Archive for the ‘Procurement’ Category

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Asking the right questions – how to find weaknesses in your supply chain operations

November 3, 2009

Despite some of the headlines (true or not) regarding the practices of IBM’s executive management, there are still some interestion material emerging from the big blue.

In IBM Global Business Service’s recent ”Sourcing in a demanding economic environment” white paper the men in blue offer up a wide range of tactics and ideas for how purchasing departments can excel in even a harsh business climate. Though not much is new, and I personally would have emphasized exactly which skills are core when interacting with other parts of the business and taking on a leadership role in the value creation process, the authors have managed to collect a very comprehensive set of questions that purchasing managers should ask themselves when considering how to go forward with key purchasing challenges.

  • Supply base: Who are the right suppliers?
  • Commodities: What are the strengths and weaknesses in commodity coverage across growth countries?
  • TCO: How can I help ensure sustainable TCO savings? How do I build a reliable business case and estimate risks?
  • Quality and skills: How can I maintain quality levels? How do I attract and retain top-quality staff?
  • Supply chain integration: How can I most effectively manage an extended supply chain? How can I help ensure competitive lead times and flexibility?
  • Contracts and legal: What contractual and licensing issues should I be aware of? What are the import and export regulation requirements?
  • Taxation: What are the benefits or pitfalls regarding local taxation? Should I buy in local or foreign currency?
  • Language and local culture: How can I manage the local language and cultural challenges? How can I protect mu intellectual property and prevent fraud?

Though most of these questions may seem basic to more advanced purchasing professionals, I’d suggest you go through them in your next purchasing council (or board). Chance are that you will unveil unknown weaknesses in your supply chain that can be bettered.

Posted in Change Management, Governance, Organization, Procurement, Sourcing, Supplier Management, Supply Chain Management | 1 Comment »

The problems of marketing spend – quality fulfillment

October 26, 2009

I recently came face to face with one of the major hurdles (and misunderstandings) of purchasing marketing spend; namely the definition of quality fulfillment.

Now, in most cases, marketers want superior quality – it is one of the real drivers of marketing effect – but when purchasing professionals attempt to support marketing in procuring say photography services the definition of quality fulfillment quickly becomes somewhat blurred.

  • The professional purchaser wants to buy images.
  • The marketer wants to buy superior images.

The problem is that who is to judge when an image goes from useful (it clearly displays whatever object was photographed) to superior (it displays not only the object, but also projects emotions or feelings).

The images that I purchased definitely passed any criteria set by the purchasing department (great focus, clearly displaying the object) yet I was devastated since the images were unusable due to the lack of correctly projected emotions. So what did I do?

Did I blame purchasing for supplying an inferior photographer? Well, no, on paper he was perfectly capable of doing the job (and he did, only I wasn’t satisfied with the superiority of his work) so I bit the sour apple. But next time, I’m going provide a longer list of suitable suppliers – suppliers that I as stakeholder know can bring me the superior quality I demand – and then purchasing will get to support me in the negotiations.

Posted in Business, Change Management, Procurement | Leave a Comment »

Overcoming the differences between private and public sector procurement

October 22, 2009

Over the past few years many of my colleagues and I have been on a mission bolster the notion that mindset is the key issue that separates the laggards from the top performers in the purchasing field. And this is particularly evident when it comes to understanding why public procurement so often lags behind its private counterparts.

In a recent McKinsey Quarterly article; McKinsey on Government; the gaps in performance is significantly larger in the softer dimensions – mindset, talent management and aspirations – than in the areas most often promoted by purchasing solution vendors – tools, processes and strategy. While many research organizations often stop when they’ve realized their findings, McKinsey in this instance offers a rather pragmatic explanation of why public and private procurement professionals differ in these key areas:

Two important reasons [for these differences] are that, first, the members of the [public sector] purchasing staff are typically not on a career track as attractive as that of civil servants, which makes it difficult to attract and retain the best people. Second, a culture that rewards zero errors—for instance, one dedicated to “protecting the minister”—tends to favor preserving existing processes and mandates and offers limited incentives to aim for anything more ambitious.

Unfortunately, McKinsey leaves the subject of mindset and aspirations and returns to the more familiar hunting grounds of tools implementation and purchasing process streamlining; a track that is already being centrally driven in the EU through the PEPPOL initiative. And although better processes and widespread tools adoption surely will close some of the gaps between public and private sector procurement, these gaps will always remain if the softer dimensions mentioned above are not properly dealt with.

Posted in Change Management, eprocurement, Procurement, Public procurement, Strategy | 1 Comment »

The importance of managing end-user expectations

September 11, 2009

At the IBX Purchasing Executive Summit earlier this week many wise words were spoken, but in retrospect the words that linger I my mind and won’t go away came from Gerold Carl, the Director Strategic ePurchasing at Lufthansa.

