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Whitepaper Wednesday - The Bottom Line Impact of Sourcing Skills

2010-04-21T12:30:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I’ll be reviewing a whitepaper entitled “Reaching Sourcing Excellence, Part 3: Sourcing Skills Go Straight to the Bottom Line” from AMR Research and Ariba.

The point of this whitepaper can be summarized quite easily: the higher the skills of the sourcing team, the more profit they will generate for an organization. The whitepaper presents some interesting research findings that support this premise.

For example, the whitepaper says that “68% of companies can achieve an 85% or higher adoption rate with their sourcing technology if they offer sourcing training and a certification program during the implementation process, according to our studies. The problem is that many companies stop at technology training only, assuming their employees have the knowledge to handle the rest of the sourcing process.” This echoes a sentiment I’ve made here before: dumb purchasing managers are those who think that training is done once the employees know how to use the system.

In addition to such statistics, the whitepaper outlines a six-step process – not unlike the seven-step process we teach in the whitepaper “The Purchasing Leader’s Guide To A More Successful Team” – that the companies that achieved higher sourcing value used in order to achieve such value. Those six steps are:

1. Force-ranking employees based on skills
2. Providing complete sourcing business process training for all employees
3. Establishing continuous sourcing training and education programs
4. Establishing recruiting programs with leading supply chain schools
5. Removing employees that would not meet the vision
6. Hiring more advanced skillsets to fill the gaps

The whitepaper is full of other anecdotes that specify how training has benefitted the top performing organizations. Examples include the following excerpts:

“Organizations that developed five-year training programs, including certifications and advanced degree programs, and placed recent graduates into their sourcing organizations were the most adept at margin improvement and expense reduction. In fact, these organizations had multi-tier training and education programs that were structured and tracked.”
“Organizations like ISM and Next Level Purchasing have assisted sourcing organizations with moving their training and certification programs forward.”
“Delivering savings to the bottom line continues to be the measure of high-performing sourcing teams, and achieving bottom-line results requires investment in your sourcing employees…To reap your sourcing ROI, focus on employee skills and training, hiring the best individuals and as a foundation, and automating the entire sourcing business process…In today’s environment, picking up 10 to 15 cents of every dollar spent is critical to your company’s survival. Don’t leave money on the table.”

Though this whitepaper is only five pages long and I’ve given you several excerpts right here, it is actually packed – packed! – with additional information. If purchasing training is top of mind for you and you need to justify training to your management, it’s probably a good whitepaper to have. You can download 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 Have A Rewarding Purchasing Career?
Earn Your SPSM^® Certification Online At
Next Level Purchasing . com

Increasing The Scope of Purchasing

2010-04-19T15:01:00.002-05:00

I hope that you have enjoyed the article "How To Increase The Scope of Purchasing."

Increasing the spend under the management of the purchasing department should be every purchasing executive's goal. Getting senior management to agree to such an expansion isn't always easy.

The points in the article give a great way to start the conversation. But you also have to be realistic about what will come next.

Yes, those points alone may get you exactly what you want. If you feel that the culture of your organization will permit this result, great.

But, in more politically-entrenched cultures, the best you can hope for is a request for more quantiable justification. And that's OK. That is a step further than you were. Just be prepared to respond accordingly.

Your response should be in the format, "The purchasing department reduced the spend on category x from y dollars to z dollars. Therefore, we believe that we can reduce the spend on category a from b dollars to c dollars by applying the same expertise."

And, don't forget...if you get the green light from management, the struggle isn't over. You still have to work some change management magic with your end users. The principle in an older article entitled "The Purchasing Manifesto" may be just the trick you need in that regard.

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

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

2010-04-16T08:24:00.002-05:00

Next Level Purchasing would like to congratulate Dave Foster, April 2010's Dedicated Purchasing Student of the Month!

