July 2019
Oftentimes in Procurement we talk about gaining the right level of engagement from our business units. This is something that as consultants we face just like any internal Procurement function would. When you have the right sponsor whether it’s in the business unit specifically, an advocate in Procurement, or best of all a Senior Leader, you have a natural advantage.

In my experience in consulting getting the right buy-in and support from our decision makers can be as much work as actually executing the sourcing projects. While it encompasses a lot of work, the return is well worth it if we can get alignment early on and demonstrate value in the procurement or sourcing process. Without that buy-in we find ourselves constantly pushing a boulder uphill, both ways, in the snow, trying to navigate the supply base while convincing the decision makers this is the right thing to do for the business’ sake.

Again, this is not at all unfamiliar to the procurement and strategic sourcing teams we encounter within our clients’ organizations. In fact, they have to work that much harder to get their stakeholders aligned. This is a shame really because you would think that as colleagues all marching towards the same business objectives they would want to work together to achieve them. Sadly, that’s just not the case.

So, what does a good sponsor “look” like?

• They are on the same level. A good sponsor of the procurement process is one that understands the value that Procurement can bring through market intelligence, strategic sourcing best practices, and continuous supplier management.
• They understand the business. In order to make solid business decisions, whether in procurement, a specific business unit, or on behalf of the organization, they need to have a good understanding of what drives the business to succeed.
• They are lenient. This one might sound a little off, but a sponsor that understands that even the most astute application of best practices sometimes lands you in a different place than planned does not mean that all is lost. Meaning perhaps you didn’t quite achieve the savings or quality improvement you expected, but that does not mean the process was not worth the effort.
• They are agile. This goes along with the previous trait. The process is going to take twists and turns and the end result may be shocking to all involved. A good sponsor can adapt quickly and support building a different solution than anticipated.

All of these traits go along with being a good procurement resource and having the right engagement plan to manage to. This means being able to mimic these traits and provide the decision support that a good sponsor needs. When you can effectively pair a good procurement person (or team) with a good sponsor, the chance of success is higher because they can facilitate an effective process, make decisions quickly, and create a true partnership to deliver solid results to the business.

This guest blog comes to us from Cheryl Stevens of AmScope.

If your operations involve any kind of manufacturing, quality control is probably a big part of your life. Quality inspection procedures are essential to making sure that your products are safe and effective. A firm’s total cost of quality (the combination of what it costs to ensure quality and what it costs to respond to quality problems) often equals a hefty 25 percent of its sales–and for some, it can be as high as 40 or 50 percent. 

It’s not surprising, then, that cost of quality (COQ) is an area that many businesses target for improvement. But you’ll need to tread carefully, as reducing the resources devoted to COQ can have serious negative effects if it’s executed as simple budget-slashing. Instead, take the time to approach your quality inspection process with surgical precision, trimming the fat from your procedures and streamlining where it makes the most sense. These six tips will give you some ideas on where to start. 

1. Follow the process through its entirety.
It’s important to have a detailed idea of what your process looks like on the ground. Take the time to observe its operational standards in person and ask the questions that will help you make it more effective, such as: 
  • Does your inspection process involve a lot of manual work? If so, could it be effectively automated? 
  • How long does the inspection process take per unit? Can you speed it up without sacrificing accuracy? 
  • Are there steps in the process that occupy a disproportionate amount of the inspector's time? Can these be improved?
  • Do employees understand how to use your quality control software and troubleshoot minor issues without going to IT?
2. Examine the goals and procedures of your inspection process. 
Observing the practice of your quality inspection can tell you half the story. To understand the other half, you need to know the theory inside and out. Examine the quality inspection procedures as laid out in your operations manual and make sure that they align with best practices of quality control
  • Are your inspections targeting products at the right stage of production (i.e., pre-production, in-line, pre-shipment)?
  • Are your AQLs well-defined and in-line with customer expectations? 
  • Are your inspection report templates well-designed and easy for different employees to apply consistently? 
  • Are your procedures able to target the stages of production with the highest risk? 
  • Are your quality control data standardized and easy to share across a network?
  • Do employees understand what they're testing for and why it's important? 
3. Consider reducing inspection sample sizes.
Longer inspections with larger sample sizes will obviously have a higher cost. While these more in-depth inspections will produce results with greater confidence, sometimes you simply don’t need them. It’s a good idea to take a look at your AQL and decide whether you can safely reduce your sample size. 

The standard model for AQL sampling uses General Inspection Levels, referred to as GI through GIII. You can use the ANSI standard table to identify the accept and reject points correlated with each sample size and AQL. The levels are as follows: 
  • GI: Smallest sample size. Used for low-value goods or suppliers you have high confidence in. 
  • GII: The sample size that most businesses use. Usually a good compromise between quality and efficiency. 
  • GIII: The highest sample size and the most expensive and time-consuming. Used for high-value goods with low defect tolerances.
Choosing a lower inspection level can save significant person-hours and reduce cost—but make sure to involve all relevant stakeholders in the decision, since it can involve trade-offs in confidence levels. 

4. Issue chargebacks to suppliers when goods fail an inspection.
Many businesses get good results from increasing supplier accountability when their products fail an inspection. By issuing chargebacks for batches that are rejected by QC, you can incentivize your suppliers to resolve production issues at their source while getting an infusion of cash to balance out the costs of a failed inspection. 

Whether this technique will work depends largely on your relationship with your suppliers. Supplier chargebacks generally aren’t a good idea when you’re working with new suppliers, suppliers you have an uncertain relationship with or you’re ordering small amounts of relatively low-value goods. Remember also that this is a long game technique that relies on incentivizing suppliers to improve their performance, so it may not produce immediate results. 

