Globalization has transformed the world into one big economy. Capitalist theory suggests that markets in an open and healthy economy promote widespread well-being by increasing competition and ensuring the availability of goods and services. Increased competition then drives production cost optimization, research and development, quality management, differentiation, innovation, and other positive externalities. Broadly speaking, competition generates wealth.
Procurement organizations often note one pursuit above all else: getting a seat at the table. I think we have coined this phrase more than any other in the procurement space in the last decade. If you’re not familiar with this concept, it is the desire for procurement to been viewed as a valued asset in strategy building and decision making by its customers: the broader organization. Put simply, procurement wants to be heard early and clearly by their internal peers.
Metrics are a critical aspect of measuring the success of any business function. The importance of quantifying progress against goals and objectives cannot be overstated. Without a metrics program, underperforming organizations are unable to target functional areas that require improvement, and growing organizations are unable to set goals or scale resources to align with the changing state.
Because procurement organizations are often challenged by stakeholder resistance and a lack of executive-level sponsorship, metrics are key to demonstrating value. Sourcing efficiencies, cost savings, stakeholder satisfaction, and overall procurement ROI are just the starting point for capturing bottom line impact. While these are often viewed as the foundation for a metrics program, the final structure can’t be established without being certain of data quality and availability.
When working with transformation advisory clients, we often talk about the role of procurement and the need to change how they are perceived within the organization. Changing stakeholder perceptions is not an easy task, nor does it happen overnight.
So where do we begin? Stakeholder relationship management.
To effectively and efficiently run a business, you need two simple elements – someone to spend the money and something to spend the money on. In other words, your stakeholders and your suppliers. There are many other complexities to be ironed out, like where the money comes from (revenue) and who assigns the authority to spend it (governance). Procurement acts as the liaison in this process, serving as the key intermediary between stakeholders and the suppliers.
Have you ever wondered why your savings projections supersede the realized savings? Have you ever been challenged by your finance department to validate the projected cost savings one year into an agreement? Has your C-suite ever complained that procurement’s estimates and projections go unrealized? If you have faced any of these or similar situations, you are not alone. Savings projections often fall short of reality, but why? For many procurement organizations, their sourcing efforts aren’t felt due to noncompliance.
In Part I of this series, Managed Print Services Models Part I: Lease vs Buy?, we looked at the key business considerations when making the lease vs. buy decision for acquiring copiers/printers. The other decision point within an MPS program is determining the service/maintenance agreement structure.
In a world where everything seems to be moving to ‘digital’, many people may assume printing is going the way of the dodo. And yet, managed print programs and the costs associated with copiers, printers, and maintenance of these devices are still quite common - and even necessary - for many organizations. While this may be driven by specific industry needs or be the result of an organization’s comfort level with printing, managed print services (MPS) are evolving and continue to be an area of opportunity for procurement to review and help optimize.
Whether your organization is just now making the move to MPS, looking to consolidate your MPS supply base, or trying to better manage your current MPS supplier(s), there are two main cost drivers to focus on within the category: 1. obtaining the device and the associated financing model and 2. The cost per click (CPC) (or the maintenance/service component). [As a side note, the maintenance component goes by a variety of names (cost per page, cost per copy, service cost, maintenance cost, click rate, etc.) and may have slight variations depending on what is actually included in your service agreement. I will refer to all of the above examples as ‘CPC’ throughout this post for simplicity’s sake.]
Have you ever wondered what other company’s fleets look like? How other companies source their fleet units, parts, and services? What information is needed to begin? The first thing to know, is that no two fleet profiles are the same. The second thing to understand, is that there is no right place to start; it all depends on your corporate procurement goals. Are you trying to maximize upfront funds? Is your goal to streamline services and optimize vehicle performance? Are you attempting to marry two fleets after a merger or acquisition? There are endless scenarios that will benefit from strategic procurement thinking.
