September 2017
Determining the most cost effective way to send a small parcel shipment can be cumbersome. Although typically shipments are sent with one of the two global players, there are numerous cost elements associated based on what you are shipping, where you are shipping to and from, when you want your shipment to arrive, etc. Therefore, how does one ensure both an optimal sourcing engagement and competitive price when approaching the market, as well as choosing the ideal shipping methodology?

As a sourcing professional, understanding the impact market shifts have to pricing and supplier viability, is key in making recommendations to my clients. A standard practice I pursue is conducting a benchmarking exercise. Benchmarking is used to analyze a company’s ‘current state’ in terms of existing category spending behaviors and requirements, and how it compares to what the market is offering similarly profiled customers. This process also establishes necessity versus wants to uncover opportunities to remove unneeded services or optimize the use of a supplier, whether through an incumbent or alternate. The result allows me to provide an informed recommendation on the best choice supplier from both a qualitative and quantitative perspective while encouraging adopting industry best practices allowing for better controls of company spending. 

Identified below are some of the small parcel service and pricing elements I would incorporate into a benchmark assessment with corresponding considerations for each.

Supply Base: A major factor when looking at the following elements is who the suppliers that should be assessed are and what do they offer? Today, there are two primary suppliers that must be included in your benchmark, UPS and FedEx. Although there is a comparative translation between services, in terms of pricing, gross rates for these suppliers are not the same so looking at net pricing and discounts is not a true ‘apples-to-apples’ comparison. You must understand the correlation in both pre and post discount costs. Also, who can support both existing requirements and offer innovative and additional solutions that enhance and improve business operations. This may be a smaller more regional player so take a step back and think about this before jumping in.

Time of Day: Supplier pricing and incentives will vary based on when you want a package to arrive. Typically earlier deliveries are most costly with minimal opportunity to discount. Therefore you should understand the impact of selecting a later timing service that may result in the same actual delivery time and offer an improved net shipping rate; of course depending on where you are shipping from. Make sure to also factor in cost impacts by centralizing shipping within a specific zone and trying to accommodate a standard time of day.

Weight Factors: Understanding dimensional weight application encourages shipping more efficiently. As DIM calculations are applied to all packages, make sure to understand the pricing variables and incentives available for all weight groups within each shipment category. Although Ground is a creature of its own, typically air shipments should be streamlined when looking at available discounts.

Surcharges: How and when surcharges are applied can have a pricey impact to overall costs. What do suppliers offer to alleviate these sometimes ignored costs? Some examples would be additional charges and associate discounts for weekend deliveries and comparing commercial versus residential delivery fees and incentives.

Other Cost Considerations: Ancillary account fees or contractual commitments can pop up based supplier requirements, such as minimum package volumes or revenues and pickup requests, each with an impact to customer spend. The contract should breakdown how these costs are established and what the supplier is willing to offer to offset these costs. Comparing alternative approaches to how these charges and fees are established and incentivized can provide visibility into negotiation tactics as you move forward in sourcing this category. 

As mentioned, the benchmark will help to uncover your current shipping profile with more clarity and allow you to narrow down your actual need while identifying opportunities for contracting with your incumbent or an alternate supplier. It will guide you to have better controls in place for when and how shipments are sent and produce reduced spending.
Logistics is a highly complex category that is oftentimes mismanaged from a sourcing prospective. There are many moving pieces and different factors that need to be taken into consideration when evaluating the total cost of a specific transit lane, whether it be with an Airline such as United, or a Domestic Freight Provider such as YRC. Over the years, Carriers have developed proprietary pricing systems referred to as “Base Rates” or “Tariffs” -- and oftentimes the majority of the total cost of shipping goods can be attributed to these different fees. The biggest challenge with evaluating this spend category is the proprietary nature of the pricing schema that Carriers use to come up with a tariff or Base rate structure that is applied to different transit lanes.

In the LTL (less than truck load) space, Carriers will offer a discount off of their base/tariff Rate. The Tariff with LTL carriers is simply a formula which takes into consideration factors like weight (in kgs, lbs, etc.), volumetric size, total mileage of a route, origin, destination, etc. Once all inputs are entered into the Tariff calculator the customer would receive a base price to transport products based on all these factors. Each Carrier’s tariff assigns slightly different weights to each factor of cost which results in the disparity from Tariff to Tariff (Carrier to Carrier). For example, YRC may have hundreds of dispatch and trucking depots in Montana, whereas UPS has a limited presence in that area. Therefore, YRC would assign less of a cost based on the originating Montana Zip code and UPS’ Tariff structure would assign a higher cost based on the input of the Zip code since it costs UPS more to operate in that region. Think of it as a regression formula used to estimate the cost of shipments by the Carriers. Since each Carrier uses a different “regression formula”, their costs, after running through their Tariff programs, will always be slightly different based on their operating model and overall infrastructure. And as mentioned before, since each Carrier assigns a discount to their own Tariff structure during negotiations and contracting, it is virtually impossible to compare apples to apples amongst different suppliers. Each discount is discounting from a different base rate, and each base rate is calculated differently based on the inputs, so therefore a 50% discount from YRC’s proprietary tariff can be more competitive than UPS’ 75% discount from their proprietary tariff or vise-versa.

There is good news though. Carriers are willing to use alternative Tariff structures – usually by request only – to price out your lanes. When all Carriers use the same Tariff during a bidding process, you can then effectively evaluate Tariff discounts on an apples to apples basis across all lanes since discounts are being provided, per each region, from the same Base Rate/Tariff calculator. Universally available Tariff subscriptions are commonly held by most major Carriers. Czarlite is a very popular benchmark base rate that is used in North America.

When running a sourcing event for multiple lanes, with multiple carriers, it is paramount to utilize a universal Tariff structure to enable an apples to apples pricing comparison. By utilizing a standardized bidding and contracting structure it is much easier to evaluate lane optimization scenarios with multiple suppliers. For example, it is much easier to identify and compare where certain Carriers may be more competitive than others, region by region (per the Montana Zip code example), or by shipment type.
IT budgets are being slashed. Software publishers are increasing the frequency and intensity of their compliance audits. Automation is touching every aspect of your business. And don’t even get me started on the transition to the cloud that is occurring with ERP, HR, and other business critical systems and applications.