5. Make sure your measurement equipment is up to the task. 
It’s worth taking a second look at your inspection tools to ensure that they can give you the data you need. For automated inspection equipment, some key basic standards include: 
  • Measurement accuracy at least three times greater than part tolerances for CNC machining. 
  • Sufficient speed to keep pace with production. 
  • Able to handle a wide range of part sizes, including the largest parts you need to be inspected.
  • Built durable enough to withstand high production levels and use on a factory floor. 
  • Able to automatically generate data is a useful format.
If you’re doing manual examinations of high-value goods, the standards vary more by which kinds of goods you’re inspecting. The type of microscopes used to inspect your goods, for example, will be determined by how fine your tolerances are. The rule of thumb, of course, is to involve your engineers and QC team at every stage, designing your processes and sourcing equipment using their input.

6. Inspect goods closer to their point of manufacture.

For decades, outsourced manufacturing has been common across industries—so, why not get your inspections done in the same place as you do your manufacturing? Third party QC, usually performed in manufacturing hubs like China or India, is an increasingly popular option for businesses that source products from these countries.

If you choose to go with third party QC, it’s more important than ever to have well-defined procedures and controls. Depending on the product, you may need to establish detailed standards from AQLs all the way down to methods they use to inspect products under a microscope. As always, communicating your standards early and clearly is the key to getting results.

It’s often said that the race for quality has no shortcuts, but that doesn’t mean that you can’t make your organization leaner and more efficient. By cutting your inspection costs with precision and care, you can reduce your expenditures while keeping your quality at the high levels your customers expect. That’s the kind of win-win proposition that will always pass inspection.

Author Bio: Cheryl Stevens is the Community Relations Specialist for AmScope. She oversees all company-wide content creation, outreach programs, and initiatives. Her passion in life is helping others see the value in and implement STEM programs for children at an early age.

Monthly Round Up: July 2019

Gain new Supply Management insights with these highlights from the last month. Want a monthly recap sent directly to your inbox? Subscribe to our newsletter today.
You are probably already tracking plenty of valuable data about your company, but are you using that information correctly or just sort of winging it? Once you can compare and contrast key performance indicators (KPIs) with metrics, you’ll be able to properly analyze your strategies and make the necessary changes. Read Brian Seipel’s explanation of how data analytics literacy can lead to cost reduction opportunities.

Mobile technology is no longer just for online shopping. Retail locations have begun to introduce apps to their customers to make the in-store shopping experience more enjoyable. According to the numbers, it’s working. Most shoppers who have used in-app navigational tools say they will use them again. Read this piece to learn how checkout technology is growing in the retail sector.

Understanding the True Costs of Packaging - Transportation
The packaging decisions your company makes have more hidden effects on your supply chain than you may think. Over the next few weeks, we’re going to give you a detailed explanation of packaging cost levers and how they shape your company. In the first installation, Matt Veksler will discuss packaging design and transportation costs. 

Don't Ask for the Unreasonable in a Negotiation
When bargaining with a supplier, buyer, or any other third parties, you should ensure that you’re reaching for reciprocity. Don’t propose excessive expectations that leave the other party feeling disagreeable. Why would you ask something of another professional party that you would never agree to yourself? William Dorn asserts that you must exercise the golden rule when participating in negotiations. 

Technology and the Fast Food Supply Chain
Like many industries today, food and beverage organizations are moving forward with AI-empowered technology to optimize their processes. Market leaders such as Panera and McDonald’s are using AI in varying ways to assist them and their customers. Nicole O’Connell shares how in-store technology and mobile apps are quickly raising the bar for fast food experience. 

Slashing budgets has always been a perennial challenge for organizations.  Procurement has always had to deal with the compounding difficulty as years go by and the well dries of new ways to reduce cost yet savings goals hold steady or even increase!  Though, Procurement has always had the opportunity to expand its horizons and turnover stones previously left alone either due to focus on others, limited time, or lack of experience and expertise –usually the latter.  In most organizations, IT is one of the last frontiers of cost reduction potential, previously unexplored due to the complexity and lack of meaningful historical collaboration with the IT organization.

Similarly, IT has been under pressure of its own to reduce cost or minimally do more with the budget they have, all while business requirements grow and demand for innovation increases.  IT has evolved to address these challenges…sometimes.  Generally, we see IT garner more leeway on budgets than any other group.  Maybe this is because IT is the lifeblood of the organization: increasingly, everything a company does is facilitated by a multitude of facets of infrastructure and services for which IT is responsible.  Maybe this is also because it is complex: if it cannot be understood it can’t be optimized, and those who do understand it are measured far less on a basis of budgetary responsibility and far more on uptime, security, innovation, and management of changing requirements.  But, the days of leeway on IT budgets is waning.  It is simply too large a spend to ignore, is growing all the time, and it is too important to the organization to let risk go unmanaged.

We are experiencing a convergence.  One in which Procurement needs IT in order to find new opportunities to reduce costs enterprise-wide and one in which IT needs Procurement to complete primary objectives within budget.  Even mature organizations where IT and Procurement are collaborating, a great deal of activity is focused simply on keeping the lights on, reactive, or both.  In some cases, large strategic projects happen in collaboration between IT and Procurement.  In very few do IT and Procurement share the same roadmap.  One that is driven by common goals and is coordinated around maintaining steady state management of existing spend and tackling technology transformations, process changes, and infrastructure overhauls proactively.

Whether Procurement is still working on getting a seat at the table with IT or a longstanding relationship exists, both organizations need to leverage one another’s resources and expertise in order to fulfill their respective roles in ensuring a strong return on their investments and continuous improvement.  This is not something that will naturally occur by scheduling periodic planning or status sessions.  It also will not yield optimal nor long-term results if efforts are based on a short-term viewpoint like a simple spend analysis and immediate action on low hanging fruit and quick wins.  It requires a long-term focus with a roadmap that accommodates short term benefits while laying the groundwork to realize improvements over a three to five year time horizon and the necessary governance to adapt and recalibrate as time goes on.  For help getting started or taking your IT and Procurement collaboration to the next level, contact Source One today.

