial qualifier during the sourcing process.

Supplier presentations have traditionally been reserved for the later stages of the sourcing process (with some exceptions), after the list of potential providers was narrowed from 10+ down to 2 or 3. This saved time and effort on the buyer side, and allowed the sourcing staff to bring in a cross functional team and any interested end users to see what the landscape looked like, but only from a select group of suppliers that could best meet the customer’s requirements.

Moving to supplier presentations on the front end can be a great deal more time consuming, because each supplier needs 1-2 hours of your time up front. You can limit the time investment though, by mapping out exactly what your requirements for the new supplier are in advance of any meetings. Once you do that, you may find that out of the 15 potential suppliers, only 3 or 4 are really a good fit based for your organization.

Allowing suppliers to present rather than provide a written response can make impartial qualitative comparisons a difficult process, but there are easy ways to “force format”. Start by giving suppliers a list of key concerns, and make sure they are going to cover each of them during presentation. Before the presentations, show them your scorecard system, and make sure they know the importance of each category of the scorecard.

I’ve been on both sides of the table during a “pre-qualifying” presentation process, and I have to say it’s been effective. On the sales side, during one of these presentations I spent five hours in a meeting room with a potential customer, including multiple end users and other decision makers. While it became clear early on that we weren’t the best fit for what this customer needed, it was still preferable to spending a few days (and nights) filling out a word document and expecting the same result. In addition, I had the chance to meet face to face with a large group of purchasing professionals, which was a great networking experience. The likelihood is if there is a better fit down the road, they are going to remember us more clearly from that meeting than from a written response.

On the sourcing side, I’ve found the process actually cuts timelines dramatically. Allowing suppliers to utilize their standard format (or sales pitch) and add to it based on my primary concerns means they don’t have to reinvent the wheel, just customize it a bit, and I can setup a presentation within a week rather than waiting 2-4 weeks for a written response to come back. Plus, suppliers are much less likely to ask for a time extension if they have already confirmed a face to face meeting.

Overall, I would recommend bypassing the initial proposal process for presentations whenever possible. Suppliers are often much more motivated and engaged when taking this approach and it becomes clear very early on if the suppliers actually listened to your concerns or just gave them lip service. In some cases a written response may still be required, and a formal quote will definitely be needed, but as a pre-qualifier, the process works well.
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Although nearly 80% of respondents to the quarterly NABE survey agreed that economic contraction has ended in the US, there is still a long road to recovery. While many economists agree that expansion has begun, 94% of respondents believe that the majority of jobs lost over the course of the recession (7.2 million) will not be recovered until at least 2012. An article in yesterday’s Automotive News featured Bob Socia, vice president of GM’s global purchasing and supply chain, sharing his opinions that his troubled supply base has not seen the last of its woes.

He believes that even now, as volumes begin to increase, many suppliers will have trouble obtaining operating cash flows in the short term and protecting capital for the long-run. Along with the more than 20 GM suppliers that have filed for protection under chapter 11 and smaller suppliers who simply closed up shop, there are the remaining suppliers that need to figure out a way to cover return period between production of parts and collection of payment. Socia says that GM is “keeping a close check on” the nearly 150 troubled suppliers who will be trying to survive this 45-60 day gap.

In the coming months, GM has a number of both tactical and strategic considerations in respect to how they will handle various troubled suppliers. Socia and other GM execs will have to play a balancing game between spending money/resources to ensure the survival of a healthy, diversified supply base and keeping GM in good health over the short term. As troubled suppliers teeter on the brink of bankruptcy, GM will have to make several choices about which suppliers they help, which ones they leave alone, and, in some cases, which ones they should take actions to put down. While this situation seems rather cloudy, I believe there is a bit of a silver lining for GM. As GM recovers and achieves healthy levels of both capital and cash flows, there may be an opportunity to vertically integrate back up the supply chain by taking control of some troubled suppliers that provide strategic advantages.

Whether or not the NABE economists are correct about the end of the recession, one thing is certain. The effects of the decisions executives make in the coming quarters will reverberate into the future. Great decisions will provide sustainable competitive advantages that will allow companies to thrive, and bad decisions could easily mean the end of even the most prominent organizations.