The rapid changes that are occurring with the corporate information technology space makes it a challenge to stay on top of the various software licenses you own and the expensive annual support fees that come with them.

As your company evolves, so do your software licensing needs.

Here's an overview of some best practices when rightsizing software and support:

1) Know what you own

Start pulling contracts, ordering documents and licensing agreements. Look at the number of licenses the organization has purchased and understand how the structure of the agreement. Were perpetual licenses purchased or were the licenses purchased on a subscription basis? If your company has a software management tool that is properly kept up to date, this should be a very simple endeavor (Although make sure that the data provides reliable insight of over or under utilization of software). Look to see if there is a clause that allows the company to sell back some or all of the licenses. Also understand the underlying software support agreements that are in place. Those can cost upwards of 18-22% of the initial investment in the licenses.

2) Validate your findings with leadership

Once you've complete your analysis and have learned how many and what kind software licenses you have, you need to approach management to learn how many of those licenses are being used. This is important on a couple of levels. For one, it will inform the organization as to whether or not they are in compliance with the terms and conditions of the licensing agreement. Secondly, it will allow to you have all of the facts on hand when it is time to go back to the software company and negotiate a better contract for the licensing requirements you have today. Finally, it will allow the business to understand how it's current licensing agreements may affect future IT related projects. For example, IT may expect to save money by transitioning from an in-house data center to an outsourced cloud infrastructure, but existing license and support agreements may not allow for that without an expensive buyout of the on-premises licenses.

3) Begin optimizing your licenses

This is the most difficult task primarily because a deep dive into license rights needs to be completed and rarely are two license agreements ever alike, even within the same software vendor, (We're looking at you, Oracle). This must be done however as the software account representatives tend to be less than forthcoming when explaining licensing terms and conditions (if they even understand it)

Another, easier way to optimize licensing is to remind IT staff to mine active licenses when decommissioning servers. This is particularly important when the organization is paying for licensing and support on a virtual processor basis.

Software rightsizing and optimization is a very complicated subject and this blog post only scratches the surface of everything that goes into helping an organization reduce costs and run more efficiently. If you would like to learn more about this topic, Source One has great Spend Analysis, Benchmarking, and Contracting and Negotiations teams that can guide you through the path to rightsizing your organization's software licensing and support needs.  Contact us today.

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There is one thing that is ubiquitous among procurement: data. No matter what category you are shopping for, purchases you are evaluating, or event you are analyzing, you will have to deal with it. However, more often than not, data is dirty. You will come across typos, automation mistakes, and computational mistakes on a regular basis. It is for this reason that one should develop a fundamental understanding around data quality and the techniques that should be used to inspect it. In what follows we will construct a data set to analyze. Once we have done this we will discuss quick inspection techniques and the difference between some of the well known metrics that one should use, like the mean and standard deviation, and some of the more robust measures that are often neglected like median and median absolute deviation. All code that follows was constructed in Python 2.7.

We begin be constructing a random sample of 100 integers with a maximum value of 50. These values will be used to represent spend. We may think of these as individual transactions for a company that does not exceed expenditures of more than 50 per purchase. We then add one value to our dataset intended to represent a maverick spend.


    # generate sample data
    n = 100
    max_spend = 50
    spend = data(size=n, max=max_spend)

    # add maverick spend
    spend.append(max_spend * 20)

In order to gain a better understanding of our data we plot it. From both the dotplot and box-and-whiskers plot we can immediately see that there is a significant outlier.


    # visualize data

    # dimensionality reduction

Alternatively, we can reduce the dimensionality of our dataset by running the inbuilt describe function and our self-built robust describe function. The combination of these two functions generate the following results:

count      101.00000
mean       32.178218
std        98.367210
median      21.00000
mad         24.37859
min          0.00000
25%         11.00000
50%         21.00000
75%         36.00000
max       1000.00000

It is important to note that the mean is quite a bit higher than the median. Furthermore, the standard deviation is significantly higher than the median absolute deviation.


We now perform outlier removal. There are a lot of methodologies for removing outliers, including but not limited to trimming and censoring. For demonstration purposes, we will implement both Winsorization and clipping. The former is the act of replacing the outlier(s) with data points estimated from the non-outlying data. Alternatively, clipping is the act of simply removing the outliers.

    # remove outliers
    # visualize data

    # dimensionality reduction

Note that when we plot the data after Winsorization, we no longer have the unusable graphics from before.

Here we see that the Winsorized mean and Winsorized median are approximately the same and the Winsorized standard deviation and Winsorized median absolute deviation are approximately the same.

count    101.000000
mean      22.762376
std       14.919885
median     21.000000
mad        12.864229
min        0.000000
25%       11.000000
50%       21.000000
75%       36.000000
max       49.000000

Furthermore, these values are all approximately equal to the values of the median and median absolute deviation that we generated prior to removing our maverick spend. The takeaway: median and median absolute deviation are more robust statistics than mean and standard deviation because they are more resistant to outliers.