Amazon has had tremendous success over the last two decades. They transformed the way that we think about online shopping and now we almost expect fast, two-day shipping. There has been many changes over the last years and Amazon has had to invest a substantial amount of money into each new idea. They have pursued a growth trajectory rather than a profit one in order to please their customers and grow their market share. Their newest idea, is getting rid of two-day shipping, but instead introducing one-day shipping to members.

Although, Amazon is spending more than the company expected, to cut the delivery time guaranteed to Prime members in half. The company spent $800 million to get faster deliveries, and that played a part in the e-tailer slightly missing its estimates made to investors. But, Amazon’s latest earnings show just how much it costs to reduce Prime shipping to one day.

Amazon reported second-quarter earnings of $2.6 billion, or $5.22 a share, up from $5.07 a year ago, but still lower than analysts’ estimates. Amazon shares fell about 2.5% in after-hours trading immediately following the release of the earnings report, but those declines lessened to about 1%, and now stock was down 1.5% premarket Friday, July 19, 2019. Amazon had prepped analysts and investors for a decline with a disappointing forecast for second-quarter operating profit, but the total still came up short of estimates.

CFO Brian Olsavsky signaled that investing so much in the one-day delivery would be the cause of such decline. He said Amazon expects to spend even more on the fulfillment change in the third quarter, and reduced guidance accordingly. The stock decline was expected because of the large amount invested, but when everything settles, Olsavsky predicts that Amazon will regain their cost efficiency over time.

Amazon is not worried about this decline, and analysts’ expects the Amazon narrative to shift back more toward top-line growth in the second half of 2019. They think operating income results/guidance likely have no bearing on long-term profitability given temporary elevated spending behind one-day shipping and head count.

So was implementing one-day shipping in place of two-day a good move for Amazon? Or will they be regretting this later?

It is not a new idea that company decisions are being driven by data analytics. Since many decisions are driven by trends noticed in data, companies are becoming data focused. This causes companies to believe that the more data they have, the better off they will be in decision making. This leads them to gather data on just about anything they can. Unbeknownst to them, this idea has its shortcomings. In order for the data to be useful, it must be sorted. When there are astronomical amounts of data, the sorting process can be very complex and time consuming. The time required on deciding what information is needed and then organizing the data to run the analyses may take longer than the time they have to make the decision. This issue encourages companies to reach out to third parties for their data.

In addition to internal data being complex and time consuming, it may also leave gaps. These factors provoke companies to branch out and include external data when running their analyses. The data received by third parties can cover different demographics, weather patterns, company information, and beyond. Since many companies are integrated with others through partnerships and supply chains, they are affected by factors outside of their company. They are affected by those in their networks as well as economic, political, and environmental factors. By gathering outside data, you get a better look into possible opportunities your business could benefit from or show you risks that could have a negative impact on your business. Markets are constantly shifting due to consumer’s behavior and trends they exhibit. Companies are constantly trying to stay ahead of their competitors in order to maintain their market share. By blending the internal data a company has with the external data they can receive, businesses are able to figure out what information they need in order to get the results the hope to achieve in a timely manner.

The benefits of using external data are numerous. The external data has allowed companies to personalize their marketing offerings, produce new revenue streams through the creation of new products or services, mitigate risk, anticipate demand and trends, and track retention rates. Surprisingly, it can also benefit farmers in granting them the ability to predict crop yields based on their location and weather patterns. Data is very complicated, however when it is used correctly, its pros definitely outweigh the cons.

In pursuing more optimized business operations, companies are leveraging their in-house facility management teams to focus on developing strategic initiatives and processes. With limited resources, organizations are turning to Integrated Facilities Management (IFM) service providers, along with their resources and industry knowledge, to manage their facilities. Companies are tying project management, facility management, and real estate management onto a singular service provider. This centralized management system ensures greater visibility into the company portfolio and higher levels of service quality consistency.

However, companies must evaluate the market of the facility management industry. There is a multitude of niches and competitive advantages that arise in this professional service. Therefore, sourcing the right IFM service provider will connect effective professionals in facility management with the facility management needs of companies. The following questions will provide a sound basis for evaluating a potential service provider against the leading trends and topics within the IFM industry.

Does your company have specialization in any particular subcategories?

Some IFM service providers position themselves in the market as subject matter experts in one or more subcategories. Either through their resources or experience, specialization could be a crucial function if there is alignment with a buyer’s needs. For example, an industrial organization may be more engaged with a potential service provider who specializes in fire inspection services over others. Because of the stringent level of regulations and standards for fire safety in both testing & inspection and capital improvement, this may be a mutually beneficial partnership. Meanwhile, a service provider with a strong market presence in foodservice may appeal to companies in the hospitality industry. Being able to align within the operations of a business could result in efficient use of the facility space and real estate.

On the other hand, specialization may narrow the possible scope of work for that IFM service provider. Their resources may be limited to the areas that they specialize in, or they may not provide a sufficient level of service and quality to other subcategories. These downsides could mean that the in-house facility team taking on additional roles besides their strategic initiatives. Specialization can have both favorable and unfavorable consequences, so companies should follow up to ensure that their entire scope of work for facility management can be handled by their potential IFM service provider.

What percentage of your company’s services is self-performed versus subcontracted?

Building upon the previous question, it would be crucial to understand the ratio of services being rendered by that IFM service provider against its subcontractor network. By performing those support services in-house, an IFM service provider can produce cost reduction opportunities and streamline facility management services. Self-performance allows IFM service providers to provide the requested services without managing their own suppliers or leveraging mark-up rates to compensate for the services rendered by their third-party service providers.

Not only does self-performing work orders lead to reductions in costs, but it also compels service providers to be directly responsible for the completion of those work orders. To maintain sufficient service level agreements, this could also lead to a commitment to safety and higher standards of quality. By holding IFM service providers accountable to the self-performed work, a higher proportionate level of self-performance can result in the overall better service experience.

What is your company’s approach to providing facilities services?

