June 2009
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Studies show that the job=career equation is no longer a sound proposition. Most workers will change jobs numerous times in their life; as often as every seven to ten years on the average. For procurement professionals, that rule of thumb will mean retraining, retooling and often relocation. For as long as most of us can remember, those facts meant new companies, new processes, new tools and often new home towns.
Add, new cultures, new countries and new continents to that list. Perhaps the best example of dynamic shifts that will create new jobs in foreign markets is the emergence of Tata motors of India. Tata is now marketing what they tout as the world’s most inexpensive car. At just over $2,000 dollars (100,000 rupees) the Tata Nano, comes in at about ¼ of the cost of our least expensive American model. Here’s the great news, Tata is developing a better equipped, safer model for US distribution. Or will that be US manufacture?
One can only guess. But here’s what we do know, as global markets expanded and stretched across borders, procurement teams followed suit. Thus, it’s reasonable to think that as lesser developed countries break into domestic manufacturing, those manufacturers will scramble to fill the “expertise” void in procurement. It’s also sensible to think that some of the disenfranchised of our domestic work force may be traveling to foreign lands for their next paycheck, or raise.
And who knows, maybe they’ll come back home when those foreign manufacturers open up shop in Anytown, USA.
It’s better to be safe than sorry. That is at least the mindset of the Chairman of the U.S. House of Representatives Energy and Commerce Committee, Henry Waxman (D-California), and his sidekick, John Dingell (D-Michigan). These two individuals are currently at the forefront of The Food Safety Enhancement Act of 2009. The purpose of this legislation is to establish a more efficient food safety plan and enforce safety standards in all food production facilities. The efforts associated with the bill’s primary goal are increasing the amount of inspections performed at facilities, maintaining records for traceability of contaminated foods, focusing on the importation of safe foods, and enforcing regulation in the form of penalties if violations of standards occur.

In the Energy and Commerce Committee’s publication Energy and Commerce Leaders Release Food Safety Enhancement Act of 2009 Draft, Rep. Waxman stated, “The current state of our food safety system is dangerous not just for the American public, but also for the food industry itself. This bill recognizes that the hallmark of strong food safety legislation must be a shared responsibility for food safety oversight between FDA and industry. This legislation will go a long way toward restoring Americans' confidence in our food supply.”

After drafting the bill, to gain support of the Republicans, the Democrats agreed to a few changes. An annual registration fee for all food production facilities to be paid to the FDA was originally $1,000. This fee was cut in half and a cap was also established for those companies with over 350 locations to pay a maximum annual fee of $175,000. According to the Wall Street Journal, the bill is requiring 378,000 food facilities, including 223,000 overseas to pay the fee.

The FDA commissioner, Dr. Margaret Hamburg(er), insists that the fees will not be ample resources for the agency to carry out its new responsibilities. According to a NY Times article covering the same story, the bill would require more frequent inspections to be performed at least once every four years and for those facilities at high risk of being contaminated will be inspected every 18 months. This responsibility is where most of the FDA’s resources will be allocated.

Some argue that this legislation was weakened by negotiations. Another modification of the bill was to the requirement of an intensive record-keeping system. The FDA must first delve deeper and explore the best method for food manufacturers to maintain records and the costs and benefits related to the tedious process. There goes another chunk of the agency’s resources.

Almost two weeks ago, the House Energy and Commerce Committee approved the legislation and it will hopefully be a big step towards revamping the food industry’s image. Consumers have lost a great deal of confidence in our nation’s food system due to the amount of recent cases in the U.S. related to food-borne illnesses. The spread of salmonella in peanuts this past year has provided a greater push for this legislation.

The FDA currently has limited resources and by its actions, or should I say reactions, has shown that it has difficulty preventing the release of contaminated food to consumers. The main challenge the agency faces is trying to trace the contaminated food back to its source. Figuring out the root of the problem is a timely process. Hopefully, the detailed records of facilities will enable the FDA to transition itself from a reactive agency to a proactive one.

This bill would also provide more authority to the FDA. The agency will be able to order food recalls, require companies to follow all of the food safety standards, and hold companies responsible if a contaminated food product is linked back to them. Private laboratories will also be required to provide reports of any signs of bacteria or other causes of contaminated foods in facilities. With all this new power, the FDA should think about changing its name to the FPA (Food Police Agency).

