Charles' Purchasing Certification Blog

My Blog Program Ate My Post

2010-03-16T16:27:00.002-05:00

Sorry, folks. No blog today.

I had a great one typed up on why strategic procurement initiatives stall. I hit "Publish Post" and it failed.

Now my account usually saves as I go. I thought it was doing so.

But it wasn't. And over half of my post is gone.

I've told myself before to type my long posts in Word. And I've been reminded why.

I'll write it again. Not tomorrow, of course, because it's Whitepaper Wednesday.

But sometime in the next week or so (I have a few other things on the blog calendar to get to on certain days).

Stay tuned. It will be worth it, I promise!

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Is Supply Excellence Going To Call It A Day?

2010-03-15T09:52:00.002-05:00

If you've been watching the blogs in the procurement space, you've likely noticed that the once-religious daily posting that had been happening at Supply Excellence had started to slow down noticeably. In fact, last month, Jason Busch at Spend Matters went as far as pondering "And what of Supply Excellence? Is it time to bury Ariba's final ode to supply management as they double-down in other marketing and category-rich content areas?"

While I personally hoped that Supply Excellence was just taking one of the common "pauses" that bloggers take - it is difficult to come up with new material daily and, with any self-respect, a good blogger would rather post nothing rather than something useless - it appears now that Ariba is seriously considering closing the curtain on Supply Excellence. In a post launched earlier this month, Ariba is seeking feedback on whether or not Supply Excellence should continue to exist in the shadow of their new community that I reported on last year: Ariba Exchange.

Ariba's Online Community Manager, Justin Fogarty, writes: "It’s important to ask if a stand alone blog is still the best way to harness the collective knowledge of a group...I can truly say that the goals [of Ariba Exchange] - facilitating communication and collaboration - overlap with the original objectives of Supply Excellence. However, from an engagement standpoint, we believe the tools, scale and egalitarian playing field of Ariba Exchange better leverages the collective expertise of our customers and subject matter experts."

In closing, Justin asks "Is a blog still an effective platform for addressing spend management questions?" Clearly, Ariba feels that a blog isn't giving them the bang for the buck that they need to continue Supply Excellence and they are probably seeking feedback just in case someone has something to say that makes them realize a mistake before it is made.

So if you feel strongly one way or the other about the continuation of Supply Excellence, I encourage you to read the "should we bother?" post and share your feedback.

My prediction? Ariba has made up its mind and Supply Excellence will never be a daily blog again and will be pretty much abandoned save for perhaps teasers for their lead generation content.

There are only so many resources an organization can spend on connecting with current and prospective clients and Ariba Exchange is so impressive, I can't see Ariba not putting the pedal-to-the-metal to make it everything it has the potential to be.

I may be right. I may be wrong. Time will tell.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

ISM Reports Shrinking By Nearly A Third In The Past Two Years

2010-03-12T10:01:00.003-05:00

Earlier this month, the Institute for Supply Management released its annual report, which detailed its financial performance over its most recently-concluded fiscal year. The report revealed that:

"ISM realized gross revenues of $12,399,099." This represents a 32% decline from two years ago.
"ISM’s personnel budget was reduced by 30 percent over the past year" and ISM sustained a "nearly 20 percent reduction in headquarters staff"
ISM's expenses far exceeded its revenues "resulting in a negative net of $2,122,489 for the fiscal year." This is the second year in a row that ISM had sustained a huge loss, as it had a negative net of $2,252,918 in its previous fiscal year.
"As a result of the transition to a recertification-only program, the fiscal year proved to be very strong for Certified Purchasing Manager (C.P.M.) certifications." With the C.P.M. exam no longer being available, this portion of ISM's revenue will obviously not be available for future years. However, the annual report did not provide an estimate as to the degree of additional net shrinkage, if any, the institute would experience as a result in the immediate future.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Whitepaper Wednesday - The Importance of Supplier Viability

2010-03-10T09:51:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Preventing Supply Disruption:
Supplier Viability and the Threat to Your Business" from Crowe Horwath and Industry Week.

For reasons that I cannot yet reveal, I was particularly excited to review this whitepaper. I thought that perhaps there would be magical things that could be learned about how a procurement professional can assess supplier viability and mitigate the risks of doing business with a financially distressed supplier.

Do you think that I found the "magic?"

I'll save that conclusion for the end. First, I'll go into the review.

The whitepaper started out by really hitting some key points about the importance of supplier viability. It did a nice job of dichotomizing traditional supplier management strategies against supplier viability assessments, characterizing the former as activities done after-the-fact and the latter as "forward-looking." I agree.

The whitepaper also touched on the personal aspects of managing a supply base. That is rarely done and was a nice touch. Specifically, it pointed out that top management can be unforgiving when an organization faces a major problem that arose from your realm of responsibility and that the "inevitable question is, 'Why didn’t you do something about it?'...Being caught in a situation where the organization is surprised can be career damaging to the one overseeing the
supply base."

Again, very welcome points. But, after getting through about six pages that pounded and pounded and pounded the fact that supplier viability is a big problem, I began to get suspicious that this was going to be more of a salesy whitepaper than an educational one.

Was I right?

