Best Practices in Supply Management Journal

77th Edition, August/September 2016

Articles In This Issue
Founder Appearances, Articles, and Job Opportunities for Our Readers:

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Public Conference Appearances

Tuesday September 13th, Corporate United Synergy Conference at the Intercontinental Buckhead Hotel, Atlanta, GA, USA. Mark Trowbridge will speak to members of the largest North American consortium on the topic of Innovative Trends in Technology Contracting from 2:15 - 3:00 p.m.   

Tuesday 9/20 - Wednesday 9/21 - Mark Trowbridge will present The Negotiator Challenge - Advanced Procurement Negotiations  workshop in alliance with ISM Nevada at the Clark County Government Center in Las Vegas, NV, USA. Anyone can click here to view the event registration details at  Las Vegas Negotiation Workshop

Wednesday 9/21 - Mr. Trowbridge will also be the featured presenter at ISM Nevada's monthly breakfast meeting at the Main Street Station's Pullman Grille on the topic of Negotiating Out of a Hole - Techniques for Complex Situations .  The breakfast meeting can be attended whether or not participants attend the workshop the same day.  Click here to view the event registration for the breakfast presentation at  Breakfast Presentation Details

Monday 9/26 to Wednesday 9/28 - Mark Trowbridge will present a public version of our  Expert Strategic Sourcing  masterclass at the "5 Star" DoubleTree by Hilton Hotel in Kuala Lampur, Malaysia.  Click her for registration information from the conference producer  Malaysia Sourcing Masterclass

Thursday 9/29 - Mark Trowbridge will present a one day workshop titled Selling Procurement to Internal Customers at the "5 Star" DoubleTree by Hilton Hotel in Kuala Lampur, Malaysia. Click here for registration information from the conference producer at Malaysia Selling Procurement Workshop

Wednesday 10/12 - Thursday 10/13 - Mark Trowbridge is the featured presenter on a masterclass titled Category Management  in Procurement at the "5 Star" DoubleTree by Hilton Hotel in Kuala Lampur, Malaysia.  Click here for registration information from the conference producer at Malaysia Category Management Masterclass

Thursday 10/20 and Thursday 10/27 - Mark Trowbridge will present  The Negotiator Challenge  - Advanced Procurement Negotiations workshop in Sacramento CA, USA for any interested attendees. Sponsored by the ISM Sacramento Valley chapter. Click the following link to receive more information at Sacramento Negotiation Workshop Info

Sunday 10/30 to Tuesday 11/1 - Mark Trowbridge will present our Strategic Procurement Management Training masterclass at the 5 Star rated Sheraton Grand Dubai Hotel in the UAE . Click to receive more information at Dubai Conference Info.   He'll then fly the following day to Singapore on behalf of the same conference production firm and present on Thursday 11/3 & Friday 11/4 our Supplier Performance Management workshop at the 4 Star rated Singapore Holiday Inn Atrium Hotel. Click here for information on that program  Singapore Conference Info

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Online Training Events Scheduled

Several Online Training Programs begin in upcoming months which feature video and audio presentations by Mark Trowbridge on key areas of procurement performance. In an state-of-the-art web Virtual Learning Environment (VLE), each of these 6 week long programs features weekly presentations, group quizzes, participant exchanges, and SPS instructor interactions for attendees representing numerous procurement groups.  The following programs are starting on the listed dates, and details can be viewed on the website of our eLearning partner through the following link...Online Procurement Programs

* Beginning 9/20 - A 6 Week Online Training Forum titled Practical Procurement Management (Process, Tools & Techniques)

* Beginning 9/20 - A 6 Week Online Training Forum titled Managing Supplier Performance (Capturing Deeper Value & Savings from Suppliers)

*  Beginning 9/20 - A 6 Week Online Training Forum titled Contracting Management (Drafting Techniques, Negotiation & Administration)

*  Beginning 10/4 - A 6 Week Online Training Forum titled Strategic Sourcing & Cost Reduction (Driving Quality, Reducing Total Costs)

*  Beginning 10/4 - A 6 Week Online Training Forum titled IT Procurement Contracts (Innovative Practices)

*  Beginning 11/1 - A 6 Week Online Training Forum titled Optimized Materials Management (Best Practices for Acquisition, Storage & Use of Inventoried Items)

*  Beginning 11/1 - A 6 Week Online Training Forum  titled Procurement Negotiations (Uniquely Tailored to the Procurement Professional)

*  Beginning 12/1 - A 6 Week Online Training Forum titled Category Management in Procurement (Bringing Strategic Sourcing Full Cycle)

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Modern Materials Handling Magazine featured an article by one of Strategic Procurement Solutions principals titled " Swamps, Alligators and MRO".  Click the following link to view that article on their website  Article Link.