Many companies are off the hook for now, as the bill does not address meat and poultry production facilities. These are overlooked by the U.S. Department of Agriculture. This exemption may not be for very long as there have been discussions of creating a single agency to consolidate all regulation in the food safety system. One agency in control of all food produced and distributed in the United States would be ideal. It’s similar to having one consolidated invoice for your telecommunications spend. It just makes sense.

No vote has been scheduled to take place for this bill yet, and similar talks have not yet been fully discussed in the Senate. Let’s hope this bill will enable the FDA to better detect a food-borne illness before it is released and accessible to consumers. Some individuals think the new requirements set forth by this legislation will not strengthen the food safety system but rather just create more burdensome, costly tasks for food producers. We must weigh our options – expensive recalls and hospitalized consumers or stronger regulation and restored confidence in the nation’s food supply chain. I think this move is a positive step towards a safer food supply chain. Our nation’s health is the main concern, and actions are needed to protect it. This bill is way overdue.
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I’ll bet you never thought you would hear the word “space” and “solar power” in the same context! You read it right folks, the May 2009 issue of Electrical Wholesaling mentioned that PG&E, California’s utility, has worked out a deal for the world’s first space-based solar power plant.

What sounds even more sci-fi is just how they plan to harvest solar power in space and be able to use it on earth. Solar panels in the earth’s orbit will convert power to radio frequency to transmit to Fresno County’s receiving station. Radio frequency! Then it will be converted to electricity and linked into PG&E’s grid. You can find more information on this project on PG&E’s blog site, http://www.next100.com/.

Back down on earth, this EW issue also noted Florida Power & Light plans to build the world’s largest solar photovoltaic power plant at the 17,000-acre city of Babcock Ranch, FL. The city will also integrate a smart grid system to aid residents and businesses in controlling their energy consumption. Maybe they will take notes on Spain’s solar power tower which “leads the world in grid-connected solar photovoltaic capacity” as said by the Renewable Energy Policy Network for the 21st Century (REN21).
Yesterday, Supply and Demand Chain Executive magazine announced their eighth annual "Supply and Demand Chain Executive 100". This annual listing identifies the top innovative supply and demand chain vendors.

This year the magazine focused the criteria for its "100" feature on economic recovery. Source One (the sponsor of this blog) is proud to have been listed for the fourth consecutive year.

Read about it: Source One Awarded Supply & Demand Chain 100 in 2009.
According to an article published by the Federal Times, the Defense Department has introduced a new bill with the goal of testing new procurement approaches and evaluating acquisition positions within the Department of Defense. The bill will mandate that new procurement approaches must be taken as a trial for up to 10 information technology projects per year. Specifically, they are attempting to streamline the existing processes that have been labeled "too long and cumbersome" by the Defense Science Board.

This bill includes plans to conduct an independent study of how well it contracts for services, including items such as; quality and completeness, the historical record of using best practices and developing statements of work, management structure, and the effectiveness of performance measures. These studies are important, since the bill also includes the expedition of hiring for acquisition positions, with a goal of adding 20,000 new professionals by 2015. Going back to a post wrote earlier this year, I expressed concern that that simple addition of more people would not solve any problems in government procurement. Hopefully these studies are conducted thoroughly and will examine the overall mess that is our existing Defense Department's acquisition department, before they throw more bodies (and paychecks) into the mix.

However, I am still skeptical, these studies are being labeled as "independent", which realistically could mean "let's hire our favorite consulting firm". That consulting firm (in its best interest) will then conduct an expensive long-term report that will likely show that they need to create more best practice documents and procedures, and surprise, they can help the government do it on a 3 year multi-million dollar contract. I hope I am wrong.
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While no one likes to admit it, many companies are living “on the margin” these days. For those firms, a few crucial decisions can make the difference in survival. Too often, it comes to the dreaded Chapter 11, for the big companies. But for smaller firms, the time, money and resources necessary for a filing are all luxuries they can’t pile on top of necessary expenses. The truth is, unlike GM, some organizations are simply “too poor for bankruptcy”. Maybe Saab can work the system, pay 25 cents on the dollar to its creditors, and emerge from Chapter 11, but that’s’ the exception, not the rule.

So for those less “fortunate” but still struggling to keep afloat; here’s a question.

Do you really need to pay a pile of legal fees for the same result you might just as well achieve on your own?

It doesn’t take a linguist to tell your suppliers that you need help, and it doesn’t take a math whiz to offer twenty five cents for every dollar owed. What it takes is the nerve and the will power to build a plan and follow it through. Don’t assume that you need the hammer of the legal system to intimidate your payees, or a trustee to prioritize them.