The strategy and direction a company can take facilities management are vital to developing the right project plan and facility management initiatives. Companies that take into account the available data in a client’s portfolio can leverage the potential to improve building performance. Furthermore, another direction facilities management service companies can take is being technology-forward. For example, many companies adopt a Computerized Maintenance Management System (CMMS) to help identify the best time to order inventory and how much to keep in stock. Overall, executive strategies by IFM service providers have incorporated outcomes-driven model as essential to the real estate industry.

What is the provided maintenance program?

Maintenance programs have many processes, but how they are organized can affect the operations of a company. Proactive and/or preventative maintenance programs are best practices to ensure continuous operations. Meanwhile, a reactive maintenance program could result in stoppage or future service issues. IFM service providers generally fall under the first type of program to ensure quality and consistent maintenance.

Moreover, companies should also evaluate the schedule of their maintenance program. Some companies operate their maintenance program off a metered schedule while others off a calendar schedule. Depending on the needs of the maintenance, it may be important to take run time into account or ensure consistent performance of tasks. As a result, the usage of both resources and funds differ proportionately.

How would you describe your company’s work order capabilities?

A functional and efficient work order structure is designed to streamline facility maintenance management. Companies should generally be able to provide a solution to allow for automated work orders and maintenance activities. By keeping track of work order completion, assignment, performance, and results, companies can expand their facilities and maintenance management capabilities. Asset management is another component that will ensure and maintain the quality of assets.

Facilities management is an integrated, organizational function that can determine the effectiveness and efficiency of the delivery of goods and services for companies. Ultimately, companies will need to assess their facility management needs and how these needs best align with their potential service provider. These questions provide one holistic and comprehensive structure for qualitative evaluation, but companies must build on this foundation with their own unique and specific scopes of work. If facility managers are to be expected to take on more strategic roles, quality IFM vendors can provide the support services to that development.

A common procurement and sourcing strategy is to gather a complete supplier list for a buying category and figure out ways to consolidate that pool of vendors. The idea here is to provide more business (revenue) to your primary suppliers with the goal of better pricing. There are some additional advantages to this exercise. It’s easier to manage a smaller supplier pool and it becomes easier to strengthen relationships with these suppliers as the business continues to grow and more is required from each vendor. 

Does this work with Logistics? Not as often as one might think.

A common small parcel approach is to have the majority of the business go through one of the primary carriers, either FedEx or UPS. A lot of companies will keep an account with the other carrier and also have an account with DHL. The reason is twofold. The other two carriers might have a specialization you typically do not require but in certain instances, is needed and if for some reason the primary carrier is unable to perform up to expectations, a transition is much easier to take on.
When this logic is applied to FTL, LTL and Ocean Freight, it becomes much easier to understand why carrier consolidation or even something as extreme as sole sourcing a transportation mode is not the best option.

Ocean Freight is critical to the front end of most company’s supply chains. In order to guarantee products and materials are imported at a timely and consistent manner, the carrier used needs to be reliable and trustworthy, all for the right cost. Space allocated on the container ship is the primary commodity a shipper is purchasing. If the carrier is unable to meet an uptick in demand due to increased production, there needs to be another carrier in place who is able to accommodate. Otherwise, a business starts to step into the spot quote market and that can get out of hand very quickly. Often times, it makes sense to have primary, secondary and even a third option for imported goods in order to prevent disruption to the supply chain.

In the trucking world, it can get even more complicated. Some carriers perform better than others in certain areas. Some are better with specialized freight. Others are closer to a main facility or distribution center in that area and allow for later pick-ups which is not the case in all of the other locations. To expect one carrier to be able to meet all of the special requirements a company might have at various locations is quite ambitious. If there is a carrier in the Southeast better suited to carry the Southeast volume, utilize that carrier. If a carrier is able to deliver time critical freight to a major client one day earlier, it might be worth using that carrier in order to maintain that client. If the freight is loaded by your dock workers and is not handled again until more of your own dock workers unload the freight at the destination and transit time does not matter, go with the low cost carrier.

Your logistics profile and supply chain network is like a fingerprint, completely unique to you. Work with a variety of carriers to make sure all of the intricacies within that supply chain are met with careful attention. As long as you have a solid foundation within your own internal network and are able to manage the relationships with your carriers, allowing for a variety of shipping options and safety nets could be the ideal approach.

ICYMIM: July 29, 2019

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 news.

How to Meet the Needs of B2B Industrial Buyers
Juliette Ferraro, Thomas Net, 7/23/2019
The buying process requires a lot of research, deliberation, and difficult decision-making. The role of the supplier shouldn't be any less involved. Business-to-business relationships are complex; therefore, it's imperative that you go the extra mile if you want to stand out as a supplier.  Juliette Ferraro delivers some best practices on how to maintain a fruitful relationship with your buyers. 

3 Reasons Smaller Consultancies Can Compete with Traditional Consulting- Procurement Take Note
Spend Matters, 7/22/2019
Are the "Big 4" consulting firms actually proving to be that efficient? Some experts have declared a lack of confidence in their stagnant business models. Many professionals believe small consulting firms have a real shot at competing with the "Big 4" as they possess more flexibility and innovation. Spend Matters gives three reasons why smaller consulting firms may have a competitive advantage.

The Hidden Stories Behind Global Internet Attacks
Azeem Aleem, Future of Sourcing, 7/23/2019
Many are unaware of the scope of internet attacks on businesses today. Consequently, they're unaware of the threat that their very own companies face at any given moment. Make sure you're prepared in the state of an emergency and familiarize yourself with what, why, and how to cyber attacks. Azeem Aleem gives a realistic look at Cybercrime and what businesses are experiencing today.
Some Procurement professionals love supplier interviews while others dread the very thought of them. Whichever camp you're in, there's no denying that interviewing suppliers in an inescapable (and essential) component of the strategic sourcing process. Throughout the interview stage, getting the answers you need comes down to asking the right set of questions. Check out the infographic below to learn more. 