According to an article in the Philadelphia Inquirer, financial analysts seem to have varying opinions on upcoming retail this holiday season. For the most part they seem to agree that things are looking up. Some commented to the likeness that being down for so long there is only one way to go. Although still below last year, recent sales figures have depicted some hope with increases above previous quarters. Others still indicate that the economic status is not necessarily improving, but instead it is flat lining. Retailers are on the edges of their seats anticipating this holiday season, so many have already gone out of business and many more are on the verge. Cost cutting across the board from salary decreases and layoffs to reducing costs through restricting company travel and other non-necessities has managed to keep some companies afloat. However, this upcoming quarter may make or break many more businesses, retail and otherwise.

An important point that I picked up on was one that I have seen discussed a lot throughout this entire downturn, the consumer outlook. As consumers we drive the economy with purchases of goods and services. Our first instinct when financial stresses begin is to retract into our shells and stop spending money. Even though in some cases this may be the right thing to do, I think people sometimes go to the extreme and stop spending altogether. Consumers don’t realize sometimes that they are a major player in the game that we call the economic flow. During the holidays are when consumers spend the most all year sharing the goods and services we so enjoy ourselves with friends and family. We can still be financially conscious while spending money this season so my advice is to get out there and get the economy flowing. After all it’s all the retailers want for Christmas!

MasterNegotiator.com is pleased to announce a new deal to help procurement professionals save on online procurement training.

Master Negotiator has partnered up with the world's leading procurement training company, Next Level Purchasing, to offer a fantastic discount of 10% off of all online procurement training programs.

Next Level Puchasing offers a multitude of online courses, covering porcurement topics from purchasing fundamentals to negotiation to global sourcing. Next Level Puchasing also offers the globally-recognized SPSM Certification, which can be earned completely online.

See the deal here.
Some recent personal shopping experiences got me thinking about retail buying and how our perceptions as consumers often differ from our perceptions as purchasing professionals.

There has always been a lot of buzz about Walmart’s leadership in the field of Supply Chain Best Practices. Numerous articles detail their use of RFID technology, how they approach supplier management, and their streamlined/automated fulfillment processes. So why is it, ever time I go to Walmart to buy electronics the item I am looking for is out of stock? For me, it seems like they define “Just in Time” to mean “Come back tomorrow and we might have it”.

As a purchasing professional, I would not continue to utilize Walmart, at least not without developing performance metrics and meeting with their operations team to ensure these issues do not continue. As a consumer, I find out where the next closest Walmart Superstore is, and start driving with fingers crossed.

Home Depot
This past week, I had Home Depot come to my house to quote on some window replacements. I have a drafty old house and its time to upgrade the single pane windows. During his pitch, the sales person shared an interesting statistic – Home Depot estimates the average homeowner will spend $70,000 at Home Depot over the course of their lifetime. I feel like I already spent that much, but I probably haven’t (yet). It did shock me to see that everyone else was in the same boat – and keep in mind – this estimate is just for Home Depot – and doesn’t factor in Lowes, Ace, True Value, or any of the other players in the Home Improvement industry.

As a purchasing professional, before adding a new product category to an existing agreement, I would take a closer look at my annual spend volume with the supplier and the term of the existing relationship. As a consumer, these thoughts never occurred to me. Based on my aggregate volume and the nature of our long term relationship, shouldn’t I be getting a discount on these windows?
"Money bewitches people. They fret for it, and they sweat for it. They devise most ingenious ways to get it, and most ingenuous ways to get rid of it. Money is the only commodity that is good for nothing but to be gotten rid of. It will not feed you, clothe you, shelter you, or amuse you unless you spend it or invest it. It imparts value only in parting. People will do almost anything for money, and money will do almost anything for people. Money is a captivating, circulating, masquerading puzzle" (Federal Reserve Bank of Philadelphia, “Creeping Inflation,” Business Review, August 1957, p. 3).