Well, the seventh page gave me a bit of hope in the way that it described the characteristics of any solution that will be successful at mitigating the risk of supplier solvency problems. Those characteristics indicated that such a solution:

"Must rely on the most current data in order to assess potential supplier risk"
"Must assure participating suppliers of the confidentiality of their raw data, while still enabling their customers to accurately assess their financial, strategic, and operational position"
"Must employ a highly visible and intuitive interface that enables customers to recognize supplier risk immediately, while also suggesting possible mitigation strategies"
"Must enable sophisticated and in-depth analysis of supplier financial and operational health, drawing on proven and experienced analysts with significant relevant experience in the applicable industry"
"Must provide early and accurate identification of supplier vulnerability, and must also offer tools that enable identification and tracking of effective solutions to address the company’s and their suppliers’ problems"

While the first two bulletpoints were encouraging and applicable to a procurement department that wanted to handle supplier financial analysis itself, the remaining bullets made it clear that the sales pitch wasn't far behind. And it wasn't.

The last half of the whitepaper talked about the methodology that Crowe Horwath uses to assess supplier financial risk for its clients. While salesy stuff in whitepapers is usually a turnoff for me, I was actually surprised and impressed that Crowe Horwath gave away so much detail about how it conducts its services. The "salesy" segments as I've called them actually provide some good insight into how to assess and mitigate supplier financial risk.

So, I wouldn't recommend letting the salesy stuff dissuade you from downloading the whitepaper. There was no "magic" - you won't even learn how to calculate a supplier's current ratio or anything like that - but you may get some ideas regarding how to structure a supplier financial assessment process. You can download the whitepaper from Industry Week's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

For Suppliers, Sourcing Problems Are Like Dating Problems

2010-03-08T14:12:00.004-05:00

I hope that you have enjoyed the article "Sourcing Problems In A Slow Economy."

As I thought about the reasons that suppliers are refusing to play the strategic sourcing game, I couldn't help but think that, to suppliers, sourcing problems are like dating problems.

What do I mean?

Well, imagine this...

You are invited on a date with an attractive individual one weekend. Your date suggests some activities that are rather expensive but, hey, this is really someone you'd like to know better so you agree to pay.

You enjoy a promising conversation and you think you put on your best behavior, giving you hope that another date will be likely. In fact, the date went better than any you've ever been on. You are excited that you and your date agree to speak again.

The next weekend, you call your date. No answer, so you leave a message.

Two days later, still no response. So you send an email.

You wait a little while without hearing back. You try texting a request for another date.

Maybe then, you get a "Well, I have a few things going on right now. Maybe in a couple weeks."

So, you call back in two weeks. No response again.

The cycle continues for months - after all, your date was attractive! - and then, finally, you get an email from your date. It says something like "Thank you for your time. But I'm dating someone else now."

At that point, you just want to know what went wrong. You felt you really put your best foot forward. And you spent a lot of money on the date, so you feel that you deserve some type of feedback.

So, you ask your date for a couple minutes just to learn why there was no "love connection." Your date says "someone else was a better match for my needs" but refuses to say anything specific.

Was it your style of dress?

Did you say something offensive?

Did you have broccoli in your teeth?

You'll never know!

And just like many single people get tired of these dating games, suppliers get tired of these sourcing games. Especially when they've invested hundreds of man-hours to complete a 50-page proposal to comply with the requirements of the RFP (half of which didn't apply to the situation and were never read by the buying organization anyway).

If someone wants to attract self-respecting dates, they have to exercise a little bit of dating etiquette. And if an organization wants to attract self-respecting suppliers, they too have to exercise a little bit of sourcing etiquette.

Is it time for you to do a little self-evaluation of your sourcing etiquette?

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Four Words To Say That Might Avoid A Supplier Relationship Disaster

2010-03-05T14:45:00.003-05:00

Businesses mess up from time to time. Even the good ones. Especially your suppliers.

Supplier screw-ups can really be frustrating for a purchasing professional. And when something goes wrong, you may come close to losing your temper and doing something you'd later regret.

I was reminded of this when reading today's American Entrepreneur blog entry entitled "Count To Ten." The author, Ron Morris, tells a humorous story about how, in a fit of frustration, he once mailed a nasty letter to a prospective client only to have the recipient call on the day that the letter was due to arrive and tell Mr. Morris that the prospective client was going to accept Mr. Morris' sales proposal.

The lesson of the blog was to keep your emotions in check by utilizing resources of time and counsel. Morris writes, "Time will help you to purge your emotions. A good partner or confidante can also do the same thing, and in fact can do it in 'real time' by taking you by the elbow and whispering in your ear 'You’re letting your heart make a brain-type decision here.'"

Of course, in a purchasing-intensive career like my own, I've had to restrain myself from berating suppliers more than once (or a thousand times). A technique I always like to do is to call the supplier, explain the problem, and ask a four-word question.

What are those four words?

How did this happen?

Many times when asking this question, I've found that the problem was caused by my own company, a reasonable misunderstanding, or even, gulp, me. In those cases, if I would have acted on emotion, I would have embarrassed myself for blaming the supplier for something that was not the supplier's fault. In the worst case scenario, making that mistake could have spelled the end of a profitable supplier relationship.

So, I encourage you to use those four words to help you avoid a supplier relationship disaster.

How Could There Possibly Be A Parallel Between Procurement & Celebrity Fashion?