ISM Chicago Appoints Source One's Brandon Hummons as Chair of Chapter's Emerging Leadership Committee 

The Institute for Supply Chain Management (ISM) is the largest professional supply management organization in the world. Collectively, ISM's members annually manage around $1 trillion in supply chain procurement each year. ISM holds training programs, conferences, and other professional events to help supply management professionals maintain a competitive advantage.

The new President of the Institute for Supply Management (ISM)'s Chicago chapter, Robert Mietus, has selected a group of individuals to lead ISM's various committees. Source One's Brandon Hummons is among them. The Procurement and Strategic Sourcing Consultant will now serve as chair for ISM-Chicago's Emerging Leadership committee.

During his term, Hummons aims to focus on leadership and supplier diversity. He plans to do this by helping the organization to carry out networking events in the Chicago area.

“I am excited and hopeful as we build the foundation for this Emerging Leaders Group. We have a lot to offer ISM and the entire Procurement industry. Connecting young professionals and being experimental in our approach will bring a new wave of talent and vigor to this industry.” say Hummons. 

As a close collaborator with ISM-Chicago, Source One is proud to have Hummons represent us on the board and excited to watch Hummon's future Achievements with ISM.

The Source One Consultant's involvement with the local chapter reinforces the consulting firm's support of the association for supply management professionals. Since 2015 Source One has been the exclusive sponsor of ISM's ExecIn Forum, a sub-component of their Annual Conference designed for procurement leaders.

Artificial intelligence has enabled more businesses to achieve supply chain optimization - in virtually every industry. Consumers are on the front lines of this evolution, as approximately 85% of Americans use products with at least some AI elements installed, according to a recent Gallup poll.

Despite AI's increased presence, many people have mixed feelings regarding its unabated advancement, with some worrying that it could lead to job losses as robotics become more ubiquitous. If newly released estimates prove accurate, manufacturing could bear the brunt of these losses.

AI adoption heaviest in China
By 2030, roughly 20 million manufacturing positions that are currently held by people could be replaced by AI, according to a recent report from Oxford Economics. The lion's share of these - 14 million - are expected to come out of China, the population of which tops 1.4 billion.
Be it agriculture, health care or packaging and shipping, AI has touched just about all sectors. Over the past 20 years, in fact, the use of robotics has more than tripled, the report said. And just as the globe's most populous country is poised to see the biggest difference in terms of future AI adoption, China has experienced the most changes thus far, currently home to approximately 20% of the world's robotics.

But the Far East nation is certainly not the only one where AI is accelerating at a feverish pitch. The same is true in Japan, South Korea, Germany and the United States, with the robot densification climbing by 40% between 2011 and 2016, according to Oxford Economics.
"58% believe automation is the greatest threat to jobs."

Americans, for their part, have somewhat of a love-hate relationship with AI; they appreciate and acknowledge that its made many everyday experiences more convenient, but at the same time, can't help but wonder if their very livelihood may be on the line. Indeed, close to 60% of respondents in a separate Gallup poll said they believed new technology is the greatest threat to jobs, more so than other factors such as offshoring or immigration. Nearly a quarter - 23% - wonder whether their position could be subsumed by automation. Interestingly, Americans between 18 and 35 years of age are the most likely to believe this could be the case, with 61% indicating as such.

Pacific Northwest most vulnerable to AI
Just as the extent of AI adoption and growth is largely contingent on the industry, the same can be said for location - in the U.S., in particular. Oregon, Washington and California and parts of the Panhandle are believed to be the most vulnerable to robotics, Oxford Economics found in its analysis. The least susceptible is the Mountain West and New England, two parts of the country whose economies aren't as heavily dependent on manufacturing and technology.

All this being said, while a number of Americans can't help but be a bit hesitant to fully embrace AI, robotics is also expected to create new job opportunities as well. According to the World Economic Forum, the rise of the machines may lead to 133 million new roles by 2022.

Klaus Schwab, executive chairman and founder of the World Economic Forum, told Forbes that while AI improves the supply chain, business owners and employees should look for opportunities that can help to make themselves more marketable.

"It is critical that business take an active role in supporting their existing workforces through reskilling and upskilling, that individuals take a proactive approach to their own lifelong learning, and that governments create an enabling environment to facilitate this workforce transformation," Schwab explained. "This is the key challenge of our time."

Software developers, social media specialists and data analysts are a few of the professions expected to receive a shot in the arm thanks to the advancement of AI, according to the World Economic Forum report.

July 26, 2019

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

New Blogs:
Understanding Critical Procurement KPIs
Brian Seipel, Vendor Centric, 7/23/2019
Procurement can't gain executive buy-in and drive real change unless it's successfully measuring and reporting on its performance. Seipel dives into the key metrics and KPIs that should factor into any Procurement team's assessment of itself.

Empowering Procurement to Drive M&A Activity
Arthur Piszczor, Buyers Meeting Point, 7/24/2019
Mergers and Acquisitions (M&A) can feel like an overwhelming change, but they can also provide a lot of opportunities for cost-saving changes. When your company undergoes such an operation, many factors should be considered such as data cleansing and realizing the full impact that M&A activity could have on the company or companies. Arthur Piszczor lists some steps to take when you want your company to flourish in an M&A and make Procurement an asset throughout the process.

Driving Procurement Visibility: Why & How
Brian Seipel, Sourcing Innovation, 7/24/2019
Procurement teams perform more effectively when they have a thorough sense of perceptibility. As strategic sourcing professionals, we don't want to miss any inefficient spending activities that might have otherwise gone unnoticed  Brian Seipel presents some fault-finding questions you should ask yourself if you're doubting Procurement's visibility into its operations and spend profile.

Upcoming Events:
Procurious Big Ideas Summit | Chicago, IL | 9/18
The Procurious Big Ideas Summit will host a select number of individuals to a conversation surrounding procurement this upcoming September. Our Spend Management leaders at Source One will be attending and contributing to the conversation in a keynote session. Global supply chain leaders are welcome to offer their thoughts, concerns, or questions to help elevate the procurement profession..

It's National Intern Day! To celebrate, we're introducing two more of the talented young professionals who'll be supporting Source One this summer.