Times are tough folks, your creditor’s biggest fear is that you’ll never pay. Their smallest fear is that you’ll pay late. Somewhere in between is the reality that you might only be able to pay a % of what you owe; in order to stay in business. While that’s an unsavory choice, a healthy customer down the road is better than no customer at all.

Think about it; and if you’re trying to keep the wolves from the door, maybe you don’t need a judge and a lawyer to protect you. Maybe you just need common sense.

In differential calculus, an inflection point refers to the place on a line at which the direction of the line’s curvature shifts. I hated calculus, but the term applies well to certain business situations. The concept was first presented to me by University of Scranton management professor Len Tischler during a lecture on business policy and strategy. The idea is that every so often within a given industry, events occur (technological advances, process innovations, political policies, economic phenomena) that can cause the industry to drastically change at a fundamental level.

I noticed a great example of this the other day. I was passing Bravo Video, my town’s local video rental store, when I noticed they were having a going out of business sale. While it saddened me to see a longtime local establishment close its doors, it certainly made sense. Several new business models that take much of the hassle and cost out of renting have revolutionized the media rental industry. Offering cut-rate prices, no late-fees, and, in some cases, automated delivery, these new models are able to run circles around the traditional media rental business model. Between direct downloads, on-demand cable, Netflix, and the supermarket video vending machines (which even my tech-illiterate mother can use), the industry has left the majority of in-store rental establishments reeling.

In this month’s Inc. Magazine, I also found an interesting article about a point of inflection within the music industry and the creative way a record store completely re-engineered its business model in order to survive. Founded in 1994, Millennium Music operated profitably for years as a “thinking person’s music store”. According to the article, Millennium became a cultural hub and type of community gathering place by stocking hard-to-find records and hosting live bands and book-readings. Inc. reports that at its pinnacle, Millennium had been growing at an annual rate of 20%, employed over 100 people, and generated yearly revenues of nearly 10 million. Then the industry reached an inflection point.

New MP3 technology and business models like iTunes and Rhapsody stole so much market share from record stores, that smaller organizations like Millennium could not remain profitable. Looking back on his company’s trials owner Kent Wagner remarked, “We knew the industry was in decline, but we thought we were different. At a later point in the article, he sums up Millennium’s seven year stretch of double-digit losses when he says, “When you spend so much of your energy fighting the obvious, you can lose focus of the big picture.”

Well in 2006 Wagner and his marketing director Clay Woodson began to see the big picture. They launched a site that allowed users to exchange used CD’s for iPods. The site, called FeedYourPlayer.com, allowed Millennium to amass large quantities of used music at incredibly low costs to be resold online. After the only remaining Millennium music store posted a $1 million loss, Wagner made the decision to close up shop and divert all of Millennium’s resources to its online model. The new model of FeedYourPlayer, called AbundaTrade, uses sophisticated software to offer fair online market value for used CD’s (in the form of electronics, TV’s, or small amounts of cash) and to scan the internet to develop pricing that undercuts competitors like Amzaon.com. Now, according to the article, Abundatrade is receiving about 15,000 used products a week and is on pace to hit $3 million in revenue for 2009.

So what should we take from these stories? We should take an introspective look at our own industries and our companies’ ability to evolve, innovate, and adapt. In a great quote from the movie Fight Club, Edward Norton says, “On a long enough timetable everyone’s survival rate drops to zero.” On a long enough timetable every industry will experience a game changing point of inflection. Managers need to be proactive and always on the lookout for ways to “see around the corners”. When a new development occurs that may seem threatening or novel, we cannot ignore it and hope it will go away. No company is invincible and no industry is unshakable. Management must have the foresight to recognize these developments and find a way to either adapt to survive or restructure to capitalize.
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End-user feedback is crucial in any strategic sourcing initiative. Their buy-in and commitment to the process can either make or break a project. Suppliers want to see a willingness to change, or at least make sure the customer does not intend to maintain the status quo, before they will get aggressive on price (or in some cases, even place a bid). The level of participation and engagement from the end-users will determine how the incumbent responds to the sourcing event, as well as how motivated alternate suppliers will be.

Most sourcing professionals would hope that actually achieving cost savings would be the difficult part of a project, but in many cases finding the savings is the easy part. Getting end-users to support the process from start (getting data) to finish (maintaining a new supplier relationship) can be a much bigger challenge. Here are a few ways to get end-user buy in:

Bring Them in Early, Bring Them in Often
The best time to bring the end-user into a project is before you identify it is as a project. Bringing stakeholders in as early as possible shows you weren’t trying to work around them or take the responsibility of supplier management off of their hands. In addition, bring them in often. Make sure you are working on several initiatives, with several end-users concurrently. Singling out projects will put stakeholders on the defensive – justified or not.