Alternatively, let's try clipping the outlier. Once we complete this exercise we again see that the clipped mean and clipped median are approximately the same and the clipped standard deviation and clipped median absolute deviation are approximately the same.

count     100.00
mean      22.500000
std       14.759007
median     20.50
mad        12.72
min         0.00
25%        11.00
50%        20.50
75%        36.00
max        49.00

We also observe that the counts and point statistics are actually different for the Winsorized data and the clipped data. Hence, the choice of outlier removal could potentially play a big part in the actionable outcomes of our analysis. It is for this reason that not only should every procurement analyst be familiar with these methodologies, but they should use them intelligently when dealing with quantitative data. A worthwhile exercise for anyone uncomfortable with the above content would be to change the underlying distribution of the randomly generated numbers and see what the outcomes of the subsequent analysis would be. Specifically, how a different distribution could possibly affect the disparity of the non-robust metrics.


import numpy as np
import pandas as pd
import matplotlib.pyplot as plt
from scipy.stats.mstats import winsorize

class data(pd.Series):
    def __init__(self, size, min=0, max=2, seed=0):
        pd.Series.__init__(self, np.random.randint(min, max, size))

    def append(self, x):
        pd.Series.__init__(self, np.append(self._values, x))

    def describe_robust(self):
        index = ['count','median','mad','min','25%','50%','75%','max']
        _ = [self.count(), self.median(), self.mad(), self.min(),
             self.quantile(0.25), self.quantile(0.50), self.quantile(0.75),
        description = pd.Series(_, index=index)

    def capture_maverick(self, x):

    def winsorize(self, x):
        return(pd.Series.__init__(self, winsorize(self, limits=x)))

    def normalize(self):
        return(self - self.mean()) / (self.max() - self.min())

    def zscore(self):
        return((self - self.mean()) / self.std())

    def dotplot(self):
        ax = self.plot(marker='.', title='Sample Spend Data',
                       label='Transaction ID')
        ax.set_ylabel('Spend ($)')

    def whiskers(self):
        ax = self.plot(kind='box', title='Sample Spend Data',
        ax.set_ylabel('Spend ($)')

if __name__ == '__main__':

    # generate sample data
    n = 100
    max_spend = 50
    spend = data(size=n, max=max_spend)

    # add maverick spend
    spend.append(max_spend * 20)

    # visualize data

    # dimensionality reduction

    # identify outliers

    # remove outliers

    # visualize data

    # dimensionality reduction

September 29, 2017

Here's a look at where Source One's cost reduction experts have been featured this week!

Recent Whitepaper:

Collaborating with Corporate United, Source One's strategic sourcing experts offer tips for building effective relationships between Procurement and IT groups.  Often, a lack of stakeholder engagement presents challenges for companies attempting to leverage Procurement strategically in 'untouched' categories.  Calling upon years of experience and a number of case studies, the whitepaper provides strategies for understanding stakeholder motivations, identifying synergies, and better managing IT spend.

Upcoming Event:
Once again, Source One will join leading procurement professionals across the pharmaceutical industry for a conference in the City of Brotherly Love.  Attendees and speakers include senior individuals from companies like Merck and AstraZeneca.  The event, held October 27-29, looks to provide valuable insights and networking opportunities. 

Recent Event:
Source One's third-annual Chicago Happy Hour was a huge success.  Thanks to everyone who attended and helped us celebrate 25 years of excellence in strategic sourcing.  
As we continue celebrating our 25th Anniversary, we're highlighting some of the incredible talent that makes Source One's procurement team great. This week, we'd like to introduce you to one of our Senior Analysts, Nicole Mahaffey. Nicole is a versatile strategic sourcing analyst, helping companies reduce costs and optimize budgets in Marketing, MRO, and Facilities.  

For early young professionals looking for a rewarding career, Nicole highly recommends Procurement. 

"It's a great opportunity to get exposure to a wide range of business units, like Marketing and Supply Chain, as you're helping these teams gain a better sense of what they're truly looking for in their supplier or vendor relationships," Nicole shares. "While there's always something new to learn with each project you take on, the skills you gain from analyzing spend and working with stakeholders and suppliers are transferable across industries and categories."

Learn more about Nicole and her experience at Source One in her Beneath the Surface Series Spotlight below! 

Managing both distributors and original equipment manufacturers (OEMs) can range from a minimal commitment and online ordering for small companies to forming strategic partnerships with global distribution networks in order to ensure quality and availability to mitigate the risk of manufacturing downtime.

However, there are several common factors to consider when sourcing electronic components including availability, quality, lead times, pricing, End Of Life (EOL) purchases, and obsolescence.

Small companies are usually concerned with price, can readily accept equivalent components, and tend to order from catalog distributors such as Mouser. But, when these small companies experience substantial growth, the biggest concern usually becomes maintaining a stable supply of components as they ramp up production to meet demand.

Allocations and shortages pose a big risk to steady supply and companies are forced to look at multiple sources to maintain production. A quick review of the top 50 electronics distributors shows who the top players are in the current market.

The straight forward solution is to expand the available supply chain to include secondary and tertiary suppliers. The choice of distributors often depends on the size and location of the company and their manufacturing facilities. For instance, companies with locations in the US, EU, and Asia will see the greatest benefits from the larger global distributors such as Arrow, Avnet, and Future. But, in reality, the company will still order from the catalog distributors such as Mouser and other specialty suppliers for ad-hoc smaller purchases, in time of shortages, and for specialty components.

If volumes are sufficient, a natural next step is to approach the manufacturer directly in order to secure both the supply of the parts through Service-Level Agreements (SLAs) and preferred pricing. This will allow for the management of stock liabilities and commitments to minimize lead time or demand time and define performance criteria such as quality and on-time delivery.

On a day to day basis the management of inventory is also a key factor for any off-the shelf component and is vital when obsolescence and end of life criteria need to be considered. Risks can be minimized and stable supply ensured through both supplier consigned and owned inventory. But, fees are often assessed for the supplier to hold inventory, and the financial liability for owned inventory should not be understated. However, when buying-out inventory for end-of life components the liability factor is outweighed by the risk of interruptions to production.

Value Analysis / Value Engineering programs are also often utilized to define the costs and timelines of incorporating the necessary design changes to allow for replacement of the obsolete component and when coupled with Design for Manufacturability (DFM) initiatives can offer substantial cost savings opportunities and extend the life of the finished product.