The ‘app boom’ is widely recognized to be slowing as we approach the half way mark of 2017. Success stories such as Snapchat and Uber remain (in terms of continued, steep growth), but the aggregate growth in the app market has started to decline for the first time Apple introduced the App Store in 2008. The truth is, most people have already downloaded all the apps they need. The market is already saturated with apps that satisfy our basic needs: travel/directions, calendars, messaging, social media, gaming, news, weather, etc. This fact is well known by tech giants such as Facebook and their eyes are already on the next opportunity: bot technology.
“We take a buck, we shoot it full of steroids and we call it leverage.” -Gordon Gecko (Wall Street 2)
Leverage - a word that has such meaning it could be used to define itself. When it comes to negotiating, leverage is king. Whether you’re trying to negotiate a multimillion dollar contract or figuring out how to get an extra quart of strawberries included with your purchase at the local farmer’s market, people are always searching for it, and without it you have nothing. Having no ground to stand on when attempting to ask for a compromise from another party is not an ideal position.
Each purchasing category, whether indirect or direct, has a unique set of parameters that can be optimized to take full advantage the savings opportunities in the market. The packaging category is no exception, offering major opportunities for cost savings beyond the basic volume leverage approach.
Packaging, which may be considered either a direct or indirect product depending on the use and company, can be particularly complex to take to market. Many organizations strive to find a supply base that can support the company’s needs while generating value. Taking into consideration the upfront investment of time and resources (without a guaranteed ROI), running a competitive bid process can be an intimidating endeavor for many companies. However, with the proper expertise, packaging is an area of spend with major cost reduction and value added opportunities.
As I mentioned in Achieving World-Class Procurement Part 1, today’s increasingly competitive market landscape is driving organizations to reinvest in their procurement and strategic sourcing departments like never before. Beyond establishing centralized purchasing operations, best-in-class companies are elevating their procurement organizations by taking a deeper look at people, processes, technology, and metrics and optimizing them in ways that support enterprise-wide goals – through procurement transformation. Transformation initiatives allow companies to gain more value from their procurement operations, moving from a reactionary model focused on reducing costs to a more proactive approach to managing spend that streamlines purchasing practices and enhances supplier relationships.
In today’s competitive market landscape, simply having a centralized procurement organization is only the first step to better managed supplier relationships and spend. Leading organizations are quickly realizing that procurement and sourcing groups can offer far more value than tactical support. World-class procurement groups aren’t focused on processing POs and fulfilling orders. Rather, they’re focused on supporting each business unit at a strategic level.
Fleet operations can absolutely be an overwhelming category to manage. Between deciding on the right vehicle manufacturer, understanding the ever-changing vehicle features, selecting the appropriate maintenance plans, managing fluctuating fuel costs, and more – the active time required is substantial. However, rather than looking at this category as a mountainous challenge, Fleet should be seen as a major cost saving opportunity.
There are multiple triggers for evaluating the fleet category from the top down beyond just due diligence:
- Evaluating internal versus external management of the fleet.
- Mergers and acquisitions will prompt the evaluation and consolidation of fleet operations.
- A new company strategy may mandate the need for a new fleet policy.
- Maybe the organization lacks a concrete fleet policy or management structure and has outgrown a passive management phase.
In all of these hypothetical situations, a few best practices can be used for an effective category evaluation that enables both cost savings and process optimization.
For any of the reasons listed above, the fleet evaluation/optimization process benefits from taking a two-pronged approach that includes both a comprehensive OEM evaluation and a Fleet Management Services (FMS) provider evaluation. If the fleet administration and management function is housed internally, this two-pronged approach still applies in terms of analyzing the internally managed program (reactive and preventative maintenance programs, acquisition and resale processes, etc.).
Although we’re a few weeks past the Hanjin Shipping bankruptcy now, the shake up left experts, businessmen, companies, and customers alike wondering what other events could potentially jeopardize their operation or interfere with getting the product they ordered on time. There are countless risks in a globalized economy, making it a subject of relentless discussion among academics. That being said, some of the biggest companies in the world still do not have a team dedicated to risk management for their supply chain and procurement operations. A recent report by ATKearney and RapidRatings on managing supply risk in uncertain times found that “leaders have struggled to manage the latent risk in their extended supply chains. Most cite lack of bandwidth and budget as the biggest roadblocks. Dedicating scarce resources to prevent or minimize the impact of an issue that might never occur is often not a priority.”
