What I realized while preparing the presentation is that the audience would likely include a mix of procurement maturity ranging from category and supplier relationship owners buying reactively all the way to organizations with Procurement centers of excellence that are proactively managing their supply chain and indirect spend holistically and strategically. In order to address strategies that make sense to such a diverse mix of conference participants, I had to identify a few engagement models that cover the majority of requirements and could be considered fairly standard, they were: traditional, tactical procurement BPO, Staff Augmentation, and Advisory. The traditional BPO mostly speaks for itself. The idea for Staff Augmentation is that companies who have gaps in category expertise, market intelligence, or resources could benefit from outside help related to these strategic sourcing needs. Finally, Advisory encompasses strategy and management consulting related to developing a mature strategic sourcing department and program within the organization.
Among these models attendees could begin to determine where their company is on the Procurement maturity curve and where outsourced help may best fit into accelerating their improvement. Ultimately, a bottom up or top down approach may make intuitive sense for some, but a hybrid may be a possibility. For example, a company may find that outsourcing tactical procurement and working a consultant in advisory capacity to further develop strategic sourcing best practices would be the best fit.
After providing some guidance on developing a requirement set for enhancing existing capabilities with outsourced help, the remainder of the presentation focused on selecting the right partner including key criteria to consider, understanding short term and long term objectives, gaining internal and executive buy-in, supplier qualification, as well as some statement of work best practices. The presentation culminated in an in depth look at some supplier relationship management best practices.
A theme we saw throughout the presentations across both days was that savings is no longer the only metric by which Procurement is measured. In fact, it has become de-emphasized substantially within most companies. Procurement leaders are tasked with managing stakeholder alignment, increasing financial performance, risk management, and talent management as well. What that means is the Procurement Department’s evolution along that Procurement maturity curve needs to accelerate to support these strategic imperatives. In most cases, that translates into obtaining help from third party with some or maybe even all areas within procurement and strategic sourcing. But not only does it mean getting help, it means making sure the value is delivered and not just dumping work onto a supplier. Collaboration and management of procurement BPO relationships are critical to the Procurement’s mission.
Reference checks are a great way to cut through the spin we often see from a supplier’s RFP response or pitch presentation. Yet reference checks often either play a small role in sourcing initiatives or are ignored entirely.
Why? Because reference checks can take a lot of time and, done incorrectly, simply don’t add value.
Inefficient reference checking practices don’t pay off, and reference requirement too often end up relegated to the “just-another-formality” section of an RFP questionnaire – but they don’t have to be. Here are a few tips to hone your reference checking strategy to help you produce actionable results.
Reference Check Ground RulesTo be clear, this isn’t a rundown of every question you need to ask a reference. The right mix of questions for your needs depends on your goals, the type of supplier you are looking for, and the role they will play in your organization. What this list provides is a set of ground rules for making the most out of the process.
First things first: Not every reference provided deserves to be checked. Suppliers provide references they think will make the best case for them – regardless of how valuable they will be for you. Your first goal, then, is to identify which references are worth your time. So, what makes a good reference? Which ones should you avoid?
- Aim for similar organizations. This one is simple: Stay on top of the supplier to choose customers that are as close to your business as possible in terms of size, industry, needs, and implemented solution. Supplier who struggle to comply are either overly interested in cherry picking references or just don't have enough experience with companies like yours. Either situation is a red flag.
- Keep work history in mind. Speaking with new clients helps focus the conversation on implementation issues. However, there isn’t enough longevity to gauge the supplier as a long-term partner. Suppliers are still putting their best foot forward early in a relationship, and new clients may be more willing to forgive mistakes as part of the learning process.
- Seek out past clients. Related to the point above, a previous client will not only understand the entire life-cycle of their relationship, but is more likely to be candid about their previous relationship.
- Speak with the right contact. Low-level stakeholders who work with suppliers on day-to-day issues are often more valuable to you than high-level managerial leaders who inked the deal. Make sure you’re talking to titles that are in the trenches to get a true sense of how suppliers function as partners. Be sure to have those same titles on the phone on your side as well.
- Identify relationships in play. If you are looking for the supplier to play a mission-critical role, are they mission-critical to the reference company? How did the reference identify the supplier as a potential partner – through an RFP process, or was there a personal relationship in play? All add a great deal of context, and may make a reference more or less valuable in terms of applicability to your organization.