While the detailed factors that determine the exact risks to supply chain interruptions are determined by the exact blend and nature of the electronic components utilized a small set of key general considerations have a large influence on minimizing risk of interruptions to production and downtime. Availability, quality, on-time delivery, lead times, price, and product obsolescence / end of life are critical to stabilizing the supply chain and can be managed through the development and establishment of long-term relationships with distributors and OEMs.
Room for improvement in healthcare supply chains

While the health care field is all about patient outcomes, the bottom line is important. Hospitals and other care providers that achieve high levels of financial efficiency will find themselves ideally prepared to better serve their patients and maximize their positive impact in general. When looking to cut costs and make these companies as effective as possible, the areas to target will be familiar to anyone from another business sector, with the supply chain in a prominent place among them.
Just as with any company, hospitals and other medical facilities need to source items at reasonable prices. The challenge is intensified for the health care field due to the special regulations surrounding many of the potentially life-saving devices needed to run a medical practice. Setting up such a supply chain is a worthy challenge for the administrators at hospitals.

Quantifying the opportunity
According to Supply Chain Digital, new research has revealed that hospitals can achieve an average 17.8 percent reduction in supply chain expenses if they improve relevant processes. Main Line Health's Christine Torres stated that hospitals find about a third of their operating budgets goes into supply processes. This means that any changes enabling more favorable sourcing conditions can have a huge proportional effect on the amount of capital available to the facility at any time.
Supply Chain Digital reported that better data use can help supply professionals in health care realize the savings they're after. They can calculate when it's possible and profitable to reduce the number of suppliers contracted, standardize the operation of clinical devices, add a dose of automation to manual processes and more.

All of these tweaks are in service of the end goal of getting more for less. Hospitals that haven't tried such modifications may be suffering from the common supply chain flaw of leaving legacy processes unexamined for too long because they aren't "broken." Many organizations across industries could be suffering from a lack of efficiency because it has been too long since they examined their processes up close.

Hospital supply chains are great places for efficiency gains.Hospital supply chains are great places for efficiency gains.

New approaches to data
Separate research carried out by pharmaceutical distributor McKesson shows the shortcomings with current data reporting and usage. Healthcare Finance News reported that the company has taken issue with current requisition workflows. Current systems can involve too little standardization. If companies work toward operations that generate clear data, it's easy to run cost comparisons and other analyses, and to weed out orders that would lead to non-approved devices being the subject of orders.

Some of the challenges include situations when physicians prefer to use items that are outside of the standards of automated systems. Supply chains may have developed workflows for purchasing certain versions of medical devices, but the human input of doctors may challenge the systems. Healthcare Finance News reported that staff members including physicians should become part of the decision-making process. When employees are unaware of the larger procurement picture, they may accidentally make purchasing less standardized and efficient.

The future of hospital supply chain optimization looks bright, as the money is there to be saved, and the processes to do so are within reach. The next step could come very soon.

With the ever-changing state of technology, it is imperative businesses optimize their output by remaining abreast of the latest trends; one such trend being cloud-based technology. In essence, cloud-based technology allows businesses to store and utilize resources online, as opposed to traditional storage and utilization through external devices like servers. Thus, cloud-based technology is beneficial in that it provides greater storage capacity, it’s easily accessible anywhere at any time through Wi-Fi, and it typically comes with a business-friendly price tag. For businesses interested in procuring cloud-based enterprises into their daily operations to tackle spend, here are seven of our IT strategic sourcing  experts’ principal tips and tricks to consider when negotiating contractual agreements:

1. Receive Contracts Early: Cloud-based contracts with major vendors, such as IBM, are long and complex, and typically filled with URL’s and other embedded documents. It’s incredibly important to receive these contracts early as possible within the RFP or sales process, because they require thorough review and mark-up, regardless of whether they are sample documents or a legitimate agreement.

2. Update Contract Terms & Remove URLs: While reviewing the contract, be sure to update the contract terms by having URL’s removed. A seemingly miniscule detail, but removing URL’s from contracts is significant because documents referenced by URL’s have the ability to be changed at any moment’s notice, in turn binding you to potential increases in costs or other unfavorable conditions.

3. Pay Attention to Terms & Conditions: Besides updating terms by removing URL’s, also be sure
to review words and phrasing carefully. Frequently, terms and conditions within a Master Licensing Agreement (MLA) are superseded by the Service Provisioning Document for the specific application that is being procured; meaning, the price-hold protections that were obtained during the MILA negotiations will be useless unless caught before signing the provisioning contract.

4. Recognize the Win-Win: All large vendors have terms and conditions that are negotiable, though some terms will be harder to concede than others. Recognize that account representatives for large vendors may want to close a deal with your business, but may be unable to obtain wiggle room from their legal affairs and sales management teams. Thus, look at the big picture for what it’s worth, and find areas where compromise is possible

5. Transfer of Ownership: Be aware, most large cloud vendors will not permit the transfer of license ownership in the event of a merger or acquisition. Nevertheless, if your spend amount is great enough, you may be able to influence vendors to permit for a certain period of time for transfer-ability of licenses.

6. Lock-in Pricing: The strategy of the big software companies is to get you into their cloud. Top executives are even basing part of their annual compensation on how many customers they can migrate into the cloud.  This provides you with major leverage to move to the cloud at a fraction of the cost of remaining with your on-premises infrastructure. 

7. Subscription Licenses: Within standard subscription license agreements, subscriptions can only be utilized in the country where the license was purchased. While this is a customary feature within subscription licenses, nevertheless, this is one of the most easily negotiated features, and can be negotiated to reflect that the subscription license is actually applicable to the country of your choosing instead.

Cloud-based-technology is just one area where strategic sourcing can prove valuable for IT groups.  Learn more about effective negotiations between IT and Procurement in Source One's latest whitepaper: Equipping Procurement to Tackle IT Spend

Supply Chain Tech Integration: 'Good Enough Won't Do"

There comes a moment for every tech innovation when the next step becomes the status quo, and the future is suddenly the present. These changes can sneak up on companies, but leaders should be looking out for them. A business that has left its processes unexamined and unchanged for too long may feel it is getting the most out of its IT investments, while actually missing opportunities.
One area where organizations should make sure their tech is up to industry standards is the supply chain. Sourcing procedures, when handled strategically, offer a chance for major savings. Companies that fail to realize the systems they use for sourcing and supply chain communication are outdated could be missing out on opportunities to keep pace with competitors and save money.