Dave, a General Manager of Purchasing from Knoxville, Tennessee, USA, completed all six courses in the Senior Professional in Supply Management^® Program during the month of March 2010! Dave also passed the SPSM^® Certification exam in that same month! He was officially awarded the SPSM^® Certification yesterday.

Dave enjoyed his learning experience and says "I particularly enjoyed the Microsoft Project module. Despite having used Project to track purchasing activities for years, I have never actually developed one from scratch."

For more information on the Dedicated Purchasing Student of the Month Program, including past winners, please visit http://www.nextlevelpurchasing.com/purchasing-student-of-the-month.html.

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 - Restructuring A "Too Busy" Procurement Department

2010-04-14T15:38:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be discussing a whitepaper entitled "Separating A Procurement Department Into Tactical & Strategic Teams: Is It Right For Your Organization?" from Next Level Purchasing.

If I've heard it once, I have heard it a thousand times over my nearly two decades in procurement: "We can't get things done! We have an insanely busy procurement department!"

Historically, this has always been an excuse for ineptitude. Lately, however, I have a little sympathy. Not a lot. Just a little.

Why?

Because the recent recession has decimated the employment bases of many companies. Heck, the US has been hovering around 10% unemployment for quite some time. And, if you've been watching the stock market, you know that the economy is starting to thaw and companies are getting busier.

But they aren't hiring. Which places an ever-increasing workload on those who survived the too-deep cuts of the past two years.

Yet, understaffing is not an excuse for not being able to accomplish anything strategic if your procurement department is not structured optimally. One of the alternatives for restructuring a procurement department is to separate it into two teams: a tactical team and a strategic team.

You see, one of the reasons why procurement departments do not accomplish much strategically is that their top people are pulled into tactical crises. While that may be necessary once in a while, it is certainly not the way to go over the long haul.

Many procurement departments that do make continual strategic improvements do so because they let a tactical team handle the tactical duties (even the major ones) and dedicate a strategic team to only strategic projects. This approach doesn't work for every organization. And there are ways to make this structure work and make this structure fail.

The whitepaper assails some of these common mistakes that procurement departments make when adopting this structure. It says: "[D]on’t think in terms of strategic being important and tactical being unimportant. Think in terms of strategic being long-term and tactical being short-term. And don’t commit the common organizational error of having your top talent devoted to strategic procurement and your bottom-feeders devoted to tactical procurement. "

It also goes into some detail regarding rotational programs to keep your top talent from getting displeased with a tactical assignment.

If you are a procurement leader who is struggling to get anything strategic accomplished, this whitepaper is for you. You can download it from the Next Level Purchasing 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

Supplier Diversity KPI's: A Place To Start

2010-04-13T08:43:00.002-05:00

The United States Small Business Administration has recently announced a new scorecard system to evaluate federal government agencies' performance in terms of adhering to their supplier diversity goals. According to fiercegovernmentit.com, the new system will grade each agency's small business procurement program as follows: an A+ for agencies that meet or exceed 120 percent of their goals, an A for those between 100 percent and 119 percent, a B for 90 to 99 percent, a C for 80 to 89 percent, a D for 70 to 79 percent and an F for less than 70 percent.

Though the "SBA negotiates individual goals for each agency," it works towards these aggregate goals for the entire federal government: 23 percent of total qualified contract dollars going to small businesses, with "additional goals of 5 percent for small disadvantaged businesses, 5 percent for women-owned businesses, 3 percent for HUBZone small businesses, and 3 percent for service-disabled veteran-owned small businesses."

If you're looking to start a supplier diversity program, these key performance indicators may be a good place to start. However, the government has more of a vested interest in the success of small businesses than a for-profit company, so the actual percentages for a for-profit company are likely to be revised way down.

In addition, a local government may wish to supplement the aforementioned classifications with a classification for local businesses. In such a case, the percentages for the other classifications would likely need to be revised downward.

