October 2009
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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!

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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.