Backup Challenges to Traditional Thinking With Facts
Every project starts with all the reasons why the current supplier is the only supplier that can handle the business. Challenging these assumptions too early without verifying the information is a sure fire way to maintain the status quo. Instead, pay attention to the concerns end-users have with other suppliers. Develop these concerns into RFP questions, and make sure any alternates address them as part of their proposal. Create objective supplier scorecards and scoring methodologies before interviewing suppliers, and make sure the end-users assist in developing them. Keeping things objective throughout the process will help ensure an objective decision at award time.

Get Executive Sponsorship
Without buy-in from top level management, projects can easily get put on hold or tabled completely. Make sure your executive team understands what you are getting into, and report back any perceived roadblocks or issues to them as soon as possible. The sooner you show you have identified and addressed challenges, the more likely they are to provide additional political support where needed.

Make it Cross-Functional
Try not to make it a team of two (you and the end-user). Make sure finance, operations, and any other interested stakeholders are brought in as well. The more team-oriented the endeavor is, the better the result will be.

Make Them Accountable
Accountability goes hand in hand with executive sponsorship. Making sure the end-user has a stake in the result helps ensure they won’t be too attached to incumbent relationships or traditional thinking. If possible, tie the success (or failure) of the project to the end-users annual performance evaluation or bonus structure.
Creative solutions do not need to be complex to be effective. When it comes time to sign your next telecommunications contract, you may have all the tools you need to achieve significant savings already sitting in your toolbox. And you may not know it. We are always looking at emerging technologies to better streamline and optimize our telecommunications, but new does not always mean appropriate nor does it mean that one time costs associated with a technology change will be within budget.

You may also have any of a number of reasons for being unable or of limited capacity to compete the business to achieve cost savings. Or maybe you are happy with your incumbent provider but you have a mandate to save money. The bottom line is that IT will always want to have whatever it takes to have a fast, secure, and stable network and telecom infrastructure with little (or at least less) concern about the dollars associated with their beloved blinking lights and tangled wires. Conversely, however, purchasing wants to spend less and has much less concern about the actual day to day operation of the network.

One crucial step often overlooked or easily skipped is ensuring current systems are optimized. This oversight is unfortunate for two reasons. One, if you aren’t already optimized, you will probably end up re-contracting or repurchasing equipment, circuits, and features that you do not even need. Two, this step might be the last step you need to undertake before signing a new contract. In the world of telecommunications, things change rapidly; technology improves, discounts are constantly shifting, and many interdependencies –all variable -exist. Internally, moves, adds and changes have probably occurred regularly since your last contract. Reevaluation is critical before looking to the market.

Reevaluation will likely lead to complex problems, but those problems do not always require complex solutions. Less complex, or even simple solutions are not always obvious either. Take a step out of the negotiation box for a minute and consider your options with what you already have. Can you combine features, change a piece of equipment’s configuration or reallocate facilities in order to reduce cost and optimize your telecommunications? If so, you have probably already reduced costs for your company before even going to market. The best solution may be difficult to identify, especially if you have lost control of management of your telecom spend and inventory. Source One can assist your organization in identifying inventory, invoicing, and the correct telecommunications and technology solutions for your business and ensure the best value for your purchase....Telecommunications Strategic Sourcing

Ariba’s May 2009 White Paper-“Next Generation Spend Analysis” invests heavily in examining the limitations of inexplicit data, and the paralysis by analysis factor as major reasons why spend analysis “fails” to deliver the desired result.

This issue stand alongside the why SAAS (software as a service) isn’t producing the ROI that so many SAAS suppliers pitch. It amazes me, though that sourcing experts still focus on the data and the tools as the reason clients never realize the expected ROI from the data and the tools.

When considering the investment in tools and visibility we have to ask ourselves; what is the desired output? In almost every case, the output is cost-savings.

Cost savings take more than analysis, they require action. Last I checked, data sits quietly by itself. Software can make phone calls, but it doesn’t make deals. As the techies like to say, it’s not a technical problem, it’s a user issue.

Now you can call me a cynic but, IMHO, marketing amped up tools and analytics is not a problem solver when it comes to cost savings. It’s just another thinly veiled effort to sell amped up analytics and tools.