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

Next Level Purchasing vs. ISM Financial Health Comparison

2010-04-09T09:02:00.004-05:00

In the past two years more than ever, procurement professionals have realized that evaluating the financial condition of the organizations with whom they do business is vitally important. This can apply to whom you choose as your purchasing certification provider as much as it applies to whom you select as your direct materials supplier.

A few weeks back, I reported on ISM's release of their annual report for the past year. While a double-digit percentage reduction in headcount and second consecutive year of multimillion dollar losses is hard to laud under any circumstances, it is always a good idea to compare one supplier's financial performance versus that of another supplier in the same industry to get a true feel for a supplier's financial health. That way, you can rule in or rule out whether it was a bad year for the entire industry or simply a year of poor supplier performance.

With that in mind, here are statistics comparing the financial stability of Next Level Purchasing and ISM - two providers of certification for procurement professionals:

	Next Level Purchasing	ISM*
Revenue Growth 2007 - 2009	51% growth	32% decline
Profitability	Profitable every year of existence	Lost over $2 million in each of last two years
Personnel Budget Growth 2008-2009	21% growth	30% decline
Best Known For	Purchasing training & certification	Monthly economic reports
Global Recognition	SPSM^® Certification earned in 54 countries	CPSM designation earned in 16 countries

* All statistics gathered from ISM Annual Report released March 2010

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

Why Procurement Should Shine Some Light On Room Service Expenses

2010-04-08T14:04:00.002-05:00

In a post last week, I introduced the idea of procurement taking a look at room service as a cost savings opportunity. The idea intrigued Purchasing Magazine editor extraordinaire Dave Hannon to the point where he posted a comment asking others to share whether they've attempted to negotiate room service and how effective it has been.

Don't be surprised if no volunteers come forth, Dave. Room service charges are one of the most hidden of the hidden costs. Usually paid as a reimbursement to employees with little to no line item detail or vendor identification, room service does not lend itself to being a visible spend category at this particular moment.

Many procurement departments have celebrated the win of lowering hotel room fees in enterprise-wide contracts. Yet, as I found out the hard way, room service costs almost as much as the room. And it is easy to argue that the value of a room service meal is far less than the value of the room.

Certainly the margin for room service has to be higher than the margin of the accommodations. Consumers shop based on room price, not room service price. Room service cost has gone unchecked.

Do you think that there is "juice" there? I do.

In the whitepaper I reviewed yesterday, it was mentioned that many companies manage employee food expenses through a per diem limit placed on the employee. The thinking behind this is that all employees eat somewhere different and there is no aggregate volume to be leveraged. You won’t find many business travelers going to the local steakhouse and negotiating the menu prices on a one-off meal.

But room service is different. You are dealing with a single supplier on an enterprise-wide basis. And just like for rooms, a company that procures 10,000 night-stays for its employees should pay a lower price for room service than the individual who purchases a one-night stay.

And what I bet not many procurement people know is the tax implications of targeting room service. You see, here in the USA, 100% of certain travel expenses (airfare, hotel, ground transportation, etc.) are deducted from taxable income. In contrast, only a fraction of the cost of meals and entertainment can be deducted from taxable income.

So, when your organization spends on room service, it is not only incurring an expense, but incurring an expense without all of the tax benefits of a normal expense. Yet another reason to shine some light on what is being spent by employees out there on the road.

Cutting a per diem limit in isolation won't exactly help morale of your traveling employees. But if your organization attacks room service costs with the hotels, your employees can get the same benefits they've always had while your organization pays less.

The first -and perhaps hardest - step is gaining visibility into room service spend. If that can be done, the procurement department can go to the negotiation table with higher aspirations and can leave the table with even greater results. If not, the hotels I'm sure will be happy to charge ridiculous fees so that they can get their paws on 100% of a per diem that can't be lowered due to the lack of options.

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 - Reducing Travel Costs

2010-04-07T12:33:00.003-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "Visibility: Better Insight Leads to Better Cost Control" from Runzheimer International and CFO.com.