With globalized supply chain operations, risk is growing and managing it is more critical than ever. Some risk factors have been greatly discussed in the industry, and others not so much. Below are a few of the risks threatening global supply chains as well as solutions and action items.
When you just look at a purchase from a pricing perspective, it would be reasonable to think that purchasing products directly from the manufacturer be an effective way to reduce unnecessary overhead and markup costs. While I generally find this to be true in practice, if it were that black and white the large number of distributors thriving in today’s markets would cease to exist. Manufacturers and distributors each have strengths and weaknesses, but in a strategic purchasing landscape you do not always need to choose between the two. In fact, developing a balanced relationship with manufacturers AND distributors often proves to yield the most value, particularly with high volume purchases.
The following is the transcript from a recent BMP Radio interview with Brian Seipel and James Patounas, both from Source One. If you would like to listen to the podcast, please click here.
As we covered in Nearshoring: Why Now?, outsourcing production operations to Mexico (or nearshoring) offers a number of tangible and intangible benefits over traditional “low-cost” country sourcing. Take China as a prime example: with labor rates in China, on average, exceeding those in Mexico since approximately 2013 and holding an advantage in productivity per worker, Mexico is increasingly becoming a hub for U.S.-based companies looking to transplant their supply chain operations. In moving operations closer to home, many companies are either fully or partially outsourcing manufacturing to suppliers in Mexico and in some cases, even placing full production facilities in that country. Sourcing suppliers in Mexico, however, is not without its obstacles: challenges that can quickly halt nearshoring operations for unprepared companies.
When you think of outsourcing manufacturing operations, what country do you typically think of? China? Vietnam? Philippines? Yes, Asia is typically the go-to region for companies looking to cut costs by outsourcing production processes - and for good reason. Asia possesses both the labor and raw material resources to make the region an effective substitute to higher cost labor in the U.S. and the limited availability of certain raw materials in North America.
While outsourcing to low-cost countries such as China has its benefits (i.e. labor/overhead costs, raw material costs, scalability, freeing up the business’ time to focus on other critical functions, etc.) it comes with challenges as well. Lead times, language barriers, time zone differences, IP integrity, and a general lack of physical presence make outsourcing certain functions a constant struggle for US-based manufacturers and can outweigh the initial savings gained over the long-term. Companies oftentimes look at the price-tag of outsourcing functions such as IT support or manufacturing assembly work, figuring the decision is obvious. However, to minimize risk and to optimize/streamline domestic manufacturing operations it is important to weigh the pros and cons of outsourcing, especially in deciding which low-cost region to outsource to, which processes to outsource, and which partner(s) to use.
As a procurement professional, I am frequently tasked with conducting a spend analysis on behalf of current and potential clients, but for those outside of the industry, this may be an unfamiliar exercise. In this post, I will attempt to provide a crash course on spend analysis, answering some of the most commonly asked questions about the topic: What is a spend analysis? Why should I do one? And finally, how do I do it?
A spend analysis is a very broad term that refers to… you guessed it! Analyzing the spend of an organization with the objective of understanding where money is being spent and where there may be opportunity for cost savings or process efficiencies. Spend analyses are conducted by procurement professionals in an attempt to get a comprehensive view of all of an organization’s expenditures and they are frequently the starting point for beginning the strategic sourcing process. There are a number of benefits to conducting a spend analysis, but the most important is transparency. A spend analysis provides a holistic view of all spend (indirect and/or direct) in a given time period, typically during a fiscal or calendar year. By doing this, you are able to gain visibility into where spend is being allocated, who the top suppliers are, how many suppliers you use for certain services, and areas of opportunity. For decentralized organizations, a spend analysis may reveal potential service redundancies across departments/brands and provide insights into areas of consolidation across supply bases. Along the same lines, a spend analysis provides organizations with the information needed to increase spend control by showing where and how spend/budgets are being allocated. Although there are many reasons why an organization would conduct a spend analysis, the benefits are consistent.