I think this speaks to the heart of most of us, in business and in our personal lives. We spend our entire adult lives in the pursuit of acquiring skills and knowledge to better our careers as well as to better ourselves. Why else do we spend so much time in school, in training, and with our heads in the books? To make more money of course!

So how else do we “make” more money? By saving...good….now you’re getting it! Now, I’m not talking about big wigs like Donald Trump and the Kardashian’s, when was the last time you think they pulled coupons from the weekly circular to save 50 cents on a pack of chicken breasts. I’m speaking straight to the everyday people in small and large businesses alike, as well as consumers, and even suppliers. Saving money in any type of business adds to the end result of more profits. Even saving money in your household, for instance by just turning off the lights or switching to EcoSmart CFL bulbs, can have a significant impact on your budget. What it all comes down to is controlling the flow of cash within your business or home. Knowing where and what you are spending your money on gives you that control. Once you have a good awareness of that you can begin to investigate ways to save on particular areas, such as electricity and general goods. So, the moral of this story is, don’t let money bewitch you, take control and make results happen!
Orange County Choppers was up for the challenge of building their first electric chopper for Siemens Building Technologies. It took them about a month to build the bike which included recycled materials, an advanced DC Motors Inc. series wound 8-inch motor, LED lighting by Siemens' Osram Sylvania business, 27 peak horsepower, a maximum speed of 100 mph and a range of 60 miles on one charge, and an onboard charger that can be plugged into any 110-volt outlet.

In addition, according to the Electrical Wholesaling article, “Siemens developed a compatible smart grid-ready charger that communicates with the utility to enable charging when the electricity is most affordable.” This is just another way Siemens shows they are one of the greenest in the business. Daryl Dulaney, president and CEO of Siemens Building Technologies said, “We wanted to build this unique chopper to raise environmental awareness and reflect what the 69,000 employees of Siemens USA are doing to help America stay on the cutting edge of tomorrow's green economy.” If you had not noticed in my previous blogs; I am all for green business.

The EW article mentions the American Chopper episode featuring the Siemens Smart Chopper will air on TLC October 22, 2009. However Orange County Choppers’ website has this episode listed for November 5, 2009 so be on the look out. If you are planning to attend any energy and industrial trade shows and conferences in the next few months you may just get a chance to see the Siemens Smart Chopper in person! But after that it will be auctioned off in 2010 with proceeds going to a charitable cause benefiting the environment (of course!). Props to OCC and Siemens.
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Maybe you are thinking about abandoning email for your next sourcing project? Are you wondering how to get started using e-tools to run a RFP or Reverse Auction? Have you recently used E-tools for a sourcing project and did not get the supplier participation that you expected? What changes do you need to make in your sourcing process when you adopt e-tools?

E-sourcing tools automate parts of your sourcing process and provide a central repository for your suppliers, RFP’s and supplier bids. At the conclusion of the bid process, e-tools will provide you with reports that you can use to analyze the results of the event. You can test out free tools at WhyAbe.com or ThomasNet.com.

Many people think that the e-tool will do the work for them. Frequent mistakes Buyers make with e-RFx’s are:

1. Forget to invite suppliers
2. Don’t contact suppliers before sending RFx invitation
3. Don’t invite the right suppliers or the right person at the supplier
4. Include poor specifications
5. Make sure the supplier’s are comfortable with the tool

Running an e-sourcing event without inviting suppliers is like having a party without inviting guests. The chances of anyone showing up are slim to none. Researching and inviting the “right” suppliers is critical the outcome of your sourcing initiative. Schedule time with invited suppliers to review your specifications, your award process and the tool set. Engaged & educated suppliers will provide cleaner and more accurate bids.

Many Buyers will send suppliers invitations to their event without contacting them first. Why should a supplier invest their time to respond when you did not take the time to engage them in the process? Sending RFx’s to suppliers blindly leads them to believe that you are not serious about their participation. For more on this, read this blog post: Stop RFP Spamming.

Automating your sourcing process does not eliminate the need to prepare clear specifications and identify capable suppliers. Comprehensive specifications and proper supplier on-boarding to the event will have a dramatic effect on the results of your event.