Not that I don’t loved amped up analytics and tools, I love new toys. But let’s put the lack of ROI squarely where it sits, in the hands of humans.
As the focus of a recent sourcing engagement, I have been working to help a client diversify his polypropylene supply base while driving cost savings. Considering the client’s stringent requirements for efficient, reliable delivery and a resilient “run on any machine, at any time, under the supervision of any technician” film, many foreign suppliers were off the table from the get-go. As a result, we ended up working with several brokers to identify domestic suppliers that could provide local warehousing, next-day delivery, and an exact “drop-in” replacement match for the film the client was currently using. As of right now, we have qualified a competitive alternate supplier for testing, driven significant price reduction, and are ready to roll with the implementation process.

During our last status update with the client, we let him know that producers were expecting an industry-wide increase in polypropylene films that could be as high as $0.06/lb. Although he initially thought the increase estimate to be a little high (which it may be), we explained to him that, in the coming months, propylene and polypropylene will experience upward pressure from two angles. On one hand, the price of crude, which propylene indexes follow, is making a fairly solid upward run as the summer driving season begins. On another, the surplus that resulted from slack demand during last year’s fourth quarter is beginning to dissipate. As supplies tighten, polypropylene prices should see an additional, moderate bump.

A recent article in Purchasing magazine (Pg. 32C1) touches on these issues and also presents some other opinions on the potential future of propylene and polypropylene prices. The article points out that while some purchasers are taking advantage of the low pricing while they can, others, like Michael Scott of Braeside Displays, would prefer to risk taking on future increases in order to hold on to valuable cash-flow. Others still would argue that propylene prices were suffering before the economic crisis and will remain low into the future. The article cites Bob Dennett of Chemical Market Associates as saying, “We’ve had three or four years of negative domestic growth in polypropylene. And looking at the economy the way it is, with our forecast of GDP, we’re looking at another year of negative growth for 2009.”

With any commodity as potentially volatile as propylene, purchasing managers need to be aware of the drivers the affect the cost of the commodity and amply assess the commodity’s price risk. Once they have some metrics in place to understand the level of risk associated with the commodity, they then must determine how adverse their organization needs to be to this risk. In some cases companies may have the resources to proactively attempt to capture future savings by building inventories now. In others, the risk of substantial price increases may not be great enough to warrant the cash trade-off. Either way, managers must be sure to adequately assess their position in relation to the commodity. For some info on polyethylene price increases check out this article on Purchasing.com.
As things have continued to heat up with the “Buy American” legislation situation, a few more notable developments have occurred. According to an article published Monday in American Metal Market, Canadian municipalities took steps to encourage retaliation while constituents of the US steel industry feuded over the provisions’ clarity.

After meeting last weekend to vote affirmatively on measures that will encourage retaliatory actions, the AMM article suggests that a “full-scale attack on the provision by trying to renegotiate the North American Free Trade Agreement (NAFTA) to cover government procurement” could possibly occur. So, it seems that Canada would like to end protective policies on both sides of the border but is more than willing to engage the US in a trade war. You may remember from previous posts that this sort of economic hostility could very well result in the immediate loss of $3 billion worth water and wastewater business for the US. Also, as many as 650,000 American jobs will become vulnerable if other American trade partners decide to take similar actions. While the US government is surely focusing on developing the proper solution to these political effects, the American steel industry is fighting its own battles.

On the one hand, you have companies like Duferco Farrell (who has been mentioned in several articles) and their lawyers arguing that they are unable to purchase US-made slab steel in the specification they require. These constituents also argue that the legislation is “unclear” because it doesn’t reference the melting of steel. They assert that the company’s customers are wrongfully assuming the “Buy American” provisions exclude them from bids. As a result, they argue that the legislation needs to be clarified to allow the use of some foreign components and/or subcomponents.

An opposition to this stance, but not the “Buy American” provision itself, comes from the United Steelworker’s Union. In a statement to one of AMM’s publications, Thomas Conway, the union’s VP claims that Duferco Farrell should be able to find a domestic slab supplier. He cites OAO Severstal, US Steel, AK Steel, and Beta Steel as possible replacements. Out of his examples, Beta and US Steel declined to comment on the situation, AK Steel said they do not make slab in the thickness Duferco requires, and only Severstal affirmatively agreed with his statement. Although a Severstal spokesperson said the company could provide the steel to other steelmakers based on “unplanned outages and special metallurgical needs,” I wonder what sort of bone-crushing markup would accompany the supply.