- Uncover conflicts of interest. While some clients offer to be references because they feel strongly about a supplier, others may have tit-for-tat arrangements, including free or cheaper services or other value adds. If a reference is getting a better deal on products or services than what you were offered, then their experience will be different from yours.
Once you have vetted your supplier’s references, structure the conversation in a way most likely to result in objective, actionable takeaways:
- Guide the conversation. Open-ended questions are excellent for reference checks, but leave a lot of room for references to choose where the conversation flows. Begin the conversation with a brief overview of why you are interested in the supplier, and what matters to you most. Otherwise, references will naturally focus on what matters to them. If your biggest concern is training, adherence to timelines, or an ability to proactively seek out cutting edge solutions, say so.
- Ask for actionable responses. Asking a reference to describe their relationship with a supplier won’t yield valuable information. Asking for specific examples of how a supplier has impacted their business gives more insight. What problem did the reference seek out the supplier to address? How long did it take for them to do so, and did the solution fall within the timelines agreed to? How often does the reference need to escalate issues, and how quickly are they resolved? In broad terms, was there a strong ROI on the project?
- Ask for specific, actionable responses. Asking a reference to describe their relationship with a supplier won’t yield valuable information. Asking for specific examples of how a supplier has impacted their business gives more insight. What problem did the reference seek out the supplier to address? How long did it take for them to do so, and did the solution fall within the timelines agreed to? How often does the reference need to escalate issues, and how quickly are they resolved? In broad terms, was there a strong ROI on the project?
- Give ‘em a gut check. Some questions beg for canned responses, such as asking about strengths and weaknesses. Better alternatives ask the reference to think about their own experience more fully. In hindsight, what does the reference wish they knew prior to signing with the supplier? What advice would the reference give to help you avoid headaches? What does the reference wish the supplier provided that they aren’t currently?
- Network. Even after your call is completed, stay in touch with any references that were particularly open and helpful. If you end up selecting the supplier in question, they can be invaluable assets in the future, as they’ve already travelled the road you are about to start on.
Reference Checks – Worth the time?There may not be a clear cut answer to this question at the outset. However, following these rules will help you determine if you should invest the time in reference checks, or if you are better off focusing on other methods of evaluating your potential suppliers.
When undergoing an agency search, the most ideal situation is when marketing and sourcing work as one collaborative team. It is procurement's role to both achieve a solid equilibrium between cost and value and facilitate of a prosperous, long term relationship between marketing and their creative agencies. Having the right parties involved goes hand-in-hand in the success of this initiative. Through marketing procurement, you will be able to assess the scope of work per each of your relationships and pinpoint any duplicate deliverables. This will allow you to consolidate overlapping work and negotiate better terms around the specific campaigns. Alongside this, you will be able to breakdown any barriers between brand silos. Even though each brand may have its own vision, through consolidation of SOWs, there is typically overlap identified within the type of services each brand is receiving. This will allow room for consolidation and negation as one entity. Also, efficiencies across the full brand portfolio will occur and alignment amongst the marketing departments will transpire allowing for decisions to be made together as one synergized team.
There are many benefits in finding the right agency to be your strategic partner. You obtain more than just marketing expertise. When outsourcing some, if not all of your marketing initiatives, you obtain outside marketing talent, access to cutting-edge technology, synergies amongst in-house and agency partners, and full transparency into all initiatives. While encompassing outside talent, you obtain access to marketers with unique backgrounds and experiences, differing educations and new ideas into marketing strategies. As we all know, within the marketing landscape, you must remain current on the latest trends. Not all in-house marketers have the time to constantly educate themselves on the ever-changing social media trends, content marking, SEO, and technology. With an outsourced marking agency, there is no learning curve. Creative agencies are constantly educating themselves on the latest marketing trends occurring throughout the landscape. They typically stay well-informed on the latest tools, technologies, and strategies, which allows them to incorporate the latest and greatest to your marketing needs. Allowing a creative agency to bear most of the burden, gives your in-house staff room to concentrate on critical developments and synergize with the creative agency to form the most strategic plan to market.