Now, I usually don't review whitepapers from the same source two weeks in a row. But I've made an exception in this case because this whitepaper was so good and I recently posted some thoughts on the very subject of reducing travel costs.

So, what did this whitepaper bring to the table?

Lots.

I knew it would be good when it started out with some powerful stats: "Travel and entertainment (T&E) expenditures typically represent an organization’s largest discretionary
spend, with an average annual cost of $10,039 per traveler. Organizations with a strong travel policy and aligned processes tend to be high-performing, and realize significantly lower costs that can range from 5% - 20% of annual spending.

So, multiply the number of travelers your organization has by $10,039 and then divide that number by 5. The result is your potential savings at 20%. If you work for a big company, that just might be one heck of a lot of money!

The next question is: how do you save 20%?

The whitepaper suggests three activities common to successful companies:

Use of benchmarking information to identify savings opportunities
Centralizing control
Tightening T&E policy and enforcing compliance through automation

The whitepaper actually gives a decent amount of detail for all of these bullet points. For example, it offers example benchmarks that you can use such as these internal ones:

Spending information by individual, business unit (department, division, etc.) and by trip, project, job, client or other categories appropriate to the organization
Current and historical cost information for frequently-visited locations and by vendor
Policy compliance information

...and these external benchmarks:

Comprehensive industry cost data for frequently-traveled locations
Airfares for domestic and international city pairs
Yield (revenue per passenger mile) and market share information for all covered
city pairs
City-specific hotel costs per room night for economy, first-class and deluxe
properties
Car rental daily cost information for U.S. & international cities
Local meal cost information

In addition to simply gathering statistics, the whitepaper recommends that companies benchmark with their peers to compare travel policies, metrics, procurement practices, and more.

The whitepaper also advocates having travel-related management be consolidated under a single department. In this section, there was a pie chart that I found quite interesting. It showed which departments typically manage travel. It illustrated that travel functions most commonly report to Accounting and Finance, with 34% of companies organizing their travel functions this way.

And can you guess which department was in second place?

Yep. Procurement with 29%! And, actually, the whitepaper addressed a lot of procurement-specific topics such as achieving economies of scale with vendors, negotiating, and more. I've always thought that travel should report to procurement and it seems that this is becoming more and more common (finally!).

Before closing with a section on automation, the whitepaper details how to improve travel compliance among employees. This section was good in that it spelled out several principles that could be applied to compliance of any procurement initiative, not just travel.

What I thought was a bit lacking in the whitepaper was that the theme of visibility seemed to be 100% focused on past spending patterns, not future ones. And, just like solely relying on spend analysis for sourcing initiatives, you have to know what you are going to buy in the years ahead, not so much what you bought in the years past. The only value in using historical spend data is to determine how it will change in the future when future plans are factored in.

Let me explain that. If you know that you are going to have 52 round-trip flights per year between Pittsburgh and Chicago, 20 round-trip flights between New York and London, and 10 flights between Los Angeles and Hong Kong, that's great. You don't need spend visibility.

But if you don't know precisely what your plans are, spend visibility can help. Then you can say, "Oh, we'll be traveling between Pittsburgh and Chicago about twice as much as the previous year; between New York and London about half as much; and we won't have any need to travel between LA and Hong Kong." The historical data simply serves as a baseline from which adjustments are made to arrive at a forecast when you consider how business will change.

Maybe a certain city pair was for a project that is now complete. You wouldn't want to blindly think that the pattern will continue. That's my sole complaint with the whitepaper's perspective on spend visibility - it makes an implicit assumption that all conditions will remain the same when, in fact, they might not.

Also, the whitepaper talks about using benchmarks to adjust per diems. Per diem adjustments are a traditional way of reducing travel costs. In my post tomorrow, I'll address how a company can augment per diem adjustments with other travel cost reduction approaches.

If your organization spends a decent amount of money on travel, it would be worthwhile for you to check out this whitepaper. You can download it from CFO.com (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

Do Procurement Ethics Have To Be Hazy?