The next revolution
According to Supply Chain Management review contributor Michael Gravier, organizations that have yet to fully integrate and accept the technologies associated with the Third Industrial Revolution - digitizing legacy systems and connecting to others via IT means - are falling behind. A heavily digitized workload has become a base from which companies are getting ready to step into the Fourth Industrial Revolution. The next wave of tech, including 3-D printing and other logistics-adjacent processes, is drawing development attention today.

Gravier framed digital communications and connectivity as the "price of entry" to the modern supply chain. He noted that simply getting on board with these solutions is a baseline requirement, and firms should be evolving beyond them. As an example of the state of the market, several large retail companies have failed in the past few years, even though their supply chains were digitized. Businesses should be taking this advance in stride, then looking for the next opportunity.
What does a next-generation supply chain look like in a world where technology is moving quickly? According to Gravier, the next few years will belong to agile companies that are ready to change on a dime and demand small overhead compared to the traditional giants of the logistics world. This changing of the guard is happening as a built-in part of the change to new tech solutions.

With the Third Industrial Revolution reaching a crictical point, the Foruth is underway.With the Third Industrial Revolution reaching a critical point, the Fourth is underway.
Projections being made
A recent study carried out by manufacturing tech company Plex made a few prognostications about the Fourth Industrial Revolution Gravier described, the one that is getting underway now. The researchers revealed that many of the companies they polled are using data to become more effective and efficient in their supply chain operations. Three-fifths of respondents, for example, are now storing their information in the cloud to keep up a quicker pace.

The use of data on demand, at a speed that companies in even the recent past couldn't manage, is one of the unmistakable marks of today's tech-savvy world. The Plex survey discovered that manufacturers and their partners are now using this content throughout their operations, passing it from one link in the chain to another. This is the kind of capability that would have been called futuristic a few years ago but is now more common, ready to become a launching pad for growth to come.

You don't spend 25 years as a leader in procurement and strategic sourcing without learning an awful lot.  Last week, we shared five best practices to keep in mind for establishing an office environment that invites success for your procurement and strategic sourcing initatives.  Here are a few more tips to help you embark on sourcing initiatives with confidence.

6. Read Up
Market intelligence is a crucial aspect of establishing credibility and making informed decisions. Industry publications and blogs can provide valuable insights into what makes for success (or failure) in strategic sourcing.  What's more, clients are always impressed to learn that you're on top of recent trends and developments. 

7.  Maintain Attention to Detail 
Whether you're assessing the market to prepare an RFP, establishing contact with a potential supplier, or corresponding with a client, accuracy is everything.  A single mistake on a baseline report or a lone typo in an email could prove ruinous.  Check, double-check, and then check again.  You'll be glad you did.

The worst thing about the unexpected is that you never expect it.   Constant vigilance and a proactive approach to assessing all potential risk factors can help you steer clear of obstacles and avoid lost revenue in the future.  Remember, use your imagination.  Even statistically unlikely risk factors are risk factors.

9. Establish Communication Early
Don't send potential suppliers unsolicited bids. Few, if any, suppliers will take a bid seriously if it arrives unannounced and reads as impersonal.  Reaching out personally before delivering paperwork encourages rapport and fosters a collaborative spirit between buyer and supplier. 

10. Pick up the Phone 
While establishing contact is essential, it's equally essential that you reach out the right way.  You never introduce yourself to a potential supplier over email.  Introducing yourself over the phone eliminates the risk misidentified as a spammer and serves to personalize the relationship from the very start. 

Check back in with us next week to read five more tips for navigating the RFx stage and establishing positive relationships with suppliers. 
Strategic engagement makes organic procurement possible

Brands dealing with requirements and regulations undergo an especially tough journey to getting their products on shelves. A fault in the supply chain brings the risk of regulatory action, and there may be far fewer available sources for the raw materials these companies need. The added complexity and caution needed to manage such a situation make a textbook case for strategic sourcing.

Thinking of sourcing and procurement as high-level processes worthy of frequent consideration and discussion, rather than simple transactional matters, can transform the way a company thinks about its operations. When there are legal requirements to consider, this level of focused sourcing is likely the starting point, rather than the goal.

The organic challenge
Food brands seeking organic certification fall into this category of regulated companies with a need for constant supply chain oversight. Supply Chain Management listed the issues facing these companies, including the requirement that firms keep a close eye on the chain of custody. Ingredients can cross international borders in their trip from farms to processing. It's not unheard of for mistakes to occur on these long journeys. The source mentioned that in some cases, there have been instances of fraud by ingredient suppliers claiming to have organic certification.
Each rung on the organic supply chain has a pronounced effect on those following. Supply Chain Management noted that if non-approved cattle feed had made its way to an organic dairy farm, the effect on that company and any other that uses its milk would have been enormous. Losing organic status could be hugely costly for companies that have sold their items this way and set prices to reflect the expense needed to stay organic.
Planning for the future, and thus performing strategic sourcing, will prove essential in the organic sector. Supply Chain Management noted that demand for certified organic products is high, with supply lagging behind. This means that companies must invest in beginning the process of converting food crops from normal growth practices to organic ones. That switch takes a minimum of three years to accomplish. The relationships between brands and their ingredient suppliers will likely be complex and far-reaching.

Setting an example
Rochester-area newspaper the Democrat & Chronicle demonstrated the lengths popular brands are going to when setting up their organic sourcing operations. Wegmans, an expanding supermarket chain, now operates a network of farms using organic procedures. This group has been a work in progress since 2007, with Wegmans adding an orchard and vineyard to its farming operations. The grocer's properties are used as test grounds for new organic growing methods that could be exported to other farms.