According to Matrix Marketing Group, marketing departments are often technology deprived, due to being at the bottom on the IT department’s priority list. Throughout your agency search, you will be able to identify the types of marketing tools and technology each agency offers. Technology trends are important for any business to maintain your competitive landscape, impact how your customers reach your business, and influence growth within your brands. To give an example, advertising agencies are trending towards reliance on automation. Ad Age states that, “Plenty of advertisers today are buying digital ads without speaking to a single human at a media company, and print and TV ads might not be far behind. Automated, or programmatic, buying is growing not only because it makes ad transactions more efficient but because it can make them more effective, as long as the right data is applied.” Keep in mind, these tools do not provide the actual marketing services. They do require a marketing expert who can apply the appropriate data and interpret the output data, and in turn, can then strategize smart decisions to apply to your campaigns; an outsourced marketing agency can do just this. Overall, you want your business to thrive and remain current, and when having access to the technology and marketing experts to apply and analyze the data, you have the advantage on your side.
During my experience working for 2 major U.S. Retailers, I’ve learned you always want to be ahead of the game, especially in regards to your competition. We all know the saying, “Sink or swim,” which is very prevalent in the business world today. One of the retailers, unfortunately, reminded behind the curve, followed the trends and is currently beginning to sink; the other works hard to remain ahead of the game in all verticals of business and continues to innovate every day. You want to be the leader, the trend setter, not the follower. Undergoing an agency search will give you great insight on where your incumbent marketing agency stands against the market, access to unlimited human talent and will give you measure on where you fall within current trends and technology. This process may take time, but in the end, it is tremendously worth it to keep your business alive!
- People are always scared to change whether it is because they fear the unknown, or they simply are set in their ways. Remember a lot of resources are from the generation prior to all the technological advances. Ensure that you are providing proper training and spending an adequate amount of time with the stakeholder prior to rolling out a tool set. If the stakeholder doesn't fully understand it they either won't use it, or won't use it the right way.
- Be prepared to tackle stakeholder push-back. It's common that a stakeholder will argue that the category they manage does not fit into a typical sourcing process, isn't strategic, or that the supply base will be resistant. In my opinion, all categories can fit into a sourcing process. Yes, it might be atypical, but your process should be fluid enough to be able to adapt to stakeholder needs as well as the category itself. Not everything is going to be as easy as sourcing a basic indirect category such as office supplies. Also all categories are strategic in some shape or form even if the relationship with the suppliers is viewed as tactical, there must be a purpose behind why you are procuring those items for your organization. In regards to a resistant supply base, remember you are the customer and a good supplier will conform to fit your process and way of doing business. Ensure ample training is provided on the supplier end and that you are prepared to answer supplier questions when they arise. Be proactive and don't let the supplier get frustrated.
- Stakeholders sometimes fear that sourcing is there to take over their responsibility of managing the category. From there perspective they may believe you are there to take over because either they are not doing a good job or eventually the company may be looking to downsize. Ensure that you prep the stakeholder you are no taking over, you simply are there to provide support and guidance. You are trying to incorporate a tool set to make their lives easier and allow them to focus more of their time on core responsibilities other than sourcing. After the necessary training, optimally, you will not be involved in the day to day.
Leaders from United Nation's member nations have agreed to formally adopt the 2030 Agenda for Sustainable Development. The agenda is made up of 17 sustainable development goals spanning areas such as innovation and infrastructure, as well as responsible consumption and production. Creators of the agenda also set out clean targets to promote sustainability in public procurement.
The agenda will be a large and collaborative member by all U.N. nations. In a statement released by the White House on Sep. 27, the Office of the Press Secretary noted that "the adoption of this new framework is just the beginning, and we must recognize that no government or country can deliver on the promise of this ambitious agenda single-handedly."
The agenda sets global goals and priorities over the next 15 years. The core initiatives within the agenda promote overall transparency when it comes to global sourcing and seeks to rid multinational production of things like theft, tax evasion and the immoral practices of modern-day slavery, according to Supply Management.
Targets have been specifically set to encourage large and transnational companies to integrate new sustainability practices into their annual reporting cycles.
The U.N. General Assembly will be meeting and discussing other agendas in New York City through Oct. 6. Topics will span from ISIS to climate change, but the adoption of the 2030 Agenda stands to be the most impactful news for the world of supply management.
Caterpillar announced that they will be cutting up to 10,000 jobs as a part of a major restructuring plan. The bulk of the layoffs will be implemented in 2015, but the company expects to let between 4,000 and 5,000 people go by the end of 2016.