2010-03-04T16:33:00.004-05:00

There are a few interesting differences between how a small-to-midsize business handles procurement and how a large business handles procurement. One of them is that large business procurement middle managers tend to be a little more paranoid about selecting small, less expensive suppliers.

There's a lot of political pressure on a procurement middle manager in a large company. If they take a risk on a small supplier and it doesn't work out, many of that manager's peers will think "How could s/he have been dumb enough to go with that small, unknown supplier when we could have gone with the big boys?"

Unfortunately, this mindset prevents big companies from achieving all of the cost savings that are available to them. It reminds me of an old expression that produces that nails-on-the-chalkboard reaction from me: "Nobody ever was fired for buying IBM" or something like that.

Celebrity fashion has a parallel, believe it or not. Celebrities feel so much pressure to buy expensive clothes due to the fear of embarrasment that would overcome them if they were spotted in clothes that the rest of us wear (gasp!).

That being said, I was pleasantly surprised to come across the below video showing celebrities wearing some threads that are available in the malls that "the rest of us" shop at.

If celebrities can get over their fear of embarrassment by opening themselves up to a wider variety of sources (yet still making smart decisions), don't ya think that procurement middle managers can do the same?

Whitepaper Wednesday - Spend Analysis vs. ERP

2010-03-03T09:54:00.003-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "Spend Analysis –
It’s what you don’t know that costs you (Part I)" from Iasta and Purchasing Magazine.

Considering that this whitepaper is 23 pages long and it is a "Part I" of an undeclared number of parts, Iasta appears to be trying to teach everything there is to know about spend analysis. Because they sell spend analysis software, that's obviously a good thing for Iasta. But it's also a good thing for you because, judging by this whitepaper, Iasta is providing some valuable, easy-to-read material that is focused on true purchasing education and not on pimping their software.

While this whitepaper covers a variety of topics, I found particular value in the sections contrasting doing spend analysis with a best-of-breed spend analysis system compared with using an ERP system. The whitepaper correctly points out that, because of the way that data is entered, ERP systems are rife with incomplete data, duplicated vendors, poorly categorized purchases, and more problems that, without the data cleansing capabilities of a true spend analysis system, significantly impair a purchasing department's ability to access the information that could drive cost savings decisions.

One of my favorite quotes from this section of the whitepaper is: "A good ERP system does allow those requisitioning products to assign category codes but in many cases the requisitioner is not familiar with the coding structure, especially from a Spend Analysis perspective. Very often people do not take time to search for the correct code because they do not understand the importance. As a result the data is incorrectly tagged with the infamous '9999 – Miscellaneous' category."

I definitely know what they are talking about here. In this type of situation, it would be easy for a purchasing department to understate its volume when compiling its RFP and, thus, fall short of comprehensively leveraging its spend.

Further illustrating Iasta's grasp of real-world problems with relying solely on ERP systems for sourcing information is this paragraph:

"When a payment is recorded in the ERP system, it contains the vendor name, the organizational unit responsible and the general ledger (GL) code against which the spending is booked. The GL codes are designed to support the accounting function, not the procurement function. These codes are heavily regulated by the authorities. For example, when a bank buys a printer from HP, the procurement group wants to link it with all other printers bought by the bank. However, the accounting for this printer will vary depending on how it is used, and on specific accounting rules that may apply. Two hundred printers bought at once would generally be considered capital goods in one set of accounts, but the same printer, bought as a single item, might be expensed. This means that the spending for a single commodity can be scattered across the balance sheet."

The whitepaper goes on to discuss other spend analysis challenges from data in the ERP system being unchangeable after accounting periods have ended to political battles between purchasing and IT departments. Again, all very real-world stuff.

So, as you may imagine, I recommend downloading the whitepaper if you are thinking that the data you can get out of your ERP system is inadequate for what you want to accomplish. You can get your own copy of this whitepaper from Purchasing Magazine's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

The Questions To Ask Yourself When Buying Procurement Services & Technology

2010-03-02T16:06:00.006-05:00

When buying procurement services and technology (e.g., sourcing software, consulting services, etc.), it is all too easy to get sucked into the "customization trap." The customization trap is what happens when you think that there is no other organization in the world that remotely resembles yours and that you need a software built or a service performed in a way that deviates from the way that the vendor builds the software or performs the service for every single one of its other customers.

The customization trap often leads to processes that take too long to implement or cost too much. How can you avoid this?

I like to defer to a few questions:

"What is the worst consequence that could happen if I bought the standard version of the service or technology?"
"How much would that consequence cost my organization?"
"Is the cost of the customization greater than the cost of the consequence?"
"What really is the goal here and how much more does a customization contribute to the achievement of that goal?"
"If customization wasn't possible, what would happen?"

Objectively, many of the customizations that are insisted on really aren't necessary. So, if you are tempted to customize the procurement services and technologies you're buying, I encourage you to really scrutinize whether they are must-haves or just nice-to-haves.

Because they do come at a cost. A cost in money and a cost in time.

Are they really worth it? Maybe.

But use today's questions to verify that they are.

You'll Never Guess Who Has A Sophisticated Supply Chain

2010-03-01T10:02:00.003-05:00

I'm a sucker for provocative headlines. So when I saw the headline "Drug gangs taking over US public lands" on Comcast's Web site today, I just had to check out the article.

