Why Financial News Matters To Procurement Professionals

Each month, the US government reports on composite price changes. In case you missed it earlier this week, the US government reported that wholesale prices - as measured by the Producers Price Index - fell 0.6% in February (reported by Yahoo! Finance).

Part of a procurement professional's job is to monitor his/her assigned markets to determine current and future price levels. This is done for a variety of reasons: to benchmark current prices; to determine the best time to enter into long-term, fixed price contracts; and to forecast pricing into the future so that the organization can make appropriate financial decisions.

So, what can you make of this week’s report?

Well, before I give you my take, let me walk you through how I’ve personally analyzed this data to arrive at my conclusions. Last March, the PPI bottomed out at 168.1. It is now at 180.9 – meaning that, in aggregate, commodity prices were nearly 8% higher in February 2010 than they were in March 2009.

Even if you heeded the advice of Supply Excellence’s Pat Furey in September 2009, your prices would be about 4% lower than they would be if you were just paying market price. Bravo, Pat, for being dead-on in your analysis!

So, what is going to happen in the future?

Well, there is no “crystal ball” or 100% accurate way of predicting future inflation. But some quotes in the Yahoo! Finance article give some expert insight:

• "Underlying price pressures in the United States remain very subdued"
• “Economists said they expect inflation pressures to ease even more in coming months”
• “Ian Shepherdson, chief U.S. economist at High Frequency Economics, said he expected the 12-month rate for core wholesale prices to dip from the current 1 percent to below zero in coming months”
• “Fed policymakers said they believed that ‘inflation is likely to be subdued for some time’”

To sum this up: if you didn’t lock in low prices in the last 12 months, you probably missed the boat on achieving some significant cost avoidance. However, with inflation to remain subdued or to reverse, now isn’t exactly the best time to lock in prices, either – you may be contracting at a price peak, which is the opposite of what you want to do: contract at a price trough. So, taking a watch-and-see approach is probably best at this point, being prepared to lock in pricing if you see signs of another bout of inflation or waiting for another price trough to become available.

Do you now understand a little bit more about why financial news matters to procurement professionals?

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

March 2010's Dedicated Purchasing Student of the Month Is...

After a brief hiatus, Next Level Purchasing's "Dedicated Purchasing Student of the Month" program is back. And I am delighted to recognize this month's winner: Kimberly Zadnik from Northfield, Ohio, USA.

In February 2010, Kimberly successfully completed the following online purchasing courses:

Microsoft Project For Purchasing Professionals
14 Purchasing Best Practices
Savings Strategy Development

Please join me in congratulating Kimberly!

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 - How To Ensure eProcurement Adoption

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "Seven User Adoption Strategies That Will Guarantee e-Procurement Cost Savings" from Coupa.

Though this whitepaper is 10 pages long, it was a superfast read. Despite that, I think that you will find some powerful tips in it.

None of the seven strategies is more than one page in length, so I feel that by listing them here, I will be giving the entire content of the whitepaper away. Instead of doing that, I'll point out some of my favorite excerpts.

In the fifth strategy - "Simplify Processes and Controls" - Coupa points out the fact that end users often subconsciously weigh their alternatives when it comes to complying with procurement policy. The solution, then, is to understand that "your new process should make procurement procedures 'easier to use than avoid.'" This advice is very similar to the advice I shared in my post entitled "Procurement Compliance Problems? Try This Time-Tested Tool."

This strategy, like several that precede it, is written to the procurement department leader and can be accomplished by Procurement. In contrast, the seventh strategy - "Reward Good Behavior" - is targeted more towards senior management. Nonetheless, it offers a valuable recommendation: "For purchasing administrators or central finance, structure their bonus or performance review around their commitment to...e-Procurement." It also suggests some out-of-the-box ideas such as a “spend control achievement party” for compliant departments and a personal bonus to employees based on savings.

From these excerpts, you can tell it is a pretty thought-provoking whitepaper. You can download your own copy from Coupa'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

My Blog Program Ate My Post

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?

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

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

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