Hi everyone! My name is Ignacio Saps and I am a rising sophomore at the University of Michigan - Ann Arbor, majoring in Economics. I was born in New York but was raised in Highland Park, IL. I am an avid soccer fan and when I am not working or studying, you can find me watching or playing soccer. I come from a strictly-Spanish speaking household and also speak Hebrew.

At school, I am involved in multiple business-related clubs, such as Apex Trading Group, Michigan Real Estate Club, Ross in Argentina, and Crypto currency Investments Club. I also spend my free time researching various topics in the business world that interest me; for example, the stock market.

Prior to joining Source One, I interned at Via Confort, a large furniture and appliance chain located in Montevideo, Uruguay. During my time at Via Confort, I worked in the sales and accounting departments and learned about the many components that go into operating a large business.

I am very excited about joining the Source One team. The staff here is so welcoming and helpful. I look forward to working on my first project and gaining experience and knowledge within the field of Consulting.

 Hey, my name is Siara Singleton! I'm from NYC, but I've lived in the Lehigh Valley most my life where I fell in love with ballet and fitness. This past Spring, I graduated from East Stroudsburg University (ESU)  where I majored in business management and minored in psychology. At ESU, I participated in Colleges Against Cancer, tutored my peers, and had a short stint as a campus tour guide. I spent most of my time performing on the ESU Dance Team, however, where I was a team choreographer.  Some of my favorite things to do outside of dance and work is going to the gym, cooking, reading, and photographing people/animals. I also participate in a program called Big Brother Big Sisters of America where I serve as a mentor for a wonderful little girl named Jeleila. 

Before I came to Source One, I worked as a clerical support specialist for Coordinated Health Hospital during the school year. Last summer, I worked with an incredible nonprofit called Arts Quest where I was a development intern and had the chance to work with the Executive Director and her communications team. We hosted events, acquired new members, and raised money for varying funds including one to host free art classes for children in the surrounding Bethlehem area. 

I'm the marketing intern here at Source One and I have the opportunity to advance my skills by promoting Source One's unique services. As someone who is concerned with the environment and other social issues, I have always wanted to lead an ethical career path. I hope to use my business marketing skills to promote sustainable companies with green supply chains no matter what industry they're in. I was drawn to Source One because of their ability to offer both cost-saving and eco-friendly solutions through strategic sourcing. I believe procurement professionals with ecological awareness will produce the healthiest, most efficient, and responsible companies in the future.

Want to join the Source One team? Learn more about our internship program today. We're always on the lookout for students and recent graduates to join us in serving clients and elevating the Procurement function.

Source One’s latest whitepaper series takes a close look at each of Procurement’s essential pillars. In addition to tools, metrics, and talent management – Building an Effective Procurement Organization offers insights for optimizing Procurement’s role. The final installment in the series offers insights for outlining Procurement’s vision as well as optimizing the way stakeholders perceive the unit and interact with it. It concludes with perhaps the most essential piece of all, Procurement’s functional maturity.

 Check out a preview of Source One’s dive into Procurement maturity assessments.

Tactical/ Transactional

The tactical/transactional approach to Procurement is a straightforward process that’s far more reactive than proactive. A tactical Procurement unit makes its decisions based on fewer criteria and typically carries out initiatives on an as-needed basis. This approach grants low strategic value and is more useful for short-term projects. When stakeholders engage with these Procurement teams, it’s not usually because they see much value in it. More often, it’s because they’ve got no other choice.

 Sourcing/Shared Services

These groups are slightly more mature than Procurement’s purely tactical groups. They’ve proactively analyzed the market and make purchasing decisions with more understanding and insight. They provide an opportunity to increase efficiency by organizing resources that are shared among other business units. At this stage, however, they still often embody outdated ideas about Procurement’s value that stakeholders won’t always see past.

Category Management/Supplier Management

Procurement groups at this stage display strong decision making initiative, drive change well after purchases are made, and exert control over their processes. Their expertise and strategic know-how aid in determining how and why the company makes its decisions. Procurement groups that function as category and supply managers simplify and optimize the go-to-market process and ultimately generate greater value. They’re also a trusted advisor throughout the life of vendor relationships.

Integrated Demand/Supply Management

These are the rare Procurement groups that play an essential role within their organization. They’re a valued asset with a hand on every link in the supply chain, due to their management strategies and advanced analytical capabilities. An impressive feature of these groups is that they continuously improve because of their ability to assess market demands and devise quick responses. The collaboration among internal and external departments allows for increased efficiency across the organization. Their culture of growth plays a crucial role for refining their processes, which better serves the business and ultimately earns a seat at the executive table for Procurement.

Whatever Procurement's maturity model within your organization, Source One’s specialists offer insights to support its needs. Download all five parts of Building an Effective Procurement Organization today to learn more. 

The Strategic Sourceror has served as a resource for supply chain professionals since 2008 and covers anything from procurement transformation to packaging specifics. You can access any of our categories from our header, but we wanted to put a little something extra together for you. In this series, we're giving you a list of our top blogs of all time and we're going to give them to you per area of expertise. This is a perfect opportunity for those getting an introduction to Procurement and Supply Chain Management to familiarize themselves with the hottest topics in the industry.

In this edition, we’ll focus on Marketing.

1. Contents of a Thorough Marketing Statement of Work 
The statement of work (SOW) is an essential, if not the most essential, part of a work contract. This document will outline and describe the responsibilities and costs of a project and, therefore, eliminate any foggy areas. A SOW needs to be especially detailed for a Marketing project to ensure all deadlines and requirements are met. Victoria Baston lists the five sections that should be included in a SOW and offers a few pointers to keep in mind during the drafting process.

2. Media Buying? No . . . Media Procurement 
Marketing somehow manages to be both invaluable for a company's success and shadowy in terms of its hard dollar worth. This is due to its intangible nature. That said, cost savings is generally one of the main goals for a procurement team and it can be difficult to give marketing a fair space up against the more tangible departments. While there is no concrete formula for determining the ROI of marketing, companies are still recognizing its worth and more Procurement teams are finding value to investing in media purchases. Steve Tatum weighs in on how Procurement’s interest in media investments is evolving.