While I expected to be shocked with the details of the story, I was a bit surprised that the story discussed the sophistication of the marijuana supply chain. To illustrate this point, here are some excerpts with associated supply chain principles in parentheses:

"Mexican drug gangs are quietly commandeering U.S. public land to grow millions of marijuana plants and using smuggled immigrants to cultivate them...Growing marijuana in the U.S. saves traffickers the risk and expense of smuggling their product across the border and allows gangs to produce their crops closer to local markets." (Consider logistics risks when designing or redesigning your supply chain)
"Distribution also becomes less risky. Once the marijuana is harvested and dried on the hidden farms, drug gangs can drive it to major cities, where it is distributed to street dealers and sold along with pot that was grown in Mexico." (There are usually multiple modes of transportation available - choose the best one)
"When the harvest is complete, investigators say, pot farm workers haul the product in garbage bags to dropoff points that are usually the same places where they get resupplied with food and fuel." (Identify synergies in inbound and outbound logistics)
"Vast amounts of pot are still smuggled into the U.S. from Mexico. Federal officials report nearly daily hauls of several hundred to several thousand pounds seized along the border. But drug agents say the boom in domestic growing is a sign of diversification by traffickers." (Geographically diversify your sources of supply to mitigate risks)

You gotta wonder if these Mexican drug gangs have a Chief Supply Chain Officer. Because drugs continue to be a big problem in the USA, he or she seems to be doing a good job for his or her employer. Everyone - neighborhood residents, drug users, and even the press - seems to know where drugs are being bought and sold except law enforcement.

That's baffling.

Purchasing Magazine's Take On The Latest Technology, Part 2

2010-02-26T11:00:00.002-05:00

Yesterday, I posted a mini-review of Purchasing Magazine's latest cover story, "Purchasing 3.0." In that review, I shared my encouragement that, after 10 years of Next Level Purchasing carrying the torch, purchasing professionals were finally embracing project management technology as a means of improving purchasing performance.

Today, I simply wanted to point out Purchasing's inclusion in the article of "Five bells and whistles the average buyer doesn't use in MS Excel." Next Level Purchasing was asked to contribute this piece to the article and we were delighted that they used our input.

Those five "bells and whistles" are:

The larger capacity of newer versions of Excel
Filters
PivotTables
Goal Seek
Conditional Formatting

If you want to know what all of these things are, be sure to check out the Purchasing 3.0 article. And if you want to know HOW to use these tools, you may want to consider enrolling in Next Level Purchasing's online class "Microsoft Excel For Purchasing Professionals."

Purchasing Magazine's Take On The Latest Technology, Part 1

2010-02-25T09:51:00.004-05:00

Purchasing Magazine this month published a cover article entitled "Purchasing 3.0" which discussed how today's purchasing professionals are utilizing technology to be more effective.

This article is thought provoking on several levels. I'll be posting a two-part series on some of the positive points that I found in the article. I also encourage you to check out Michael Lamoureux's scathing review of the article on Sourcing Innovation for a different view point.

So, today, I just want to highlight how the article encourages the use of Microsoft Project. Next Level Purchasing offers an online course called "Microsoft Project For Purchasing Professionals." While many procurement leaders know the value of expertly managing a project, we still occasionally hear from our potential clients "We won't enroll in that class because we don't use Microsoft Project."

Well, I also say: "You don't use Microsoft Project, but should you be using it?" After all, it only helps coordinate the work of cross-functional teams, increases the probability that projects will be completed on-time and under budget, and provides management visibility into the progress of a large project with many "moving parts," among other things.

Here's an excerpt from the article where Jim Adkins, VP of Sourcing and Supply Chain for Bobcat, describes the value that Microsoft Project has brought to his organization:

Adkins says one easy-to-learn software package that many procurement
departments could benefit from but often overlook is Microsoft's Project
application. As procurement gets more involved in cross-functional teams
and programs - serving as the facilitator in many cases - leveraging some kind
of project management system can pay off in spades.
"After 15 years of program management in the U.S. Air Force, I learned the
value of project management and the value of the right project tracking tool,"
Adkins says. "Whether it's a savings project, running a bid project or
even new product development project, you have to know what your critical path
elements are and using these tools can help track that."
In fact, Adkins feels the people that are really good at sourcing are often
those with the strongest project management skills, and using the right tool
"puts rigor to the process. I have been transitioning our organization in
the last couple years and those are the kinds of tools it takes to drive
change."

It is always refreshing to me when I encounter someone who "gets it" with regard to the importance of project management, and the use of project management tools, in procurement. We started offering "Microsoft Project For Purchasing Professionals" in 2001. Here in 2010, people are finally starting to catch up.

Part 2 coming soon!

Whitepaper Wednesday - Supply Chain Design

2010-02-24T16:20:00.003-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Supply Chain Design:
Optimizing Your Supply Chain for Bottom-Line Results" from Fortna and Purchasing Magazine.

Some whitepapers give solutions. Others simply give you things to think about. This whitepaper falls into the latter category.