Caterpillar will be enacting initial reductions mainly among salaried workers, as opposed to the hourly work force. The layoffs come as a part of an overall plan for cost reduction within the company. Once the restructure is in full gear, Caterpillar foresees a total reduction of $1.5 billion annually.
Caterpillar has hit hard times in recent years. The company reported 2015 as its third consecutive down year for sales and overall revenue. If Caterpillar continues on this path, 2016 would mark the first time since the inception of the company that sales and revenues have declined four years straight.
The company has been hard on cuts -both with manufacturing costs and employment - in hopes of remedying their overall financial decline. Since mid-2012, Caterpillar has reduced its total workforce by more than 31,000 employees.
Caterpillar CEO, Doug Oberhelman laments the impact this has had on employees but remains hopeful that this new model will benefit the company's overall success.
"We recognize today's news and actions taken in recent years are difficult for our employees, their families and the communities where we're located. We have a talented and dedicated workforce, and we know this will be hard for them," said Oberhelman.
China's role in the Caterpillar crisis
Caterpillars decline is seen by many as the first real indicator of China's economic slowdown, according to Business Insider. Caterpillar has seen a decrease in sales in the region over the past several years.
The recent falling prices of commodities such as oil and copper, which The New York Times links to China's economic downturn, has affected Caterpillar particularly, as its biggest clients come from the mining business and other commodity producers.
Caterpillar's difficulties are sparking concern for other multinational companies as well. The Chinese market has been a major center for growth for a handful of companies including Apple and fellow equipment-manufacturer John Deere.
In a globally-sourced world the uncertainty of one market can have a ripple effect on the global economy. Hopefully, the problems faced by Caterpillar do not mark a shift of employee cuts for other companies with equal investment in China's market.
This is certainly the case in established commodity markets where consumers can clearly identify the main criteria distinguishing each product, there is a large range of suppliers to choose from, and margins are low. However, in the electronics, medical, or other niche markets claims of innovation, uniqueness, and efficacy overshadow competition and pricing is not kept in check.
The most vivid example of over inflated market pricing can be seen in the pharmaceutical space, as recently described on Medscape. As summarized in the table below, the annual cost of cancer treatments is by far the highest in the US and can be exemplified by the price tag of $125K for Brentuximab and $264K for Pegylated asparaginase.
A further complication arises when we consider the price of pharmaceuticals on a global scale. As described in reports presented by IMS Health and the Center for Economic and Policy Research.
The drivers of high drug prices can vary from initial R&D costs, failure of other drugs during the company’s development or clinical trial phases, high manufacturing costs, or a standard industry practice of high markup.
Certainly higher R&D costs can be warranted by arguments of novel treatments for serious ailments without remedies. However, according to Hagop M. Kantarjian, MD, professor and chair of the Department of Leukemia at the University of Texas M.D. indirect costs and failed initiatives are often bundled with actual R&D costs in order to justify spend as high as $1.3 Billion. The reported spend can be traced to the total expenditure on all drugs by the company divided by the drugs which actually received FDA approval.
Post approval process manufacturing costs are frequently offset with contract manufacturing agreements. High quality at the lowest price is a very successful practice of the industry and speaks volumes where generics are concerned, so this factor should not unproportionately impact the cost of newly developed drugs.
Perhaps it’s the high markup that can be most clearly felt by the patient in the US. The annual spend per person in the US in nearly triple when compared to Denmark. According to Leigh Purvis, director of health research at the Public Policy Institute at AARP high prices in the US result from a lack of effective negotiations with pharmaceutical companies. The US lacks a central healthcare system or agency that can regulate across the board costs and perform comparisons of drugs that are already on the market to prevent high prices for functionally similar products post approval. Although, lower prices in Europe and Canada do come with the tradeoff of restrictions on new and expensive medications. Insurers also play a role in negotiations, but certainly their main objective is not consumer protection. This is felt by patients in both lack of coverage and pass-through costs.
Reducing the high cost of pharmaceuticals is achievable, but the process demands the attention and vigilance of the consumer and government agencies alike. Basing pharmaceutical prices on effectiveness, and the refusal to use a drug when it’s overpriced have proven to be the two basic but successful tools in past cases. However, continued improvement is a slow process and exceptions can’t be discounted if a compromise is to be made between cost and availability.
Image courtesy of www.consumerreports.org