3. The Stunning Growth of Adidas 
Although Adidas has long held a prominent spot in the performance wear market, 2017 and 2018 have been especially revolutionary for the brand. Eric Yoder discusses the reasons why Adidas has been able to wrestle with the Jordan Brand for the second spot in the market (with Nike in first). The article hones in on celebrity endorser, Kanye West, who launched his line Yeezy line in 2015 and brought Adidas into the spotlight.

4. Five Best Sourcing Practices for Marketing 
The RFP process can be tedious and troublesome as many suppliers don't know how to distinguish themselves from other applicants. Expectations and timelines should be explicitly outlined for productive communication to occur, whether that results in a business relationship or not. Both parties risk losing time and resources if the operation is not handled properly. Katherine Wang outlines five best practices to keep in mind when carrying out the RFP process.

5. The Decoupling Debate (Part 3): The Pros and Cons of Decoupling Agency Services 
In the Marketing world, decoupling is the process of outsourcing certain creative content within the advertising division. Both separating duties and centralizing them have their pros and cons, but here's a breakdown of both arguments. This blog stands as part three of the great "Decoupling Debate" where Megan Connell and Kathleen Jordan unwrap everything "decoupling". Read the first installment to get a better understanding of decoupling here.

6. A Procurement Professional’s Guide to Keeping Up with Marketing Trends, Part II 
Procurement teams must stay briefed on the latest breakthroughs and trends in Marketing. This can be difficult to achieve properly as the number of resources for obtaining information is always growing. This article is a continuation of a two-part series by Megan Connell, addressing how procurement managers can remain acquainted with Marketing news.

7. A Procurement Professional’s Guide to Keeping Up With Marketing Trends 
It can be difficult to discern which resources will deliver the most accurate and up-to-date information due to the large scope of the internet. As procurement professionals, you're going to want to know what's really occurring in the Marketing sphere. In this series, we'll provide a list of resources you can trust to deliver credible and relevant information in marketing today.

8. PepsiCo Decentralizes Their Marketing Team 
PepsiCo has recently decided to decentralize its marketing department. They have made strategic moves such as allowing each brand under PepsiCo to manage their own advertising and marketing strategies and allowing procurement to take a step back in marketing decisions. Will this shift cause the marketing team at PepsiCo to consequently acquire their own rendition of procurement skills to stay afloat? Read what Peter Portanova has to say on the topic.

9. The Decoupling Debate (Part 2): The Evolution of Decoupling Agency Services 
Decoupling occurs when the advertising department decides to disconnect the production of content from the actual agency; essentially decentralizing the work. Here, Megan Connell will unpack what decoupling is and address the ongoing conversations concerning it. This blog stands as part two of the great "Decoupling Debate" where Connell and Kathleen Jordan unwrap everything "decoupling". Read the first installment to get a better understanding of decoupling here.

10. When to Join the Social Conversation 
Whether your company is business-to-consumer or business-to-business, social media has become an essential marketing tool. While facilitating engagement is essential and sometimes involves creating content related to a trending event, it's not always the right move. It a politically and socially polarized era, businesses must tread lightly when it comes to what they broadcast. Megan Connell reviews a few aspects to consider when businesses decide to bring social media into their advertising strategy.

You can also take a look at some of our other "Greatest Hits" lists: 

Amazon’s role in the American economy continues to increase. Nearly half of all American households own an Amazon Prime membership and Amazon receives one in every two dollars that Americans spend online (ILSR). It is also predicted that in the next five years, a fifth of America’s retail market will shift to e-commerce; Amazon will capture about two thirds of that portion. Through the acquisition of several companies, such as Whole Foods and Zappos, Amazon increases its market power and diversifies the sectors it competes in.

Amazon’s present-day supply chain process is divided into four main steps: warehousing, delivery, technology and manufacturing. The warehouse and delivery process begins with a customer’s order. Once the order is processed, the warehouse is notified and the product is placed on a conveyor which is sent through the distribution center. Then, the product is matched with its order and automatically sorted. The item is later boxed and shipped. Throughout the process, various methods of technology are used to ease Amazon’s pick, pack and ship method.

However, with increased growth comes a need for Amazon to adapt its supply chain. Amazon continues to design ways to decrease delivery time and may even introduce Prime Air, a drone-based delivery system that provides 30 minute delivery. Amazon must expand its fulfilment network to accommodate for the storage and sales of products. Therefore, Amazon will hire over 6,000 employees to pack and ship orders. Amazon will also build new warehouses and fulfillment centers throughout America and integrate robots to increase the speed of shipments.

Back in March of 2012, Amazon purchased Kiva Systems for $775 million. Kiva Systems manufactured robots utilized in shipping centers. The acquisition of Kiva allowed Amazon to reduce its “click to ship” cycle from around 70 minutes to 15 minutes and saved Amazon 20% in operating costs. Similarly, Amazon recently acquired Canvas Technology, a robotics startup specializing in developing autonomous delivery of goods. Amazon also integrated Pegasus and Xanthus, two new robots which quicken operations at fulfillment centers and warehouses. These robots sort and move packages, while reducing delivery times and decreasing damages. Robots are becoming increasingly crucial in Amazon’s effort to boost the strength of its business.

Amazon’s efforts to mature their supply chain allows them to be one of the largest growing companies in America. Analysts estimate a 32.8% average yearly growth rate for Amazon over the next five years (NASDAQ). With the use of new technologies and expanding the caliber of its distribution methods, Amazon is improving its supply chain to conquer the American e-commerce market.

Lately, discussions around consumer behavior and preferences have tended toward the apocalyptic. With more and more name-brand retailers shuttering stores, many assume that the shopping mall's days are numbered. A recent study from Package Concierge, a provider of automated locker solutions, suggests these fears may be premature.