Some of those "things to think about" include these questions for those designing or redesigning their supply chains:

What is the optimal flow of goods from suppliers to our customers?
What are the optimum number, location, and types of facilities needed throughout the network to meet service targets at minimal cost and tax burden?
What capabilities must our facilities have, who will manage them, and what expectations do we have for performance?
Where are our opportunities for improvement in costs, tax reduction, and asset utilization, and what investments will need to be made?

Now, don't get me wrong - these are questions that you absolutely should ask. But the whitepapers that I've always found most valuable were those that gave guidance on how to answer those questions.

No answers here.

And, actually, the whitepaper turns into more of a brochure with the last 2-1/2 of its 7 pages dedicated to introducing you to Fortna's capabilities. While the whitepaper does serve to show that Fortna understands the challenges of designing an optimized supply chain, they do hold their solutions quite close to the vest in this document. Nonetheless, if you care to download your own copy and form your own opinion, you may do so from Purchasing Magazine's Web site (registration required).

Payment Terms & Their Effect On Your Vendors

2010-02-22T16:22:00.003-05:00

I hope that you have enjoyed the article "Revisiting Vendor Payment Terms: It's Time!"

I was inspired to write this article because I see a lot of procurement departments unilaterally changing their payment terms with their vendors. Some are doing this because they need to hold onto their cash longer or else they will become victims of the recession and become insolvent.

However, other procurement departments are doing it because 60- or 90-day terms have become "the new normal." Net 30 is so 2007 to them. And if everyone else is beating up their vendors, they don't want to look like the laggards who still have net 30 terms.

As expressed in the article, extending payment terms without the desperate need to do so when many vendors are struggling financially can result in some self-inflicted wounds on your own organization. If you absolutely have to extend payment terms to survive, then do so. But be aware of how this impacts your vendors. Though many talk about the economy improving, the credit crisis is far from over. Consider these excerpts from an article entitled "What To Do When The Bank Pulls Your Line of Credit" in this month's issue of Entrepreneur Magazine:

"Banks...want to support local business but know that state and federal regulators will come in to evaluate their loan portfolios. In the name of making banks better, they are being forced to turn down loans because of collateral or credit scores they would have accepted previously."
"Many economists predict little easing of business credit until sometime in 2011."
And in a case study, the magazine points out the plight of a small business owner who used to depend on a line of credit when customers didn't pay on time. That line of credit has since been pulled: "Like many small business owners, [Ryan Weber, owner of Radiant Photography] depends on timely payments from clients to pay his own bills. But in this economy, invoices are stretching to 60 days or longer. 'My wife and I are paying the mortgage on our home and making payments on one car,' Weber says, 'and we have a 6-month-old daughter. Some months, I received $5,000 from a single commercial client; other months I'm lucky to get two checks from magazines for $400 each. It's very stressful trying to meet our monthly costs with no backup funding.'"

So, if you're thinking about extending your payment terms, I hope that you consider the effect doing so will have on your vendors. And, I hope that you also consider negotiating discounts for early payment as an alternative to extending payment terms.

In this economy, many vendors are glad to give you a discount if you will just get them their money quickly!

Procurement Compliance Problems? Try This Time-Tested Tool

2010-02-19T15:11:00.002-05:00

I'm not sure why it is, but people generally hate to fill out forms. They hate it so badly, that they would rather follow a corporate policy that they don't like than fill out a form.

An internal customer wants to buy an item from a supplier other than the contracted supplier of that item? Fill out a form.

An internal customer wants to submit an invoice for work that has already been completed instead of placing a purchase order? Fill out a form.

An internal customer wants to meet with a prospective supplier without a representative from the procurement department present? Fill out a form.

Forms are time-tested tools for compliance. The principle is that you want to make the wrong action feel more painful than the right action. Forms can do that for you.

And I'm not talking those convenient online forms. I'm talking old-school paper forms that require a real signature.

Use forms and watch your compliance improve!

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Is A State of Emergency A License For Bad Purchasing?

2010-02-18T11:16:00.002-05:00

We have been hammered with snow here in Pittsburgh - 40 inches in about 12 days with no thaw - which has caused all kinds of problems. Actually, I am typing this right now from my home because my roof is leaking in three different places and I am afraid to leave the house.

The problems with this snow have forced Pittsburgh City Council to declare a state of emergency. I'm not sure what all this means, but according to today's Pittsburgh Post-Gazette, "the declaration...suspends competitive-bidding requirements. It allowed Public Works Director Robert Kaczorowski to hire Wood Waste Recycling and B & R Contractors, which together were expected to deploy around 12 additional pieces of heavy equipment. The goals of those crews and the city's 50-plus snow-clearing trucks were to widen the drivable portions of main roads, clear snow from areas around schools, remove snow heaps from business districts, clear access to on-street parking areas and get some mounds out of residential neighborhoods."

So, in other words, the jobs are important, but not so urgent that the supplier selection couldn't wait a half-day. The roads are driveable and safe. There just needs to be a little cleanup for convenience sake.

OK. Now I understand that you wouldn't want to do a 3-month sourcing process in a state of emergency. But why do competitive bidding requirements have to be completely waived? Couldn't the city ask for a few quotes for comparison sake? If Wood Waste Recycling and B & R Contractors are aware that they are hired without having their pricing benchmarked, don't you think that they are going to charge quite hefty fees?