2010-04-05T12:40:00.003-05:00

I hope that you have enjoyed the article "Procurement Ethics: Use DRD & Stay Clean."

In my line of work, I often hear things like: "Oh, ethical matters are so difficult to deal with because there is a lack of clarity on what's right and what's wrong."

I agree with this statement sometimes and disagree with this statement often. Some ethical breaches are so obvious and so preventable that this statement is the only defense someone could possibly muster and almost get away with.

So let me make things clear once and for all...

1. If you make a procurement decision for your employer and that decision results in you benefitting personally (i.e., getting money or items of value), it's an unethical procurement decision.

2. If you make a procurement decision for your employer and that decision results in one or more of your family members benefitting personally, it's an unethical procurement decision.

3. If you make a procurement decision for your employer and that decision results in one or more of your friends benefitting personally, it's an unethical procurement decision.

4. If you share a supplier's "confidential" information with a competing supplier, it's unethical. The litmus test for confidentiality here is whether the first supplier would approve of you sharing that information with a competitor if the first supplier knew about it.

By benefitting personally, I don't just mean getting a commission for direct salespeople. I mean getting job stability from an employer who just got a big deal or any other type of "indirect" benefit.

So, there you have some of the most important procurement ethics distilled into a few bulletpoints. Pretty simple, right? No grey area here.

If you use the DRD technique from the article (Disclose, Recuse, Document) when someone close to you works for a current or prospective supplier, you've gone a long way towards keeping your ethical slate clean.

And good ethical behavior is a badge of honor if you want a long, successful procurement career.

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

Does Procurement Have The Appetite To Attack This Hidden Travel Cost?

2010-04-02T09:45:00.005-05:00

In another great post on PurchasingBIZconnect, Dave Hannon reveals that NASA recently completed an investigation of some excessive conference expenses made by - be ready to be shocked - their procurement department. The expenses in question involved over $60,000 worth of snacks for 317 procurement employees over a three-day period - an alarming rate of $66 per person per day!

In the post and his comments, Dave correctly points out the inevitable problems that arise when competition is not sought for travel and meeting spend. And that got me thinking about an experience I had recently.

On a business travel engagement, my hotel room was provided for me at no cost. Food, however, was my responsibility.

No big deal, right?

Well, when you want room service, you're essentially dealing with a sole source situation. And, like most sole source situations, you pay more than a reasonable price for what you get!

In fact, I had a very simple pasta dinner one night at the hotel. This dinner, which would have cost less than $20 in a restaurant, cost nearly as much as a night in the room.

I was so shocked at the cost of the dinner for how modest it was, I had to take a picture of it.

While most larger companies do negotiate room rates with hotels, I would bet more than a few don't touch food as a line item to be discounted. And therein lies a significant component in the overall cost of travel. Remember, the cost of my pasta dish was nearly equal to the cost of a night in the room!

So, when you negotiate your next accommodations contract, try to negotiate a discount or rebate on room service. Saving 5% or more on room service may be the cherry on top of a successful travel procurement program!

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 There Truly Transparency in Government Contracting?

2010-04-01T12:35:00.002-05:00

Perhaps a little inspired by my post from last Friday, Jon Hansen of Procurement Insights and the PI Window on Business show on Blog Talk Radio delved into the topic of transparency in government contracting on his show last week. If you have any interest in government contracting or the differences between public and private sector purchasing, I recommend you give the show a listen. You can find it at:

http://tinyurl.com/yaszko2

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 - Fleet Procurement Alternatives

2010-03-31T08:35:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "EMERGE STRONGER: Identifying the Right Business Vehicle Strategy for the New Economy" from Runzheimer International and CFO.com.

In the early part of this millennium, fleet management was one of the new non-traditional categories that strategic sourcing became involved in. So, there is a chance that you are already involved in and comfortable with fleet procurement. Well, the rough economy of the last two years has compelled CFO's to look at all areas of spend and question whether there is potential for cost savings and fleet management is no exception.