If the processes used at the test farms prove to be both affordable and effective, Wegmans will be one of the parties reaping the benefits. The Democrat & Chronicle pointed out that Northeastern farms growing organic produce could easily become new sources for Wegmans. The company is encouraging the farmers already in its orbit to stay the course with organic growing, cultivating a supply chain that could serve it in years to come. This is a long-term and complicated sourcing operation that could pay dividends.

ICYMIM: September 25, 2017

Source One's series for keeping up with the most recent highlights in procurement, strategic sourcing, and supply chain news week-to-week.  Check in with us every Monday to stay up to date with the latest supply management articles.

Michael Lamoreaux AKA The Sourcing Doctor, Sourcing Innovation, 9/19/2017
With the latest entry in his ongoing 'The More Things Change' series, the Doctor points to qualities that could kill procurement firms in the near future.  Paper is - of course - dead, but Excel is dying every day.  We've known for years, he reminds us, that Excel consistently loses data and causes losses.  Firms cannot hope to survive unless they begin to employ more sophisticated software that provides for supply chain visibility and customer collaboration.

What the North Korean Sanctions Mean for the Apparel Supply Chain
Rachel Sharp, Procurement Leaders, 9/21/2017
In response to recent missile testing, the UN has placed new sanctions on North Korea.  These limit or ban exports of coal, ore, seafood, and - most notably - textiles.  The country's second biggest export, textiles often leave the country through China.  Procurement leaders who do business in China must pay closer attention to their supply chain than ever before. Many could wind up damaging their company's reputations and violating sanctions without even knowing it.  Audits and unannounced visits will prove important tools in maintaining supply chain integrity and staying on the right side of international law.

How AI Will Help Procurement Advance Analytics Beyond Basic Spend Analysis
Nick Heinzmann, Spend Matters, 9/18/2017
The increased prevalence of artificial intelligence in Procurement could mean fundamental changes to each component of the business.  AI-based analytics services offer thoroughly cleansed and accurately categorized data without the time investment once considered necessary. Providing real-time internal and external data, they not only save time, but provide a new sense of empowerment to companies entering e-Sourcing events.  These technologies and their myriad benefits are quickly setting a new standard and pushing Procurement organizations to fully consider their total value contribution.

September 22, 2017

Here's a look at where Source One's cost reduction experts were featured this week!

As Corporate United's sole provider of IT and Telecom strategic sourcing, Source One has continually proven itself adept at reducing costs and optimizing spend in these categories.  Oftentimes, however, a lack of stakeholder engagement can lead to friction between these two groups.  Leveraging their years of experience, Source One's team of experts - in conjunction with Corporate United - provide advice for avoiding conflict and maintaining effective collaboration between IT and Procurement.

Recent Blogs:

The Live Negotiation Part 1: Should You Run an eAuction?
Kristina Kaku, My Purchasing Center, 9/17/2017
Though the use of online sourcing tools has increased in recent years, the prospect of conducting negotiations live can still seem daunting.  It's easy to become overwhelmed when faced with a wealth of live market insight. Plus, many suppliers are still wary of online events.  To conduct a successful eAuction its important to first assess the market, obtain clear specifications, and ensure a considerable contract value.  If you prepare well, you'll find the convenience and pressure of online events engages stakeholders far more than traditional methods could.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life . . . Part II
Brian Seipel, Sourcing Innovation, 9/15/2017
Seipel concludes his series on the benefits of thorough spend analyses.  Potential savings, he suggests, go far beyond hard dollars.  Assessing their vendor pool, companies can seek out opportunities for consolidation.  A smaller vendor pool will increase efficiency by building a less costly and time consuming procurement process.  What's more, a comprehensive view of spend could help identify instances of maverick spend.  While the occasional off-contract purchase won't derail a company, it's important to identify such purchases before they commonplace.  
“If a tree falls in a forest and no one is around to hear it, does it make a sound?” We’ve all heard this question, but may not recognize it for its practical value. It does, in fact, have practical applicability – I’m here to tell you how it applies to thinking about spend analysis. To that end, let’s posit the question a bit more specifically:

“If you perform a spend analysis and it isn’t being used properly, does it even matter?”

Data analysis, spend analysis included, is becoming more and more important to business operations. It is also a lot more prevalent than decades gone by. For Procurement pros to do their job most effectively, they need data analytics – no question there. What is questionable is the way we convey and ultimately the analysis.

Data vs. Information vs. Knowledge vs. Wisdom
Too often, analysts get too caught up in “data.” We spend our time collecting it, cleansing it, centralizing it… But then what? This data obsession is a mistake – we need to shift this preoccupation towards an obsession with developing “information” and transforming it into “knowledge.” Only then can we help our organizations create “wisdom.”

That was a lot of quotation marks and many people aren’t clear on the difference between these terms, so let’s break this down a bit:
  • Data is raw fact. Clean, simple, single-minded facts. By itself, a data point is useless.
  • Information is the organization of data into a collective whole. Information can be useful in terms of understanding a bigger picture.
  • Knowledge is the application of our subject matter expertise to information. Knowledge takes our information and applies it to our organization, specifically.
  • Wisdom is applying our knowledge to real problems to generate action. Wisdom allows us to improve upon our processes and practices.

This is vague summation of the DIKW pyramid, so let’s review in terms of spend analysis and sourcing in general.

An invoice lands on our desk. It’s for this month’s office supplies shipment. We see line items for pens: it has a SKU number related to a specific box of pens, 60 pens per box, and see we bought 10 boxes for $5.99 each. All of the things are data points. So far, so good.

As the months go by, we see several types of pens being purchased, all at different price points from a handful of different suppliers. We can compare costs and watch as they fluctuate over time. These differences are important bits of information for sourcing purposes.

Spend starts getting out of control on these pens – If the cheapest pen from the cheapest supplier suffices, then why are we buying all these expensive pens? Plus, if we consolidate pen purchases to a single supplier, ordering would be easier and we may be able to drive cost savings via consolidation among suppliers. This is knowledge.

We’ve reached our breaking point. Based on the number of suppliers and SKUs in play, we need to go to market to find the best price on the best product, and work harder to enforce on-contract office supply purchases. This is actionable wisdom.