When describing the lessons learned from the very impressive Lufthansa e-procurement initiative (more on which can be learned in this Efficient Purchasing interview) he noted that end-users were reluctant to go for e-learning often pushing for the more costly in-person training approach. When asked why he thought this might be he matter-of-factly nailed answer:

“…our end-users were expecting somthing like Amazon.com, we gave them SAP…”

It just goes to show how important user-friendliness is, and how rapid e-procurement providers need to be in adapting B2C-like user experiences. If e-procurement providers can’t deliver up to those expectations, customers are no doubt heading down a path of costly training, change managment, information and expectation management.

Posted in Change Management, Procurement, Technology | Leave a Comment »

Unbloating IM&S catalogs

August 17, 2009

Bloated gadgets aside, this recent Economist column entitled “When Less Is More” got me thinking in more than one direction.

Especially the poignant and precise quote from Antoine de Saint Exupéry which sums up the argument: “Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”

In my mind this is something that all purchasers in the indirect area should take to their hearts. It perfectly sums up why there is no need for unmanaged 5 million SKU catalogs that need to be browsed using a 25 000 node UNSPSC tree and – ultimately – forces the end user to become a maverick.

Next time you’re looking over your indirect contracts – don’t try to find stuff that is missing, try to weed away the stuff that (nearly) no one is buying.

Posted in Change Management, eprocurement, IM&S, procure-to-pay cycle, Procurement, Supplier Management, Supplier Performance | Leave a Comment »

Doing better by standing by your contracts

May 25, 2009

If everyone paid on time, it would give an enormous boost to local, national and regional economies. Not only would 270 billion Euro (*) per annum in written-off receivables be saved, but Europe’s firms could also save at least 25 billion Euro by not having to chase slow payers. Chasing debtors consumes time and money. Apart from breaking a contract, bad debt also helps to drive up the price of goods and services. Research shows that if companies did not have to allocate costs to get pain or have to write off sums of money, they could lower prices, increase investments and improve margins.
* 2,4% of GDP EU27

Last week Intrum Justitia released their annual European Payment Index report where they expose some of the shadier parts of a downturn economy:

  • Delay in getting payment beyond the agreed term has stretched from 17 days in 2009 to 19 days in 2009 (on average)
  • Written-off percentage has increased from 1,9 percent in 2007 to 2 percent in 2008 to 2,4 percent in 2009

Furthermore the report notes that 7 of 10 respondents believe that settlement risks will increase further during the coming 12 months. Bad news for smaller suppliers no doubt, especially in times of hard to get credit. Still from a procurement angle the report offers some really good incentives to get initiatives rolling:

  • 1 in 3 state administrative inefficiency as a reason for late payment
  • 1 in 4 claim disputes regarding goods and services delivered

”Administrative inefficiencies” is of course just another way of saying that there is a need to automate the procure-to-pay process. And the claims dispute angle is as strong an argument internally as it is externally. Supplier want to get paid on time instead of spending time disputing what was ordered and how much it costs.

Posted in Business, eprocurement, procure-to-pay cycle, Procurement | Leave a Comment »

How far should one go to implement full procure to pay automation

April 15, 2009

As I rode my bike (a deep red metallic Pinarello Treviso from 1984 with the group set removed and replaced by a pair of Campagnolo track hubs) to work this morning I passed a queue of cars slowly making their way along Strandvägen being held up by one of the royal horse carriages. Marveling at the historic advances of transportation – horse, bicycle, automobile – it got me thinking about how far one can take automation.

Many have championed the full automation of the procure-to-pay cycle; yet few have actually been able to show any real and substantial benchmarks that go beyond the pre-implementation business case.

Last year, I had the privilege of working alongside some of the senior purchasing executives as they prepared their presentations for the IBX Purchasing Executive Summit. One interesting findings that was presented was that it was very hard to create a business case for full automation of the procure-to-pay cycle. Instead, a hybrid model that included scanning, workflows, automated matching as well as a shared service center in a low cost location to process some of the invoices manually was presented as the best cost alternative. The streamlined process cost was in the low double digits with retained quality and while expanding on the subject in the presentation, the switching costs were ruled to high to go further into full automation even though it was technologically possible.

I think there is a great lesson to be learned from this; while technology might dazzle us with its might, one should not forget the human alternative as it may still be able to do the job faster and at a lower cost (be it to process invoices or as in my case – get me to work quickly and in style).

Posted in E-invoice, eprocurement, Outsourcing, procure-to-pay cycle, Procurement | Leave a Comment »

To kill a maverick bird

February 24, 2009

A German purchasing newsletter (einkaufs-manager –  in German) recently had a few hot tips for preventing maverick buying in the company. Could be so simple – just propagate a new policy: No order leaves the company without sign-off from the purchasing department.