Another opposition to the “Buy American” provisions does not address the availability of the steel or dispute the provision’s lack of clarity. However, the Municipal Castings Association and their lawyer Paul Rosenthal argue that the law is unclear because it lacks transparency, causes confusion, and provides an opening for a “circumvention of congressional intent”. This group calls specifically for the clarification of stipulations related to iron, steel , and manufactured construction material and a requirement to post all requests to waive the “Buy American” clause online for public review.

Yet another argument against the current provisions comes from Nucor Corporation and its legal representatives. They, like Duferco and MCA, argue that the provision is unclear. Unlike Duferco, however, they argue that the legislation needs to be cleared up to exclude companies who use foreign component and sub-components.

In my last post, I concluded that “Buy American” is a great personal philosophy but a poor political policy. I don’t know where this will all end up, but it seems that, at the moment, decision makers in the steel industry are more worried about protecting their interests under the existing “Buy American” provisions than they are about preventing any of the provisions’ potential ramifications. I believe that the same lack of foresight that has caused the provisions to be confusing and “interpretable” for steel the industry may also be at the heart of global repercussions of “Buy American” clauses.
For many of us Procurement Service Providers, inbound calls & interest in our services have been up significantly these last few months. In this economy, companies of all sizes are looking for ways to maintain or increase their profitability, but just don't know where to get started.

In response, Source One put together a quick summary of 3 unique ways it can help any size company to reduce costs and increase profits.

Read: "Businesses Can Cut Costs Without Reducing Headcount" to learn more.


Download the audio interview with Source One's CEO, Steven Belli. Podcast MP3 File , iTunes
In my last post, “Strategic Sourcing – A Reality Check”, I wrote about the limited role strategic sourcing plays in many organizations. Ultimately, an effective strategic sourcing professional will shift their organization in the right direction, but it’s not easy. The spend areas with the biggest savings opportunities also tend to be the least visible (think banking, legal, marketing). In addition, end users managing categories that did not traditionally fall under “procurement” control are normally reluctant to part with the responsibility of managing the supplier relationship.

The pro’s who successfully bring about change and integrate strategic sourcing into every layer of the organization have a unique set of skills that set them apart. Every day they must balance addressing basic tactical issues (ensuring supply) with the most complex supply chain, financial, and marketing needs of the organization. Some of the roles the Strategic Sourcing Professional (SSP) must fill include:

Customer Service Guru– The customers of the SSP are the end users within their organization. Sourcing needs to make sure qualitative factors such as on-time delivery, quality, and other servicing issues are addressed, and must be mindful of existing supplier relationships. The SSP must also act as the middle man between the end user and the supplier to make sure the relationship works.

Industry Expert (in ever industry) – The end users should provide their expertise in the particular category, while the SSP brings sourcing and negotiation skills to the table. However, in many cases, the end user will prefer to keep their knowledge to themselves to see “what this purchasing guy knows”. The SSP must be able to get up to speed on any given industry quickly, understand the cost drivers in the market, and challenge traditional thinking by presenting new information.

Negotiation Superman - Able to negotiate 90 day payment terms in a single conference call! Not only does the SSP need to negotiate with suppliers, but they must be politically savvy within their own organization as well. Change is resisted on some level within most companies, but it also brings about the leverage that leads to lower prices.

Logistics Connoisseur – The SSP doesn’t just need to find that lower price, they have to make sure the new supplier can get the product to the facility in a timely manner, and using the proper delivery method. Getting a lower price from an overseas source is easy, how do we get it to our facility in Omaha with seven day lead times? What is the most effective shipping method? Can we hold inventory on site or setup a warehouse for storage? How does that impact the savings opportunity? These are all questions the sourcing pro needs to have answers to.

Administrative Specialist – Even though the SSP should be focused on aligning the company’s strategic vision with that of procurement, most people with that title will retain some level of administrative responsibility – placing the orders, make sure the PO matches the invoice, etc. If the SSP doesn’t deal with these issues directly, they are probably overseeing that function.

Not only does the SSP have involvement in almost every layer of the organization, their work is also the most visible. Any deal they put together, any pricing they negotiate, will be seen over and over again by others within the organization for years to come. They have to adapt to changing markets quickly, and revisit existing market pricing and go to market strategies on a regular basis. There are not many roles within a business require this level of cross functional expertise and organizational visibility, save that of the C-level executive in a publically traded company. For the SSP, there can be no sacred cows, even in their own backyard.
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A sentence taken from an article in the Wall Street Journal:

"GM made twice as many vehicles as Chrysler's 1.5 million last year and employs 235,000 people compared with Chrysler's 54,000."