This all Sounds Good – So Where are we Going Wrong?
Following a path from data inputs to insights to action, as we’ve done in our pen example, is exactly where we want to be. The problem is that we all too often don’t move all the way through. Too many of us as analysts get stuck hovering somewhere between point A (data) and point B (information), never closing in on the level of actionable wisdom to truly make an impact.

You can have the best spend analysis in the world, but it won’t matter one bit if upper management comes to you for proactive wisdom and all you can do is hand them a stack of facts and figures (with a few pie charts thrown in for good measure).

Where do we go from Here?
We need to get better in two ways:
  • We need to understand the value of data and where that value ends. Data will always be the crucial foundation of our analysis. However, the only time raw data needs to be presented should be as an addendum to this analysis, to be viewed only if our audience wants to look under the hood – A clear understanding of your data should never be a requirement to understand our analysis.
  • We need to move beyond providing a story and start providing action. Our CEO in the aforementioned pen saga isn’t interested in whether this supplier or that supplier charges more or less. He wants to know what we’re going to cut costs and maximize value – our analysis needs to end with a call to action and specific strategy for success.

Only once we learn to do these things are we going to make a true impact.
There’s been a lot of chatter about Amazon Business and its potential impact in the Maintenance, Repair and Operations (MRO) space. With Amazon’s rapid rise as a retailer of choice for consumers, there is cause for concern when taking a look at how the company could impact corporate purchases. But, will Amazon really become a top player as a go-to source for MRO products? Based on my experience working with many different organization across multiple industries my answer is no, at least not in the near future. Personally, I think it’s going to take quite some time before they crack the list of top MRO distributors and really compete with the likes of Grainger. I base this off several reasons, buyer resistance to change, lack of a personal service component as well as real account management and inability to provide inventory management.

Relationships between most buyers/facilities and industrial distributors are built over time. From my experiences, the suppliers utilized have often been used by the facility predating many of the employees there. The relationships in place have worked for years. Why tamper with something that isn’t necessarily broken? Also doing something different will most likely require additional time or effort further causing resistance. I’ve had difficulty managing the transition between like-for-like established distributors (i.e.: Grainger to MSC or vice versa). There’s a lot that goes into the transition process from correctly and updating the ERP system to flagging down non-compliance and illustrating lost savings or missed opportunity. Now imagine trying to tell someone who uses one of these top MRO distributors they now will be purchasing from Amazon Business. Top tier industrial supplies distributors have entire teams that focus on implementation and change management. This is relatively unchartered territory for Amazon Business who relies heavily on ease of ordering through their platform.

What Amazon fails to realize is that industrial suppliers embed themselves through the personal touch and there is more to a supplier relationship than just the simple exchange of currency for goods. Generally speaking, the facility has a representative from their industrial supplies distributor who makes site visits at minimum once a week. From the distributor’s perspective this serves multiple purposes. It creates a presence and allows the distributor to continuously market themselves on an ongoing basis. Their physical presence allows the facility to directly express their needs in person and allows the distributor an opportunity to upsell. Not only this, but larger accounts are tagged with an Account Manager who works with the account holistically to ensure set pricing, keep contracts updated, and make sure all facilities are happy with the service levels provided. The continued in-person dialogue ultimately creates a lasting relationship, putting a name and a face to the supplier that makes leaving the supplier more difficult and even more so when the switch is to an organization with no name and no face, just an online portal.

Top distributors also ensure products are purchased through them by providing vendor managed inventory (VMI) and/or vending machines. Essentially, the facility gets value adds like inventory control, auto replenishment, and on-demand purchasing while the distributor gets the assurance that all these products are purchased through them. Again something Amazon Business doesn’t really offer and something top MRO distributors utilize to create stickiness, making it increasingly more difficult for the facility to transition.

From my perspective within the MRO space, Amazon Business will primarily be utilized by smaller organizations and contractors. In order for Amazon Business to be taken seriously by larger organizations, at least for MRO, they will need to not only establish themselves from a pure pricing and product line standpoint but also adjust their business model to ensure purchasing activity and address the service side of things. MRO historically has been relationship driven and I see this as a big miss from Amazon Business.

Procurement poised to incorporate big data, AI

It's been stated many times that increasing use of data will improve various industries and functions, procurement definitely among them. The question then becomes more granular, concerning the exact ways in which access to better, faster or more accurate information will help the day-to-day operations that keep these departments functioning.
Leaders already have one of the ingredients for good data use: A contemporary supply chain is made up of a huge number of moving parts, all of which are great sources of information. Once supply chain executives find a way to harness and crunch the numbers generated by their operations, they can learn a lot about their businesses, and use that knowledge effectively.

AI and data analytics in sourcing
A recent Spend Matters piece focused on the use of high-powered artificial intelligence algorithms in procurement to improve the calculations that go into strategic sourcing. Today, supply chain officials make decisions based on retrospective data. Advanced systems, however, can go faster. Systems powered by machine learning and AI can work with real-time input rather than just crunching old data. Procurement teams can turn this extra edge into better decisions.
Furthermore, Spend Matters explained that powerful analytics have uses long after a contract is awarded. The continuing relationship between supplier and company is open for analysis, ensuring that the value has stayed constant, and that the business is indeed saving money based on its choice of partner. Before, during and after the act of selecting a supplier, companies are best served by fresh data input rather than retrospective figures.
The relevant data doesn't just come from historical analysis of suppliers or the companies themselves. Spend Matters pointed out that modern algorithms can crunch the numbers generated by overall market activity as well. Driven by machine learning and AI, powerful data analytics programs are able to make more accurate predictions than ever before, based on both the timeliness and variety of variables considered.
Various kinds of analytics
There is more than one kind of analytics at play in the sourcing and procurement world. As EPS News recently pointed out, multiple technologies that fit this description recently made appearances in Garnter's periodic analysis of supply chain tech readiness. The "Hype Cycle" tracks concepts as they make their way through the pattern of rising expectations and finally find their place in the industry. Different types of data use appeared scattered along the curve.
For example, Gartner sees true artificial intelligence in the "innovation trigger" stage of development. It could be 10 years before this technology becomes as common and well-known as descriptive analytics, which has reached the "plateau of productivity. Other forms of analysis counted include big data, which is two to five years from workaday usage, and prescriptive analytics, which should be mundane in five to 10 years.
Data analytics is in an interesting place, as both the present and the future of supply chain efficiency. Companies are crunching their numbers today, but as the technology involved becomes better and more affordable, they will grow progressively more insightful. When it comes to gaining valuable insights, the potential for improvement is staggering.