While this certainly is a very hands-on approach which in itself does stop maverick buying dead in its tracks, one question remains: Does a purchaser really need to see and sign off every order? We are talking about signing off orders on everything here – everything from material to furniture to pens to post-it notes. One could imagine a professional purchaser can use his or her time in more valuable and strategic ways for the company than by signing off an order for another pack of pens or paperclips.

Instead standardized products and even non-standardized services and products can and should be called-off by the requisitioner in a spend-centric purchasing system. Either from purchaser-approved (and negotiated) catalogues or via vendor forms from purchaser-approved vendors. The purchaser can use the saved time to do actual strategic work such as vendor development and frame contract negotiations. The operative work should be limited to handling the raw purchase requisitions (which are usually without vendor assignment).

The newsletter had another tip, which was a variant of what has become known as the “No PO – No Pay” doctrine: Simply tell all your vendors that any invoice based on an order which has not been signed off by a purchaser (see above) will be rejected. The tip closes with the rather up-beat remark that the vendor then can go and altercate with the requisitioner about the issue. While this, again, certainly kills maverick buying to a certain degree it may have some unwanted side-effects such as driving your vendors mad at you (as they usually have delivered already). It may even be a new vendor which had no knowledge about this policy in the first place. In addition the company loses valuable time since the requisitioner needs to send the ordered items back, haggle with the vendor and generally clean up the mess. It’s also open to debate if the purchaser actually wants the vendors to talk directly to individual requisitioners in the company. And last but not least it’s probably not what a good vendor-buyer relationship needs in times like these.

Instead the rule should be altered slightly so that every invoice needs to be based upon an order from the aforementioned spend-centric purchasing system (the PO would be easily identifiable by an order number). Since all the catalogues and vendors in the system are pre-approved by the purchaser and even the purchaser requisitions result in an order from the system the maverick buying is practically eliminated without the rather harsh side-effects mentioned above.

Posted in Change Management, eprocurement, Organization, Procurement | 3 Comments »

The Undercover Purchaser

February 20, 2009

I recently finished reading The Undercover Economist by Tim Harford (You might recognise the name from his always humerous columns in The Financial Times). In my opinion this is one of the best business books published in years and a highly recommended read.

The book is basically a view on everyday life seen through the keen eyes of an economist. It is a well-written summary of all the things you (most likely) forgot from the dull text books on macro (and micro) economics or rather all the things you should remember, or know about if you never studied economics.

Mr. Harford starts out by providing the foundations in terms of basic supply and demand relationships and their implications. Through a series of both funny and relevant real life case studies the reader is then guided deeper and deeper into the layers of modern economic theory where quite a few of them are highly related to purchasing (like how to not get duped in an auction through amongst other things the application of game theory as an example).

I think it is becoming increasingly important to remember the impact of modern economics on the realm of purchasing and the ‘deductive reasoning’ argumentation style that often holds such a big part in it.

I do not want to take anything out of the experience of reading this excellent book so I will opt for a quote from the introduction and hope it inspires you to learn more:

This is a book about how economists view the world. In fact, there might be an economist sitting near you right now. You might not spot him – a normal person looking at an economist wouldn’t notice anything remarkable. But normal people look remarkable in the eyes of economists. What is the economist seeing? What would he tell you, if you cared to ask? And why should you care?

You may think you’re enjoying a frothy cappuccino, but the economist sees you – and the cappuccino – as players in an intricate game of signals and negotiations, contests of strength and battles of wits.

The quote above triggers the obvious question in the context of this blog: How do you know when you are sitting next to a purchaser procurement professional?

Posted in Business, Global trade, Procurement | Leave a Comment »

The necessity of purchasing evangilism

February 16, 2009

I often refrain from commenting on the activities of procurement/sourcing vendors; but I have to give a big shout out to the recent activities at Coupa. Last week, Coupa appointed Rob Bernshteyn as CEO, succeeding Coupa founder Dave Stephens in the role.

This might seem like nothing more than a company reorganizing themselves to suit the needs of their market; but the thing I love about this story is where Dave Stephens is going. To quote the press release:

Stephens will remain with the company as Coupa’s Chief Evangelist with responsibility for customer advocacy and business development initiatives.

Now, if there is one thing that procurement/sourcing/purchasing need, it’s not another CPO or another CEO or any other three letter acronym. In my mind, purchasing needs more evangelists. People willing to go out there and speak their minds, getting the profession out into the open, preaching the gospel if you will. Otherwise, what are the alternatives – as David Rae quite bluntly points out on the Procurement Leaders blog:

“…until we recommend pursuing a career in procurement to our kids, the profession will always be one, two, maybe three steps behind the likes of law, accountancy and finance. Not to mention marketing and sales”.

To be honest, I have no idea where Dave Stephens actually is going, but the semantics of his new title (and hopefully the activities of his new role) gives me great hope for the future of purchasing.

Posted in Business, Organization, Procurement, Sourcing, Vendor | 1 Comment »

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