While traditional fleet decisions have been simple lease vs. buy or in-house vs. outsource, this whitepaper reveals that there are several different alternatives now being mulled by CFO’s. Those alternatives, primarily relating to non-complex vehicles such as those driven by sales representatives, include:

Providing company vehicles to employees
Providing flat-rate reimbursement to employees who use their own vehicles
Providing per-mile reimbursement per IRS standards to employees who use their own vehicles
Providing a combined fixed-and-variable-rate reimbursement to employees who use their own vehicles

What I found interesting and most valuable to procurement professionals are the various unique factors that are on CFOs’ minds when trying to decide the option that is best for their organizations. These factors range from the boost to employee morale of providing a company car to liability for death in a vehicle accident after work hours to the impact on working capital to tax implications to more.

Reading this whitepaper can be a good reminder to procurement professionals to question “what else is top management concerned about other than just cost?” So, whether you are directly involved in fleet procurement decisions, might eventually be involved in fleet decisions, or just want to learn some practices from another category that you might be able to apply to the categories you currently manage, I think that this whitepaper is a worthwhile read.

You can download your own copy of the whitepaper from CFO.com (registration required).

Body Language in Negotiation

2010-03-30T08:44:00.003-05:00

The following video gives some general tips on body language in business and personal settings. I've written before about body language in negotiation and I think many of the tips can be applied to procurement situations.

Here are a few things that I gleaned from the video that bear repeating here:

When greeting your negotiation counterpart, make the handshake firm and short. Do not use two hands.
Accompanying the handshake with an "eyebrow flash," which "establishes an empathetic bond"
If you have the chance to sit on the side of your negotiation counterpart, that is better than sitting across the table
Making a steeple with your fingers is a "high sign of confidence"

Here's the video if you care to check it out yourself...

Procurement & Brand Management: Can It Involve Playing Offense As Well As Defense?

2010-03-29T16:23:00.003-05:00

Over on Twitter, Purchasing Magazine's long-time editor extraordinaire Dave Hannon linked me to an article that he had written on Purchasing's social network, Purchasing BIZconnect. The article was entitled "The company you keep: Purchasing’s role in managing the brand."

Even if you've read my related articles/posts such as "Trend Alert: The Supplier Code of Conduct" and "Dell, and then Apple, Recall Supplier's Batteries," I don't think a procurement professional can ever have too many reminders about the importance of supporting your company's brand through your supplier relationships. Therefore, I recommend reading Dave's article.

The one thing that I only partially agree with is Dave's quote that "Your goal here is to be invisible. No (negative) news is good news and means you've done your job in helping to manage the brand." While, in most cases, if a supplier doesn't destroy the brand you can feel relief, I believe that, managed correctly, certain supplier relationships can enhance the brand. Brand management from a procurement perspective doesn't have to be all defense and no offense.

Would you care to share any examples of how using a supplier helped your company's brand instead of simply not hurting it?

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

Like It Or Not, In Procurement You Have To Choose Your Friends Carefully

2010-03-26T09:16:00.002-05:00

Here in Pittsburgh, there never seems to be a long respite between public procurement scandals. The latest involves Michael Kenney, the executive director of the Pittsburgh Water & Sewer Authority, who reportedly has close ties to one of the companies with whom the city has a contract.

Here’s the situation…The city has a contract with a company called Utility Line Security (ULS) to offer to city water customers a warranty (read: insurance) on their sewer pipes which, if they collapse, could result in huge repair bills for those customers. The problem lies with the relationship between Kenney and ULS.