You should also make sure that you are conducting the right type of sourcing event. Running a reverse auction with 50 line items will create a situation where suppliers are unlikely to participate because of the complexity of the bidding during the event. Similarly, if you have a single item that is highly commoditized, it may be ideal for a reverse auction instead of an RFP.

So what is the bottom line on e-tools? They will help you with efficiency and organization and can help to expedite your sourcing process. However, they will not eliminate the human element of supplier identification, specification preparation and supplier engagement.
"Knowledge Management" is a pretty big buzz word in business today. Between exponentially advancing technology and high turnover rates, it’s no wonder that more companies are worried about capitalizing and protecting the knowledge of their employees. Some companies have even gone so far as to name CKO’s within their organizations. While data and information can easily be filed away in databases, retaining some level of employee knowledge can be a far more difficult task.

The two most effective techniques for converting individual employee knowledge into a retainable, transferable form are mentoring and process management. While both approaches may seem obvious, the degree to which a company culture fosters mentorship and the extent to which a company understands and records its processes are key determinants of that company’s ability to capitalize knowledge over time.

When the hierarchical structure of an organization is completely stratified, there will be enormous knowledge gaps between high-ranking executives, middle-managers, and lower level employees. As these higher ranking employees retire or leave the organization, their successors will, in many ways, be starting from scratch. The more egalitarian and flat the structure of an organization is, the easier it is for knowledgeable employees to mentor the newer or less knowledgeable employees.

While mentoring is more of a soft, cultural strategy, understanding and recording business processes is a much more tangible method for retaining knowledge and decreasing costs associated with employee turnover. The problem within many organizations is that internal processes are not clearly mapped out and documented. It should not be acceptable for any one employee or even department to control the knowledge of a given process. In these situations a small group of employees “become” the process over time. When these small groups of people that understand the process leave, the efficiency of that process leaves with them. Each process should be documented and filed to preserve and protect the functionality of the process as employees come and go.

More than this, business process management allows companies to clearly understand current processes and continuously improve upon them. If you’re interested in documenting any of your processes, Biz AGI provides easy-to-use free downloadable business process mapping software.
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According to a recent article at Government Executive, the Obama administration has picked a new candidate to head up Federal Procurement Oversight. Daniel Gordon is to be nominated as administrator of the Office of Federal Procurement Policy at the Office of Management and Budget.

Daniel Gordon has a track record of increasing responsibilities and multiple roles throughout his 17 year career within the GAO (U.S. Government Accountability Office). His background is in law but is also an adjunct professor teaching a course ""Formation-Government Contracts" at The George Washington University Law School. His roles mainly consisted of providing general legal counsel to Congress and assisting in addressing legal issues that federal agencies face.
According to the article, Gordon will be tasked with finding 7% savings in contracting spend during the next two fiscal years and cutting sole-source, cost-reimbursement and time and materials contracts by 10%.

While Gordon, no doubt, has a solid understanding of the legal ramifications of federal bids and awards, I hope he understands the value in developing a team of sourcing professionals that are not bogged down with antiquated systems, methodologies, and processes. Although it is a pipe dream, I hope he works beyond the role of an 'administrator of policy' and ties together the thousands of government procurement professionals who are working on non-centralized systems and outdated procedures with the goal of completely revamping Federal Procurement as a whole. If this can be accomplished, even in a marginal role, savings would go well beyond the targeted 7% he has been tasked with.

The gap between a firm’s costs and their customer’s willingness to pay represents a firm’s competitive advantage and profitability. To increase competitive advantage and profitability a company can either take actions (marketing, design, R&D) to try to increase the customer’s willingness to pay, or they can take actions to reduce costs.

While increasing the customer’s willingness to pay sounds like a simple enough concept, it is much more difficult to accomplish in practice than it is to talk about in theory. The structure of a company’s business model, its position in the market, or available capital and cash flow can seriously restrict a firm’s ability to engage in activities that could potentially increase the customer’s willingness to pay. Even when such resources do exist, there is never a guarantee that a tangible ROI with ever be captured.