While the organization's survey confirms that shopping has evolved, it also suggests that Generation Z is far from ready to say goodbye to brick and mortar stores. Of the thousand respondents, all between the ages of 18 and 25, 60% reported visiting a mall within the last month. 90% of them used the trip as an opportunity to make an in-store purchase. That's not to say these young shoppers are beholden to tradition. In fact, they are more likely than ever to leverage non-traditional ordering and pick-up methods. Nearly two-thirds say they have taken advantage of the increasingly-popular Buy Online Pickup In-Store (BOPIS) model this month.

"The survey validates what we've known to be true," says Package Concierge founder Georgianna W. Oliver. She continues, "shopping behaviors are evolving and consumers want options that include both online and in-store experiences."

Online shopping has certainly taken a huge bite out of traditional retail. Around a quarter of survey respondents report that they shop online exclusively. It's clear, however, that the convenience of online shopping has not eliminated Gen-Z's affection for its favorite retail chains. In fact, perks like next-day shipping seem to have given young shoppers a taste for speed that only the BOPIS model can fully satisfy.

After placing an order online, around a third of survey respondents expect to receive it within a matter of hours. 8% are unwilling to wait more than a single hour. Even eCommerce giants like Amazon and Walmart cannot dependably offer this guarantee. The BOPIS model can. In addition to providing near-instant gratification, BOPIS also makes last-minute shopping effectively stress-free.

Surviving the "retail apocalypse" will mean winning over an emerging generation of shoppers, shoppers with increasingly little patience for missing inventory or slow shipments. For brands including Kohl's and Nordstrom, BOPIS options are already playing an important role in these efforts.

Models are critical for any business. They improve efficiency, they help in identifying opportunities for both process improvement and cost reduction, and that’s just a fraction of what they provide.  However, they are not a magic bullet. Misused, they can easily lead to bad decisions.  In my experience,they are most often misused when outputs are treated as gospel and not questioned thoroughly enough.  For example, Bayesian models (while fairly predictive) struggle with outliers because they expect regression towards the mean.  An example of this flaw can be seen in sports analysis.  Someone looking at Bayesian hockey models would look at someone like Alex Ovechkin who has a career shooting percentage of 12.6% and say that they expect him to regress to the league average of under 10%. This would mean predicting he would score almost 200 fewer goals over his career (If that were the case he would’ve landed at number 52 on the all-time goals list rather than number 13).  Such a prediction doesn’t take into account that Alex Ovechkin is a particularly skilled shooter and that he can sustain a higher than average shooting percentage.  Most good hockey analysts are aware of the flaws in their Bayesian models, but not all.  In fact, this lead to debates in the early days of hockey analytics on whether or not Alex Ovechkin is good at hockey. Even casual fans know this debate is ridiculous.

Now that you understand a bit about why it’s important to understand the flaws in your models, let’s look at an example that I’ve encountered repeatedly in the business world.

Business Example

You work for a $10M custom manufacturing company that uses a costing model that normalizes your costs as a % of revenue based on assumptions of the costs needed to operate a $12M company.  Your company is currently operating at about 5% EBITA ($500K).

A potential customer comes to you with a $5M opportunity and provides you with a target price to win the business. They also provide you with a schedule which confirms that they’ll place two orders per month (24 times per year).  Of course you’re thrilled at the opportunity and get started on designing the product, sourcing materials, running labor calculations, etc… You get all the information together and enter your top-line costs into your pricing model. Ultimately, you’re disappointed because it shows that you can’t take on the business as the model shows an EBITA of negative $100K and you turn down the opportunity.

The above model is wrong.  Had you known the flaws of your model you’d be able to make adjustments to the bottom line and not turn down the opportunity.  For the sake of simplicity, let’s assume top-line costs were manually entered and are correct.

Let’s breakdown some of the issues with the above model output and create a more correct income statement

1. The model normalizes costs using percentages for operating a $12M company.  This project would make your company a $15M company, so right away the costing structure is going to be different as your fixed costs are now spread out over a larger amount of revenue (i.e. your fixed costs are a smaller % than they appear above).

2. In terms of admin costs this is not a very intensive project, yet the model is saying that this project is going to cost you $50K in admin costs.  That’s probably close to 1/3 of your rolled up admin costs for the entire year.  This business only requires 24 orders per year and it costs your business roughly $150 to process an order, so the reality is that your admin cost is much closer to $3.6K (big difference).  There’s no need to spread that non-realistic $50K cost into this project and price yourself out of the opportunity.

3. Selling cost is normalized at 6% here so we’re looking at $300K in cost.  $300K in cost is basically saying 2 Sales Managers spending 100% of their time on this project + travel expenses, etc… That’s pretty ridiculous and there’s no way you should put that level of cost here.  Let’s look at a more realistic breakdown (leaning towards the high side of cost to be safe) of the costs, which end up being closer to $100K.
                  a. Sales Manager 20% = $30,000
                  b. Sales Director 20% = $50,000
                  c. Travel Expenses = $10,000
                  d. CSR 10% = $7,500
                  e. Total = $97,500

4. Finally, you do an in-depth analysis of the manufacturing costs including preventative maintenance and repair of the equipment + the amount of time indirect labor will spend on this, etc… and you come up with a fairly conservative estimate of $600K (which is actually what would happen if you spread the costs over $15M instead of $12M). 

Now that we’ve gone through the real costs for this project let’s look at the new estimated income statement

As you can see our projected EBITA has gone up from -$100K all the way up to roughly +$300K.  That is massive as it will increase your company’s revenue by 50% while increasing your EBITA by 60%.  Had you followed the financial model blindly, that decision would’ve cost your business $300K in EBITA.

Professionals will often lean on their models as it’s both easier and safer, but the costs of not understanding their potential and how to leverage models correctly can cost you significant money.  So make sure that when you implement a model in your business you are able to adequately train employees not only on how to use it, but on how to understand the inputs and outputs and how the model might be flawed.