No, it’s not a misprint. And it’s the Journal, not Fox news.

Let me restate that for the purpose of comparison; GM’s 235,000 employees made 3,000,000 cars. Chrysler’s 54,000 employees made 1,500,000 cars.

In HR terms, the average GM employee (granted this includes many non-production employees) produced (12.76) let’s say 13 cars last year. The average Chrysler worker produced (27.7) cars last year. That means Chrysler workers are twice as productive as GM workers, right? Or that Chrysler’s system is twice as productive as GM, right?

Well, not for certain, but it’s safe to assume that Chrysler is using fewer resources to produce cars, on a per car basis. How they do that, is not immediately clear.

Here’s the other safe assumption, at least one of these companies is much less productive than the other. But neither is necessarily productive. Up until 2009, we the people, bankrolled that inefficiency by allowing “out of work on paper” companies Chrysler and GM to fend off reality until we could no longer afford their inefficiency and largesse.

Now, we’ll pay the price in lost jobs and economic constriction like America hasn’t seen since the 1930’s. It’s a costly fantasy, planted squarely on the shoulders of the working class.

The bleeding doesn’t stop at GM and Chrysler though, think about the pigment suppliers who sell to the Auto industry, the fastener suppliers, heck, even the office supply companies are going to feel the bite. What does this mean for procurement? It’s an interesting proposition, really. Some in procurement will feel the pain of suppliers trying to recover profitability from the customers they have left. Others will take advantage of “fire-sale” pricing for lingering inventory and leftover stock that never found its rightful home.

All because we have companies that could afford, that we bankrolled, not to be particularly productive in the first place. You think we’d have spent more wisely.
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Apparently the staff of The NY Times subscribes to The Canadian Press too. Or, as I’d like to believe, they read The Strategic Sourceror religiously. Either way, I opened to page A26 this morning to see some nice follow up coverage on the “Buy American” situation. The editorial touched on some of the information we already knew, but also brought to light three other concerns my original blog-post and our friends in Canada did not take into consideration.

Do American-Made Alternatives Exist?
And, if so, can the American origin of such alternatives be proven? In some markets the answer to this question may very well be no. There are some commodities and services that have been outsourced offshore so effectively for so long that a viable US-based solution may be difficult to find. As far as origin verification goes, some raw materials pass through so many “hands” that it can often be difficult to pin down a commodity’s true country of origin with a reasonable effort.

Intermediate Finishers Get the Shaft
The article also points out that companies that use goods which are fully or partially produced in other countries to conduct business can be excluded from bids for doing so. It cites two companies, Duferco Farrell of Philadelphia and Westlake Chemical of Houston, as having experienced loss of business and layoffs as a result of “Buy American” stimulus clauses.

Canada Isn’t Alone
According to the Times article, Canada is not the only US trade partner considering retaliation against the protectionist provisions. Australia, Brazil, the EU, Japan, and Mexico are all considering a response. If these trade partners all decide to retaliate by enacting legislation that would bar the import of American goods and services, the US could suffer greatly. According to stats provided in the article, the suffering could be to the tune of as many as 650,000 lost jobs. In light of the fact that an earlier study conducted by members of the Peterson Institute for International Economics estimated “Buy American” provisions could “save” 9,000 American jobs, the author of the editorial seems justified when he ends with, “Indeed, whether it is from the point of view of diplomacy or of job creation, ‘Buy American’ is a terrible idea. One that could make the global recession worse.”

While I agree with a lot of this “Buy American” bashing, I think it’s important to put the bashing into context. “Buy American” is a great personal philosophy. Even though I caved and bought a Honda last summer, I believe that Americans buying American (Which is partially a function of American companies being innovative and staying competitive-see After 101 years, why GM failed) is the backbone of driving domestic economic growth. It was a short-sighted, glib decision for politicians to apply this same personal philosophy to trade policy. America is no longer the center of the industrial universe. We live in a world that has become a global network of interconnected supply and demand nodes. Protectionism is not a viable policy.
As a part of much of the recent stimulus legislation, many US lawmakers have added “Buy American” clauses to ensure that the American economy reaps the intended benefits of government investments, cash injections, subsidies, and tax breaks. These clauses basically stipulate that, in order for companies to take advantage of the benefits from a given piece of legislation, they must purchase a specific amount (percentage) of supplies, services, and labor from American-based companies. According to a recent article from The Canadian Press (Yes The Canadian Press. What you don’t subscribe?), Canadian business groups are not at all pleased.