I think that there can be a happy medium between government-style strict competitive bidding and selecting whatever contractor you want. There should be a quick bid process that isn't as long or as stringent as a typical bid process, but that at least ensures that the city's taxpayers aren't being overly gouged.

Now, if you'll excuse me, I have to check on those leaks...

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Whitepaper Wednesday - Taking Control of Supplier Shipments

2010-02-17T10:41:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Identifying Opportunities With Your Inbound Transportation" from C. H. Robinson Worldwide Inc. and Purchasing Magazine.

I admit to being attracted to the topic of this whitepaper because assessing cost savings opportunities for inbound freight was a goal when I was first hired by the University of Pittsburgh but quickly was replaced by more aggressive goals. Still, I always wondered what degree of cost savings we would have achieved had this remained on our radar.

Certainly any organization that allows suppliers to control inbound freight costs is leaving money on the table because, as the whitepaper points out, "when you add inbound lanes to outbound, you increase freight volumes, making your business more attractive to carriers at potentially lower rates" and "to hedge for unknown costs, suppliers often factor in a margin of error in your delivered price for inbound product." Heck, even if your suppliers are simply billing you for what they paid the carrier, there really isn't an incentive for the suppliers to ensure the cost-effectiveness of the shipping decisions.

Despite the fact that these types of opportunities are blatantly ignored by many procurement departments, those are basic ideas. But the whitepaper begins to explore more advanced logistics topics such as optimizing shipments. For example, the whitepaper says "Individual orders can be optimized and grouped together across facilities to create multi-pick, single drop shipments. LTL loads from multiple suppliers can be consolidated into a single truckload to reduce costs and dock congestion."

The whitepaper offers some tips for getting started, although they seem to be intentionally too vague in order for you to want to hire the firm that authored this whitepaper. Nonetheless, if you were in the position that I was in (albeit briefly), where you have to begin investigating getting inbound freight costs under control, the whitepaper is at least worth looking at. You can download your own copy for free from Purchasing Magazine's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

Reverse Auctions on the Cheap

2010-02-16T10:10:00.002-05:00

Yesterday, a guest blogger on Spend Matters posted a step-by-step method for conducting a electronic reverse auction - actually, I would consider it more of an online negotiation - without buying any new software. This individual described how he had suppliers set up chat accounts, had suppliers submit bids via a private chat session with him, and manually used chat and copy-and-paste techniques to provide feedback on supplier rank until the auction ended.

You can read about it for yourself. But what was described bordered so much on the ridiculous that I had to check the calendar to see if it was April Fools Day knowing that Jason loves to play tricks on that day.

Monitoring six different small chat windows, manually calculating bidder rank in Excel, and having bidders wait for you to tell them which place they were in all as more bids are coming in by the second? Sounds quite labor intensive and ripe for errors to me!

Having said that, I will admit to having been "creative" with reverse auctions for a previous employer when there wasn't budget to invest in a system (and before free and low-cost systems like WhyAbe and Ketera's solution were available). Here's what I did...

I set up a discussion board on a free discussion board service. I then had suppliers set up accounts on the discussion board, making sure that they gave themselves usernames that would not serve to identify them to their competition.

During a predetermined time period, bidders were to submit bids on the discussion board. They could see each other's bids, so that they would know whether they had to revise their bid to be more competitive.

It worked reasonably well. We ended up paying about 12% less than the previous year's price where such previous year's price also happened to be slightly lower than where the bidding started. And the other advantage was that we didn't have to pay for any software or external services.

There were disadvantages, though. These included:

The supplier responses were sorted from most recent to oldest. So, if a bidder submitted a higher price than the low bid, the most recent price appeared on top and seemed to be the lowest bid, which was kind of confusing.
The discussion board did not automatically refresh, so the suppliers had to continually hit the refresh button on their browsers to see low bids.
The discussion board was free, which meant that it was supported by advertisements. One of the banner ads blinked "Winner" on it during the auction. Of course, it was advertising something unrelated to the auction. How embarrassing!
The discussion board did not allow us to limit the time period for bidding. We had to limit it by "the rules." A bid did come in after the deadline in the rules. We disqualified that bid and accepted the lowest bid that conformed to the time period in the rules. The disqualified bidder wasn't happy.
The discussion board did not display the "official time" prior to bidding. Bidders only knew the time that their bid was submitted after it was posted.

So, though it was successful, I can't say that this approach to a reverse auction was the classiest representation of me in my purchasing career. With the tools available today, I would never consider doing something like that again, much less the 6-way chat approach described on Spend Matters.

Nonetheless, I think it is fun to think about these types of out-of-the-box approaches in purchasing. You never know when you may come up with an effective and less expensive approach to delivering results for your organization.

Is The Age Old Argument In Purchasing Going To Be Resurfacing Again?

2010-02-12T16:25:00.003-05:00

For as long as I can remember, there have been debates about what the purchasing profession should be called. Is it purchasing? Procurement? Supply management? Supply chain management? Acquisition? Spend management? Sourcing? Yada, yada, yada.

Signs are that this debate may heat up again. Spend Matters reported that "Ariba appears to have moved entirely away from its 'Spend Management' positioning of old." On its blog "The Optimum," Ariba competitor Emptoris explains why it feels "Strategic Supply Management" is the perfect term. Certainly other vendors in the space will fumble for the perfect term, too, as these giants rejigger their terminology.