For these reasons, many companies choose to focus on reducing cost. A company’s cost’s when properly understood and assessed represent the piece of the competitive advantage equation that can be controlled by the firm to a certain degree. One good method for cost analysis is to examine the costs associated with each step of the firm’s value chain. Below is a generic value chain for a manufacturing firm and the steps a firm should take to apply the value chain to cost analysis:

Sourcing the Value Chain
  • Step 1: Identify the principal activities that make up the value chain.
  • Step 2: Allocate total costs to each function within the value chain.
  • Step 3: Identify cost drivers within each value function.
  • Step 4: Identify linkages. How will a change in one functional area affect another?
  • Step 5: Develop strategies for cost reduction
The nice thing about applying the value chain to cost savings is that it helps keep cost reduction strategies consistent across the organization. When you look at any one of the functions on the above value chain in a vacuum, Goods Inventories for instance, it is easy to develop cost savings strategies that are very effective within that value function but detract from the organizational strategy’s consistency. Obviously any cost savings strategy is going to require trade-offs at different levels of the value chain, but looking at cost savings through a value chain lens can help mangers to make these trade offs in the areas that reduce costs most significantly with the smallest effect on the value added by the function or the organizational strategy as a whole.

Every time I read an Energy Consumption audit, I snicker at the results/recommendations.

Often packaged in slick power point presentations, or even glossy binders with colored divider tabs, these reviews usually take many pages to present what could be done in a spreadsheet and a few paragraphs. Why; you ask? Because the appearance of value is often as important as the value itself, it seems. This is why personal computers are still about the same size as they were 20 years ago.

In essence, this is what energy audits report:
  1. You saved/spent more money this year vs. last year because it was hotter/cooler this year vs. last year.
  2. You saved money this year because you managed to turn things on and off better this year than last year.
  3. You saved money this year because you installed more efficient/alternative energy using/saving stuff that you didn’t have last year.
  4. You could save more money by using even less energy as demonstrated in B and C.
  5. You could save money by buying your energy on the retail market, where applicable.
That’s about it folks.

Here’s what kills me. These audits, for all the glitz and energy saving glamour, are absent the deeper examination to drive the results home.

For instance:

Just because degree days, year over year, were equal, and the client spent less, doesn’t mean there was an actual savings. Did decreased occupancy play a factor? Did working hour changes create a delta in peak demand? What about interruptions in business . . . ., etc?

Are the same considerations, et al, weighed into the benefits of retrofits, EE equipment, etc?

Further, is the payback clearly defined on recommendations for additional cost savings?

The moral to this story is simple. Beware of facilities maintenance managers bearing savings. Read carefully, and challenge the results not just for accuracy, but for practicality. Almost any facility can save money through better energy management, but let’s make sure it’s more than just a lucky accident.

I stumbled upon an article over at CNET about a new competitor to Dun & Bradstreet's traditional credit rating company. The new company, Cortera, at first glance, has an innovative approach on collecting data through a crowdsourcing model. Cortera is in its early stages, so it has yet to have been proven as a viable alternative to D&B. However, they claim to have a particularly strong user base in the construction market and have recently received $19 million in venture capital.

I ventured over to their site to see what it is all about. My initial impression is that they did a good job of making the site very user friendly, the home page offers a search engine style interface so you can get right to work. Digging around a bit, I found that Cortera does provide some basic information at no cost, such as high-level profile data (key facts) and a payment rating. I found that the key facts seemed to be fairly accurate after a few tests (I would say more accurate than D&B for small business searches). However, I would need a lot more information on the "Cortera Payment Rating" as it does not seem to match with my personal experience on some of the suppliers and companies that I am very familiar with (on how quickly they make payments).

Paid members get a lot more information than key company stats. They are provided with:

  • Key Facts
  • Spending Behavior
  • Shipping Spend
  • Spending Level
  • Payment Rating
  • Current Score
  • Score History
  • Industry Benchmark
  • "Yelp" style reviews (community generated reviews)

I might have to purchase a few reports to see how accurate their spending level and spending behavior reports are, as this could become a great prospecting tool and market research tool for Procurement Service Providers. However, I would guess that they probably simply estimate those expenses based off the estimated revenue for that given company.