According to three articles in the Pittsburgh Post-Gazette (here, here and here), these aspects define the Kenney/ULS relationship:

In Kenney’s previous role as operations manager of the Municipal Authority of Westmoreland County, he reported to executives of ULS’ sister company, Resource Development and Management (RDM), who also paid Kenney for consulting work
Kenney hired RDM to do consulting work shortly after transitioning to his role in Pittsburgh
Around a year after joining the Pittsburgh agency, the city “invited proposals from firms interested in offering line warranties to its customers, who could opt to have the charge added to their bills.” ULS was the only challenger who bid against the incumbent. This concerned City Council, who felt that there should have been “dozens of companies that bid on it,” and suppliers, who claim to have not been aware of the opportunity.
After ULS won the Pittsburgh contract, they “went on to employ two of Mr. Kenney's relatives”
After implementation of the contract that saw less than 3% of customers opt in, the city changed the process from an opt-in process to one in which the warranty is assigned to all households, but allowing them the opportunity to opt-out. Only 8 – 9% have opted out, increasing ULS’ Pittsburgh customers from 3,000 to 90,000. Though ULS did reduce its price in exchange for such an arrangements, some question whether the entire relationship should have been rebid to reflect this new scope of work. After all, there is no contemporaneous, apples-to-apples benchmark for whether or not the adjusted price is fair.
Kenney has had a “long professional and personal relationship with” ULS’ founder

In procurement, you oversee contract awards daily. Is overseeing a contract award to a friend unethical?

In one of the above-linked articles, Barry Kauffman, executive director of Common Cause Pennsylvania, said the litmus test under state ethics law would be whether Kenney’s decision brought financial benefit to Kenney or his immediate family, stating "If you just gave a contract to your friends and don't have any financial remuneration in any way, shape, or form, it's kind of slippery, but it's probably not against the law." Furthermore, the chairman of the water and sewer authority stated that relationships “can be useful” but should be disclosed.

However, City Councilman Doug Shields was quoted as saying "It just looks absolutely terrible, the way this was done, the cozy relationships, the affinity for one another.”

My take: when it comes to purchasing ethics, perception is reality. If you have a relationship with a current or prospective supplier, go above minimum requirements to make the relationship known to management and recuse yourself from the decision.

Or – to be safest - simply avoid having friends who may be suppliers to your organization. That may not seem fair, but such is the way of responsible procurement.

Dealing With "Tribal Knowledge" In Procurement Departments

2010-03-25T14:01:00.004-05:00

I've worked in the procurement departments of some pretty large organizations. And a common problem among them was there being too much "tribal knowledge."

Tribal knowledge in business refers to knowledge that is known by certain people in a company that has not been documented or proliferated to everyone who needs it. The existence of tribal knowledge is problematic because the company will depend too heavily on just a few key individuals. This can result in those few people being bothered constantly by their coworkers who know them as the only source of knowledge on a topic or the company being harmed when the “enlightened few” leave the company.

Unfortunately, in my career in procurement departments, I never fully solved the tribal knowledge dilemma. But when the existence of tribal knowledge became apparent here at Next Level Purchasing, it was time to take action.

How have we handled converting tribal knowledge to company-wide knowledge?

Well, first we adopted the collaboration tool Google Wave from, of course, Google. Google Wave allows several people to collaborate on a document remotely, simultaneously, and in real time. It also has a pretty sophisticated audit trail so you know who did what, when, and it allows you to replay the creation of the document.

How do we go about coordinating the population of our Google Wave?

At every other staff meeting, I have a quiz-type challenge for the team. We have questions on small pieces of paper that are placed into a fishbowl. Sometimes these questions are created by me, sometimes I have the employees compose the questions. Each employee draws a question and is challenged to answer it in the meeting.

This process alone enlightens team members about our processes, etc. that they were unaware of. But then we document this knowledge afterwards in Google Wave to make the knowledge-sharing permanent. Each employee takes the questions that he or she drew and writes the answers in an appropriate section within our Wave.

Though we have only been doing this for a couple of months, our Wave has grown to 14 pages. Think about that. That’s 14 pages of knowledge that was isolated in the heads of individuals that is now available to the team!

We are now ready to start using our Wave for finding answers when we need them. Any time an employee has a question – either of their own, a prospective customer, or a student – their first step should be to check this “knowledge base” that we’re building.