The bottom line is this: these vendors will try to come up with a name that (a) differentiates themselves from the competition and (b) gets the attention of who they are selling to. For example, Ariba's "Spend Management" clearly targeted Chief Financial Officers whose top priority is spending. Very few people actually responsible for sourcing, establishing contracts, and managing relationships with suppliers actually refer to their profession as spend management. Ariba surely knows this, but likely doesn't care as long as their marketing position is optimized.

So, the bottom line is that, irrespective of what tech vendors decide - even though some of them do grasp the advanced nature of procurement's future - it is unlikely to widely change what our profession is called though it may spark some lively debate. I don't see an end in sight to this discussion...

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

If You Think The Procurement Certification Space Hasn't Changed Much Since 2003, You're Pretty Much Clueless

2010-02-11T13:33:00.002-05:00

As you probably know, the phrase "his/her head is buried in the sand" means that someone is clueless to the environment around them. Though the ostrich is blamed for being the clueless animal who inspired this phrase, from what I've read online, it appears that ostriches burying their heads in the sand is a myth.

I think that the real culprit is Human Resources departments responsible for writing procurement job descriptions.

Why?

Well, there have been so many changes in the procurement certification space since 2003. New certifications have been launched, older certifications are no longer available. Yet some procurement job advertisements still state a preference for candidates with certifications that are no longer attainable.

That's a bit of a problem for those organizations. How can they compete in today's tough business environment if they are recruiting procurement professionals who had qualifications that were adequate in the 1990's?

To help those in the profession keep up with the changes of the past several years, I was recently tapped by Supply & Demand Chain Executive Magazine to write their current issue's cover story, "Certification Update: The Costs and Benefits of Getting Certified."

Now, I may be biased. But I think that this article thoroughly covers most of the crazy changes in the procurement profession since 2003. So, I recommend checking out the article just to make sure you are up-to-speed on the latest and greatest in the procurement certification space.
Though the ostriches would love the acquittal, you wouldn't want procurement professionals to be cited as the source of inspiration for the phrase "his/her head is buried in the sand," would you?

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Whitepaper Wednesday - Decision-Making For Leaders

2010-02-10T13:15:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I will be reviewing a whitepaper entitled "Making Decisions" from IdeaBridge.

Like previous IdeaBridge whitepapers that I've reviewed (here and here), this whitepaper is comprised of very powerful bullet points designed to inspire leaders to improve their leadership. I personally found many of these bullet points helpful and I am confident that you will, too.

Here are a few items that I felt were worth repeating:

"Once you come to a responsible decision, carry it out without hesitation or timidity. Timidity is not born of healthy caution, but is the stepchild of fear."
"You are almost always better off with a 'nearly-right' strategy today, than a 'perfectly-right' strategy a year from now. Whichever strategy you pursue will involve mid-course adjustments. Leaders must learn to get comfortable taking action with a 60-70% plan, knowing that they will have inevitable adjustments along the way."
"Most business ventures take at least twice as long, cost twice as much and bring twice the problems of your most conservative estimates. Further, you’ll be lucky to achieve even half the profit you projected in your worst-case scenario. Knowing this, if the venture still looks good, go for it."
"The more you drive for decisions, and find yourself making those decisions instead of your senior team, the less powerful they will feel and the more frustrated you will become. You must drive them to decisions. Lay out the values and business philosophy of the company and demand that all decisions be made within that context. Then, let them make decisions; those who can’t, or won’t, must go."
"At some point you will have to call your team in and say, 'This is what we’re going to do. The debating and challenging is now over. We’re now going to execute and get there as fast as we can. And you’re responsible and wholly accountable for making this happen in record time.'"

Actually, any of the bullet points in this whitepaper would be worth repeating now that I think of it. So, if you are a leader who wants to get better - or if you are a non-leader who aspires to become a leader - I recommend downloading this whitepaper and soaking up its inspiration. You can download it for free from IdeaBridge's Web site.

Ethics in Purchasing: Is Being Ethical Really That Difficult?

2010-02-09T10:28:00.003-05:00

I hope that you have enjoyed the article "Purchasing Ethics: 7 Sensitive Situations."

In that article, I describe seven situations that may result in internal customers questioning your ethics. Yet I also write "that is not to say that all of these circumstances are inherently unethical."

So what do I mean?

Can it actually be ethical to be involved in these situations?

I mean, after all, shouldn't it be pretty clear how one can comply with ethics if they avoid these situations?

Well, avoiding these situations will keep you out of trouble, for sure. But there is a challenge when avoiding these situations may be doing a disservice to your company.

Take for example the first situation: "A purchasing team member accepted a gift - perhaps even a low-value item like a pen - from a supplier." Sounds easy to comply with, right?

Well, what if you were beginning a relationship with a supplier in a country where an exchange of gifts of nominal value is an important part of their business culture? Where refusing a gift may insult the supplier and ruin the potentially profitable relationship before it begins. Should you accept the gift?

In these cases, it may be the right thing to do to accept the gift but, instead of personally using it, you pass it on to an internal customer, raffle it off among the non-purchasing employees of the company, or give it to charity. By reading this, you may have realized that ethical compliance requires a little more thinking, huh?