Frequently, strategic sourcing and procurement organizations are plagued by “seasonal illness,” meaning, due to the cyclical nature of certain industries, these teams struggle for air when it comes to finding the right resources. Thus, for businesses looking to remedy this dilemma, firms can look to supplement their teams with procurement services providers, contractor, or even a combination of both. For companies seeking strategic sourcing temporary staff services, selecting appropriate talent compatible with company core values, procurement recruiters and their strong temporary staffing solutions may just be what the doctor ordered.

While some firms may possess misconceptions about procurement contractors and feel temporary staffing is a bitter pill to swallow, with detrimental side effects consisting of employee unreliability and indifference to company causes, short-term staffing can relieve firms’ symptoms and breathe new life into businesses in best case scenarios, or euthanize businesses in worst case scenarios. Thus, to help firms achieve this best-case scenario, Dr. Head Hunter is here to present the Anatomy of a Good Procurement Recruiter; a list of tell-tale signs your firm is working with the right strategic sourcing recruiter ready to put your business in the pink:

1. Be an Expert: When it comes to working with procurement recruiters, there are few sicknesses worse than having foot-in- mouth disease. To avoid seeming out-of-touch, firms should ensure their procurement recruiters stay abreast of market trends, and use this information to further their 1.       head-hunting efforts.  After all, a procurement recruiter is never recruiting for just one position, but for future positions as well.

2. Make the Job & Relationship Well-Aligned: Firms should avoid procurement recruiter spin-doctors; information about openings should be candid, yet aligned with company core values and demands. Furthermore, procurement recruiters should ensure candidates will integrate into corporate culture by asking key questions that build off their interests; they must listen closely to find truth in the candidates’ experiences.

       3Respect People’s Time: While it takes time for strategic sourcing and procurement recruiters to drop in and see what condition the market’s condition is in, firms and candidates have limited time and resources to expend in the acquisition process. For businesses to avoid lost opportunities, firms should ensure their procurement recruiters maintain detailed correspondence with them and candidates, updating them about the process frequently.  

      4Keep Yourself Available: Just as it’s important to respect people’s time, it’s equally as important for firms’ procurement recruiters to keep from rubbing salt in candidates’ wounds by maintaining availability for candidates with questions, concerns, and feedback. An open-door process is like an apple-a-day; the same way apples will “keep the doctor away,” an open-door procedure will streamline the hiring process and eliminate miscommunication possibilities

      5Keep a Close Pulse with the Temp Staff: After on-boarding hired hands, firms’ procurement recruiters should consistently conduct check-ups on temp staff to search for vital signs of their performance taking a turn for the better or worst. Procurement recruiters should then communicate and engage openly with temp staff and firms about these observations, in order to maintain optimal temp staff performances and ensure the highest results are delivered to a firm. 
Ultimately, procurement recruiters are a valuable asset for strategic sourcing firms, given their medicinal qualities in providing firms with strong talent acquisition for the short-term and long-term. Additionally, for firms searching for supplemental staffing support in areas relating to spend optimization, supply chain contracting, category management, and more, consider investing some time into utilizing a hybrid model, which can provide onsite recruitment help, along with versatile tools, back-end market intelligence, and more, to help restore your firm to its healthy glory. 

This year, Source One celebrates its 25th anniversary.   You can learn quite a lot in 25 years. To commemorate our quarter century of innovation in procurement and strategic sourcing we'd like to share some of what we've picked up.  Over this five-part series, we'll share 25 tips for optimizing supplier relationships,  conducting effective risk assessments, and ultimately establishing a standard of excellence in procurement.  First, here are some basics for maintaining a healthy office environment. Communication and relationship building on an internal level are crucial to maintaining effective interactions with clients and suppliers.

1. Build a Dedicated Team
You've probably heard that a team is only as strong as its weakest player.  Well, just because something's clichéd doesn't mean it isn't true.  Every last person contributing to a project needs to provide their full energy.  Wrestling with specific tasks and goals, each team member should function as a dedicated resource and not simply offer their spare time.

2. Cultivate a Team Environment
You should take the word team fairly literally.  A feeling of camaraderie can greatly increase a group's investment in their work and its result.  Strive to create a dynamic that emphasizes teamwork, collaboration, and mutual respect both internally and externally.  It should always be clear that a win for the team is also a win for its every member. 

Inconsistent or unpredictable communication can lead to confusion and utter chaos.  Maintain order by establishing a clear chain of command and encouraging open communication amongst your procurement team. Setting this standard internally will inspire similar practices in external communications with suppliers.

4. Be a Savings Cheerleader 
If momentum or morale wanes, it's always a good idea to remind individuals at each level of the project what sort of potential savings wait on the horizon.  Such reminders encourage sound decision making and can lead to renewed focus.  If need be, discuss success in terms other than hard dollar savings.  Remind everyone what savings could mean for them in particular.  

5. Keep your Legal Team in the Loop 
Legal disputes can lead to major delays in the negotiation and implementation of an initiative.  To avoid trouble, don't wait until your reading a contract to begin consulting with your legal team. Their direct input during the data collection and RFx stages can help you avoid headaches later on.

Following these guidelines, we've helped countless companies to enhance their relationships with suppliers and have established a number of fruitful partnerships ourselves.  They are the foundation of our hands-on on-demand procurement services and we count them among the secrets to our success. Stay tuned for Part 2 next week.