For now, Cortera is focusing its efforts on attracting small businesses who cannot afford D&B's traditional pricing model. At $3.00 per report, I think it is a bargain, provided the data is accurate. Cortera thinks they have a shot because they can attract business that normally cannot afford D&B reports. However, the costs for running a site like this can be extreme, especially when it comes to policing the data and reviews that users are submitting. So we will have to see if they are able to pull this off.

Has anyone out there used Cortera yet? Any Feedback?

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On September 13th, the New York Times reported that the institute for Supply Management announced an uptick in manufacturing for the first time since the recession. The index rose to 52.9 from an abysmal 33 at year’s end 2008. Is this cause for celebration? Well, like the folks at any auto rental company besides Hertz say; not exactly. But it is cause for encouragement. While we haven’t returned to 2005-2006 levels (mid 50’s), the index reflects a stemming of the rapid deceleration in the manufacturing sector of America’s economy.

While it comes as a surprise to those of us who thought America had discontinued manufacturing completely, the uptick means that many who have been laid off are actually being called back to work, and that inventories that were allowed or even forced to dwindle are being replenished. But keep in mind, this isn’t growth, it’s replenishment. Will there be growth? Speculators are very cautious.

The Times selected Wisconsin as the focus for its examination as Wisconsin has the largest share of its labor pool employed in manufacturing, 17%. That said, Wisconsin’s only real growth hasn’t come from major equipment manufacturers like Rockwell Automation, but rather from Miller Beer. It appears that hard economic times benefit the manufacturers of some products, anyway.

But the slow roll to growth in manufacturing drives a question or two for supply chain managers. For those who rely on companies like Rockwell and other manufacturers; what happens if the bust goes boom, and the usual suspects have cut costs so deeply and delayed improvements for so long, that they can’t flip the switch to full tilt manufacturing? What happens if the new domestic manufacturing sector has constricted so tightly that new cost structures, longer supply cycles and even system transitions become facts of life. Well that would be challenging.

But if the last few years have taught us anything, it’s that those challenges are no longer the exception. So supply chain managers that aren’t already agile, better learn to be agile. If and when growth comes, we don’t caught wondering where our next order will be placed.

I remember watching an episode of Jon & Kate plus 8 (pre-separation) when they greened out their house in PA. One of the energy saving projects was to install solar panels on their roof. Aside from positioning them exactly to Kate’s liking for visual appeal I hope they did their homework on the type of solar panels purchased.

According to another BusinessWeek’s Green Business article, vendors in only one U.S. state (Florida) have agreed to follow the performance and quality standards set in 1999. Now if Jon and Kate’s house were in Florida or Europe, then the same manufacturer panels would be of better grade. According to TÜV Rheinland PTL, a testing lab, because of this, “manufacturers make two grades of panels: one for the U.S. and another for Europe”.

Let’s hope they thought (or were instructed at least) to ask for quality certifications showing their solar panels passed federal safety tests. Nonetheless, if you are thinking about going green and saving money by installing solar panels for your home or business, be sure to ask the right questions and do your homework!
Imagine that! No I’m not really talking about the ‘89-‘93 NBC TV series. Actually, I’m referring to the newest product in energy saving lighting evolution:

incandescent bulb
compact florescent lights (CFL)
light-emitting diodes (LED)
quantum dots!

A startup company in MA, QD Vision, says it can combine LEDs with 5 billionths of a meter wide crystals referred to as quantum dots. This will reduce energy use and improve light quality. BusinessWeek’s Green Business article goes on to say QD Vision and its partner, Nexxus Lighting (NEXS), are coming out with a $100 bulb that uses 12 watts, matches the output of a 75-watt incandescent bulb and can last 50 times longer. Oh boy, am I impressed.
Yesterday, 09/09/09, a big fuss was made over numbers. But, for many of us, it was no different than any other day in which the majority of our decision-making and daily activities revolve around numbers. Pricing structures, discounts, rebates, payment terms, contract years, a projected savings percentage with a new supplier, part numbers, quantities purchased, purchase order numbers and so on are all aspects of Procurement in which numbers play a significant role.