Is that first situation an exception? Are all the other situations pretty cut and dried?

No!

Consider the second situation: "A purchasing team member has a personal or financial relationship with a supplier or an employee of a supplier." How might this situation be appropriate?

Well, imagine that there are only two suppliers of a certain, critical product: a great performing supplier and a poor performing supplier. What if a purchasing employee was married to an employee of the great performing supplier? Should the company have no choice but to select the poor performing supplier?

That would be ludicrous!

However, care should be taken to ensure no ethical boundaries are crossed. The employee married to the supplier's employee should disclose to management the relationship. That employee should recuse him or herself from the decision-making process. The company should be careful not to share confidential information about the supplier selection process with that employee. The purchasing department should be forthright with key affected internal customers about the relationship and the steps it is taking to ensure ethics.

If the company follows these steps, ethical complaints are unlikely.

So, as you can see, ethics are not always as straightforward as one might like them to be. This fact can make it easy for some to push the ethical boundaries too far.

But as long as you strive for transparency and ensure that decisions solely benefit your company and not yourself, there is a high probability that you will be viewed as an ethical purchasing professional.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

A Fun Negotiation Video I Came Across

2010-02-04T09:43:00.004-05:00

I came across this negotiation video on the GoDaddy site.

Like you may have, I've always associated GoDaddy with crossing the line into outrageousness in their advertisements and, as a result, hadn't respected the company much. So, I was surprised to see that they have some decent educational videos on their site.

I thought that this negotiation video had some decent tips. And the eye candy didn't hurt either...

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Whitepaper Wednesday - Strategic Sourcing Lessons Learned

2010-02-03T14:32:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Lessons Learned from the
Recession: Strategic Sourcing" from Ariba.

At the core of this whitepaper are 10 lessons about strategic sourcing that were learned during this most recent economic recession. Despite the appeal of a title that relates to current events, these lessons are really timeless procurement principles that aren't exactly new. But that's not a bad thing. It just goes to show that the need to "bring more spend under management," "expand your category coverage to include non-traditional 'sacred cows'," and "mitigate risk and manage supplier performance by implementing an enterprise-wide supplier management program" isn't going away any time soon.

However, what I would like to focus this post on is the material that isn't so traditional in nature. For instance, Lesson #2 - "Reconsider 'best-in-class' spend analysis" - highlights how far spend analysis systems have come by discussing how some of them now include rich supplier information such as "financial information, risk ratings, diversity details and, more recently, suppliers who are certified as green due to pro-environmental practices." This lesson encourages buyers to use such systems to analyze sourcing market dynamics by watching price indices, peer benchmarks, or results-oriented savings figures.

Now that is some exciting stuff!

Technology advances also permeate Lesson #5, "Leverage automated supplier discovery tools." Though Ariba was not as descriptive with these tools as they were in the section on spend analysis tools, you certainly can't help but be curious about what they have available in this category as they lambaste a variety of means of finding suppliers ranging from Google to peer recommendations.

Finally, I personally love Lesson #9, "Work more collaboratively with key suppliers to jumpstart innovation." Though a concept that's been talked about for over a decade, I think that buyer-supplier collaboration may finally be ready for prime time. The whitepaper says "Best-in-class procurement organizations realize that driving sustainable cost reduction in the supply chain would require a more-collaborative relationship with their strategic suppliers who can help with innovation, demand-generation and creative cost savings projects."

Amen. Now let's just figure out how to do it!

Like I said, there are a few new ideas in this whitepaper and many "oldies but goodies." It's definitely worth a download. You can get your own copy from Ariba's Web site (registration required).

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Find More Good Resources For Procurement Leaders?
Check Out Our Web Site's New Whitepaper Section At
http://www.NextLevelPurchasing.com/WPcharles

The Importance of Training: Some Purchasing Managers Understand It (and the Dumb Ones Don't)

2010-02-02T09:30:00.003-05:00

A couple of my recent posts have revolved around excerpts from the book "Treat Your Customers" by Bob Migliani. Though most of those excerpts discussed the importance of purchasing in business, today I will share a few excerpts that highlight how smart managers know the importance of training. Whether you manage a purchasing department or some other function, having well-trained employees is a key to success.

In Chapter 14, Migliani talks about the importance of quickly adapting to new trends and technologies in order to succeed. He recalls a point in time where a decision to try something new paid off for his business and having trained employees was the key: "Sure, we could have hired someone else to do this for us, and hiring a consultant may work in some cases, but we wanted to ensure that we kept this competitive advantage inside the store, and for us that meant training an existing employee...Change is always going to be around...It's what forces us to learn new things. Embrace it by educating yourself and your people."

But training isn't something that should only be provided in times of change. It is a manager's responsibility to ensure that employees are trained to perform to their potential. The following excerpt really drives that point home...

"Your employees represent you, your company, and your products and services. Make sure you invest in them. Whether it's the weekend or a Wednesday-train them. Take time out of your schedule to spend an hour talking to them about what they're doing and offer them encouragement and guidance on how to do it better. As managers and businesspeople, we have to recognize that our job is mainly about helping our employees do the right things so that we make it easier for our business to succeed.

"If you believe that your employees are an important asset to your business, then show them by investing in their training....This investment will give you and your business a tremendous return."

Cue the choir: Amen!

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com