Searching is a bit challenging as Google Wave allows you to “tag” certain sections that are indexed as links but, as far as we can tell, does not allow you to search within a Wave. We may end up simply dumping our knowledge into Word, but that’s OK.

The process of building our knowledge base has really helped us turn tribal knowledge into something that any employee now has access to. I can’t help but think that our approach could help any procurement department.

Is tribal knowledge a concern of yours? If so, how do you plan on addressing it?

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 - Analytics & Supply Chain Risk Management

2010-03-24T14:46:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. This week, I'll be reviewing a whitepaper entitled "The Intersection of Analytics and Supply Chain Risk Management — Using Intelligence to Drive Early Intervention." This whitepaper is part of the exciting new "Spend Matters Compass" series of research from, of course, Spend Matters.

Cutting right to the chase, the point of this whitepaper is to tell you that one-dimensional approaches to supply chain risk management are not enough. Instead, using multiple sources of data and available software will help you identify and mitigate risk faster and better.

So, what's wrong with some more traditional approaches to supply chain risk management, such as obtaining D&B supplier data with periodic refreshes?

The whitepaper argues that "the speed with which a supplier's financial and operational situation can rapidly deteriorate outpaces the scheduled content updates, leaving the organization with a false sense of assurance that it is actively monitoring its supply base for various risk factors." In contrast, technology-enabled approaches to supply chain risk management can "examine alternative options at the point of query and analysis," "rapidly drill down into an analysis to understand potential root causes of risk elements," and "bridge currently existing information silos / gaps between a variety of internal, supplier and third-party information sources."

What kind of tools are there that can do these things? The whitepaper neatly categorizes the solutions into four categories: spend visibility, supplier information management, supplier performance management, and stand-alone risk management solutions. Each category is defined and explained in the whitepaper and providers of each category of solution are shared. Some of these providers are sponsors of the whitepaper, some aren't.

The whitepaper closes with seven action steps that a procurement department can take when refining its supply chain risk management approach. This whitepaper is not a one-stop shop for everything you need to know to prevent any supply chain risk from coming to fruition - nor do I believe that it was intended to be - but it is quite helpful in terms of educating procurement leaders about the tools that are available in the market. It consolidates the names of providers who you may not have come across with hurried research (is there another kind of research in today's crazy procurement environment?) and can help you set a direction for what you want to see.

You can download your own copy of this whitepaper directly from Spend Matters.

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 200th Edition of PurchTips!

2010-03-22T20:56:00.003-05:00

I hope that you have enjoyed the article "Measuring Cost Savings For Mid-Year Deals."

While I consider all of our PurchTips articles to be special, this one is a little extra special to me. It is our 200th edition!

When I penned the first edition of PurchTips back in July 0f 2002, I had no idea that it would be a series that would still be going strong eight years later. But here we are!

In order to celebrate this milestone, we are offering you special "one-day-only pricing" on two of our purchasing training offerings on March 23, 2010.

Deal #1 gives you enrollment in our mini-course "Negotiation No-No's" for just 200 pennies (that's $2 US)! Regular price is $14.99. The Coupon Code for this deal is NNN200.

Deal #2 gives you enrollment in the SPSM Certification & Enhanced Results Program for just $1,549 (US) - a $200 discount! The Coupon Code for this deal is Enhanced200.

To take advantage of these offers, enroll online with your credit card at http://tinyurl.com/ygo25tu, click the "Add" button for the mini-course or program, apply the Coupon Code, and check out.

Thank you for making PurchTips such a successful and enduring series!

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

Why Financial News Matters To Procurement Professionals

2010-03-19T14:37:00.002-05:00

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...

2010-03-18T10:28:00.002-05:00

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

2010-03-17T16:26:00.002-05:00

Welcome back to another installment of Whitepaper Wednesday here on the Purchasing Certification Blog. Today, I'll be reviewing a whitepaper entitled "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

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.