When performing research on a certain commodity, we are normally on the lookout for significant trends, which usually come in number form. When selecting a new supplier, we typically factor in a company’s pricing structure before analyzing the servicing aspects.

After reflecting on how numbers make Procurement go round, I decided to think outside of our niche and reflect on how numbers impact our everyday lives. Just think of all the aspects of your life that depend on numbers: your social security number, credit card number, cell phone number (and landline number), bank account number, income, age, zip code…the list goes on and on. It is difficult to think of aspects of our lives where numbers do not come into play at all. A good conversation? A walk in the park? Listening to some tunes? Reading a novel? Enjoying your favorite meal? If you want to nitpick, numbers have some sort of impact on all of the above, but some nitpicking may be a bit of a stretch. A good conversation could last hours and we could be talking up to 4 hours or 240 minutes or 14,400 seconds. A walk in the park could eventually become a 3-mile walk if you have a pedometer to count. If you’re listening to music, you could be doing so in your car by tuning into Froggy 101. If you’re reading a novel, you may be concentrating on the number of pages you have left until you can move on to the sequel or you picked the book up at the library and used the Dewey Decimal System. And when swallowing that last bite of your favorite meal, you may be thinking about the number of calories you just consumed. It is difficult to escape the existence of numbers because their origins trace back thousands of years.

The world of sports and casinos are where numbers are really all that matters. I won’t dive into specifics here because there are endless examples. Yesterday, Major League Baseball celebrated the number the game revolves around. Video tributes were played to honor two players that wore the number nine, Ted Williams and Roger Maris. Also, select items on MLB.com were reduced to $9.99 to celebrate the date (the special may still be going on). Many individuals may have found themselves at the Roulette table placing their chips on the number nine rather than cheering on their favorite team in the bottom of the ninth inning. Others may have checked out what was playing at the movies, I’ve heard “District 9” is a must-see, and Tim Burton also released his newest animated movie, “9,” to coincide with the special date. As for me, I watched America’s favorite pastime as number 2 tied number 4’s record for 2,721 hits in a Yankees uniform.
Quick-fix solutions are similar to band-aids. They are appropriate when we are faced with minor scrapes and bruises that do not take long to heal. How then does a company react when minor scrapes and bruises suddenly become huge gashes and sores in need of some serious bandages? These wounds may be the result of a supply base going out of business or a cost increase in a certain commodity. Whichever may apply, reactions vary among companies as some look for a hasty remedy while others are more interested in an intensive sourcing process that will reap benefits in the long run.

It is normal to prefer using quick-fix solutions for problems that need more than just some Neosporin. I understand that some are acceptable as they alleviate the problem for the time being while a more long-term answer is in the works. The hybrid car, for example, is not the solution to rid the world of harmful gas emissions, but for the time being, these cars are lessening the amount of gas emitted into the atmosphere. We must keep in mind that the bleeding is going to continue and the hybrid car cannot soak it all up (I’ll end my analogy on that note). Hopefully, a global plan will come to fruition in Copenhagen this coming December as national leaders gather for the United Nation’s Climate Change Convention.

The ultimate goal is to eliminate problems, not just postpone them. When a sourcing process is in need of a fix, there is really no such thing as a permanent solution and problems are never really eliminated. The same goes for many other complex entities. Markets constantly change, supply chains are continuously disrupted, and technological shifts occur on a regular basis.

It is easy to fall into laziness mode once a quick-fix solution has been implemented. Procrastination sets in and only when the panic button is hit do you then begin to care again. We need to remember that whether it pertains to strategic sourcing, running a marathon, planting a “recession garden,” or acing a test, there are really no shortcuts that reap benefits. In the end, you are only hurting yourself. You’ll get tricked by suppliers, come in last place, grow rotten veggies, and not learn a single thing.