So what, you may say. Who cares if a few extra Canadians are ending their thoughts about America with a slightly darker, more menacing “Eh”? Well, the answer is that any American company who relies on Canadian state and local contracts for business should care- particularly those who deal in water and wastewater equipment. The article cites U.S. Chamber of Commerce chief executive Tom Donohue as saying, “Retaliation by Canadian municipalities could result in a $3 billion in lost business for U.S. water and wastewater equipment manufacturers.”

The fact of the matter is that a trade war, initiated by either side, would surely be detrimental to businesses on both sides of the border. The most obvious effect is that American businesses would lose any Canadian-based revenues, and vice versa for Canadian companies. While this initially seems like it could end up as more or less of a “wash” for both American and Canadian companies, this is not the case.

The forced redistribution of business to local entities would hurt everyone involved. It’s not as simple as, “I’ll take your business and you take mine.” This interruption of capitalism will force commodity/service providers to redesign the logistical flow of their operations, develop new relationships with former competitor’s customers/clients, and ride the learning curve that comes along with developing these relationships. On the buy-side, purchasers will see increased prices as a result of the reduced level of competition in the market. After these effects are accounted for, both countries would most likely end up worse off than they would have been without any intervention at all.

The good news is that some politicians and lawmakers on both sides realize these potentially negative effects, and they are in negotiations to create an open market in government procurement between the US and Canada. Perrin Beatty, head of the Canadian Chamber of Commerce offered this optimistic opinion, “We can, I think, come to a bilateral agreement with the United States that says our two countries will not discriminate against each other in sub-national procurement, enshrine it and make sure it sticks”
In recent months, I have read many posts on this blog and others about the role strategic sourcing plays within an organization. I have even read some posts that indicate that the “tool” known as strategic sourcing is becoming a thing of the past, and that the strategic sourcing professional needs to evolve into the “relationship manager”. All this talk of change and evolution makes me scratch my head, because most of the companies I deal with - large and small - still don’t practice true strategic sourcing. Also, my head is itchy.

In most organizations, purchasing is still seen as a tactical function. Administratively, it is important to get product in, on time, and on the cheap, but how hard is it to place an order? Strategic Sourcing, while popular as a buzzword, still isn’t done effectively. In fact, many of the people I meet with Strategic Sourcing in their title still have operational and administrative roles within their organization, with a small amount of time, if any, dedicated to the strategic procurement of goods and services. Strategic sourcing and purchasing are pretty much still held in the same regard, and the responsibilities, regardless of title, are held by the same people within the organization, with the same level of oversight and involvement in strategic planning as in the past.

That being said, I do come across organizations where sourcing has broken through the stigma, received sponsorship/oversight from the executive level on down, and changed company culture so that procurement is looked at as a strategic function rather than a tactical one.

In my next few posts I will write about the roles and responsibilities of a Strategic Sourcing Professional, what makes their role truly unique, and what traits are required to push through the cultural barriers and develop a Best-In-Class sourcing organization.
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But not from NetApp . . . . Information Technology Product supplier Network Appliances Inc. agreed to repay the Government $128 million dollars for overcharging GSA employees on IT purchases. Thankfully Government watchdogs chased our misspent tax dollars down, right?

Well, not exactly. A former employee of NetApp blew the whistle on NetApp disclosing to the Government that while GSA employees received a 20% discount, firms such as Citigroup received discounts of 50% and higher. The whistle blower’s take; he pocketed a $19.2 million share of the settlement. Now that’s American ingenuity!
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The Government doesn’t trust Government data

Federal Times.com reports that Government contracting officers rarely use Government data on contractors’ past performance because they don’t think the information is reliable.

The contracting officers’ consensus, as reported to the GAO (Government Accountability Office) was that past performance data is the most reliable predictive data for future performance, but they lack confidence in the Government’s PPIRS (Past Performance Information Retrieval System). The GAO reported that low overall reporting and inconsistent capture of relevant information were key issues.

Reduce costs by reducing fraud . . .

FT also reports that US Army logistics contractor KBR was exposed for an “unprecedented” number of fraud cases by the (DCAA) Defense Contract Audit Agency. So many in fact, that the government will not release the total number at this time, but the count is 32 at present. The DCAA recommended $4.3 Billion worth of reductions to proposed/billed costs and another $3.3 Billion in reductions for expenses that simply were not allowed under the existing contract.