I’m not saying that quick-fix solutions should be thrown away. I’m just discussing on when they are to be used appropriately. Walk 20 blocks instead of jumping in a taxi (and give yourself the time to do so). Pack lighter for a week-long trip so as to avoid having to check a bag, or just fly Southwest. Buy a Brita and a durable water bottle (you’re going green and saving at the same time). These are just some simple quick-fix solutions to give individuals a little more breathing room when it comes to their daily budget.

When discussing quick-fix solutions within your company rather than your personal life, it is more difficult to legitimize them. There is one shortcut, however, that is bound to deliver significant results. MasterNegotiator.com is a self-service strategic sourcing site that offers companies free access to preferred pricing for commonly purchased items and services. The pre-negotiated contracts available are normally offered exclusively to high volume customers. The site provides a free, quick, and easy way for businesses to save. Categories range from office supplies to pest control services. MasterNegotiator.com is not a makeshift remedy that has high risk side effects but is rather a tested vaccine ensured to strengthen your company’s immune system. The site is designed to meet the needs of companies of all sizes.

Some spend categories require a more customized sourcing strategy. In order to position your company for growth as the economy recovers, be sure to utilize multiple sourcing strategies rather than a single solution across all areas of your budget. MasterNegotiator may be the best fit for your office supplies spend, but your telecommunications needs may call for a more tailored solution. Therefore, the quick-fix should not be nixed, but rather used in combination with other sourcing strategies.

Many individuals are short on resources under the current economic conditions. There are solutions in which additional resources are available to help you produce cost savings results without adding to your company’s cost structure. With some solution providers, there is no need to be concerned with whether or not the soft costs associated with a sourcing process will pay off in the hard costs savings. The extra human capital available with solution providers will perform research on current market trends, analyze your incumbent supplier’s competitors, implement best practice processes and engage alternative suppliers to begin building potential relationships.

With assistance from solution providers, you can establish more efficient procurement processes that deliver savings. However, if a contract is implemented with a new supplier or better pricing is received from an incumbent, the process is not yet complete. Reporting issues may arise, compliance issues will always exist, and there may be some instances where the contract pricing agreed upon is not in place, requiring a monthly audit before credit requests are no longer needed. It can be time-consuming and sometimes frustrating, and attention to detail is required; but it is always important to realize that these tasks serve a purpose and that in the long-run, all you’ll need is a first-aid kit.
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2009 will be remembered as one of the most tumultuous years in American business. The American Auto industry finally collapsed upon itself. The American finance and insurance sector crumbled under the weight of its own rampant speculation. All this, while the American people shouldered the burden of years and years of business built on ego, greed and business decisions that had little to do with business.

When you consider the math of the Auto industry alone, the facts are staggering. The world has about 800 million cars and light trucks in service, of those over 250 million or 31% have American owners. That’s right, America not only makes the most cars and trucks, we own the most cars and trucks. While the tide is turning, Europe and Asia surpassed the US in new car/truck purchases in 2007, the US still places third on the list of new car buying regions. So imagine the brute force economics of owning, maintaining, repairing and replacing that fleet of 250 million units. Let’s say the average cost is $1,000 annually, per unit (probably a very safe estimate). That’s $250 BILLION of economy churning every year. Now let’s constrict that market by 10%. That’s a $25 billion delta. In human terms, $25 billion of lost sales, lost jobs, unpaid bills, etc.

And if we calculate the societal effects of the constriction of the banking and finance industries, the math is even more frightening. So let’s save that for an even brighter day.

Because the panic has passed; the news that the worst is over has already allowed many institutions to lurch back into business as usual. Those “urgent” cost savings measures that were years too late; they’ve already been back-burnered or shelved altogether in favor of key operational initiatives, such as installing new time clocks, or software upgrades. Pardon my sarcasm.

Here’s why. People do what matters to them. The companies that suddenly decided cost savings were an issue because of financial panic immediately abandoned that cause as soon as their line of credit re-opened. The companies for who cost savings, control and containment were long an issue, still look hard at costs. Emergencies don’t change us, they just change our behavior (temporarily).

So consultant beware, the client that suddenly woke up and decided that cost savings were a priority is not your true customer. They were all hot and bothered in Q1 and Q2, and now they’re not returning your calls. Probably because they were just waiting to exhale.