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Job Opportunities with Strategic Procurement Solutions' Clients can be viewed below (if interested, please email your Word curriculum vitae or resume to us at...
 
* Senior Sourcing Specialist (Indirect), Privately-held Consumer Goods Manufacturer, Strong Knowledge of Indirect Sourcing.  Solid Understanding of Procurement Contracting Principles. Midwestern USA company location.  Base Salary $100,000 - $110,000, plus excellent benefits package.  Relocation negotiable. 10 years of experience in sourcing and contracting of MRO and Indirect expenditure categories within a strong strategic sourcing organization.  4 year degree required.  MBA and CPSM, C.P.M., or CPCM certifications desirable.

* Senior Sourcing Manager, Leading Insurance Enterprise, Northern California. Base salary $150,000 to $160,000, plus excellent bonus and benefits packages. Experience with Insurance Claims and Property Management sourcing/ contracting required. Relocation negotiable.
   
* Manager of Procurement Services, Governmental Organization, Central Valley, California USA  Base Salary $105,000, plus strong benefits package. 10 years of governmental experience and 4 year degree required. 

* Manager of Sourcing & Contracting, Privately-held Consumer Goods Manufacturer, Strong Knowledge of Indirect Sourcing and Contracts Management.  Midwestern USA company location.  Base Salary $125,000 - $130,000, plus excellent benefits package.  Relocation negotiable.  12+ years of experience in sourcing and contracting within a strong strategic sourcing organization.  4 year degree required.  MBA and CPSM, C.P.M., or CPCM certifications desirable.










 

























































This electronic journal has been read by nearly 14,000 Supply Management Professionals around the globe. We hope you enjoy this bi-monthly edition. Feel free to forward to your colleagues!  
 
"Negotiation...the 'Crown Jewel' of Procurement Practices" - by Mark Trowbridge, Principal, CPSM, C.P.M., MCIPS
A common misconception exists today with too many procurement professionals; that the "best" pricing is usually achieved through competitive bidding or auctions.  But a bit of common sense will illustrate that just bidding out a common set of requirements to multiple suppliers will usually only get us to a 'market-preferred'  price level. 
 
This is because the typical selling price (from a supplier) for any product or service is made up of their cost plus a profit margin.  If we request a quotation/proposal from numerous firms on specifications for products/services defined by us, the "competition" will largely be on the profit-margin charged by each firm.  That's because the "costs" incurred by similar firms in a market segment will be similar.
 
But the portion of a supplier's selling price which is represented by the profit margin is usually a small minority of the total.  Consider the following average net margins described in a recent Forbes Magazine article (Lyan Chen, Forbes Staff Writer, July 21st 2016) as being present in several major industry segments during 2015:
 
- Information Technology Services - 15.67%
- Producer Manufacturing - 7.78%
- Process Industries - 7.01%
- Industrial Services - 4.24%
 
If we consider the supplier "costs" (materials, subcontracted services, overhead expenses, taxes, etc.) onto which these margins are added; we see that a respective 84.33%, 92.22%, 92.99%, and 95.76% of each firm's selling price is not baked into the "profit" margin typically impacted by competitive bidding.
 
Now, lest I be misquoted; I do believe that a well-designed RFx can impact a supplier's "costs" to a partial degree.  But the typical RFx is designed to solicit proposals/quotations based on specifications the buying organization has set as a minimum standard.  Suppliers are usually not allowed to propose changes to those specifications.  This is especially true in RFQ or Auction formats of competition (rather than RFP forms of tendering).
 
So how does this relate to the subject of 'negotiations'?  It is because negotiations are where the big boys play in complex and high value sourcing initiatives.  Negotiations are where the "cost" part of a supplier's pricing model can be explored and leveraged.  I'd rather get a 10% savings on the 90% "cost" portion of a product/service price than a 10% savings on the 10% represented in profit margin for the same supplier.
 
Negotiations can deeply explore many Total-Cost-of-Ownership (TCO) factors throughout the entire lifetime of the acquired products or services:
  • Alternative Products
  • Less-Costly Materials
  • Revised Production Processes
  • De-Scoping of Services
  • Demand Management
  • Cost Avoidance
  • Etcetera
Negotiations are certainly not the only tool in a sourcing professional's toolbox.  There will always be an important place for techniques like Auctions, RFQs, Tenders, and Group Leveraging in marketplace reviews.  But don't forget that collaborative negotiation is the primary technique used in the "Strategic" and "Gridlock" (2X2 Kraljic Matrix) quadrants of every organization's supplier portfolio.  Negotiations can be used in combination with other techniques as well; for example a RFP leading into finalist negotiations.
 
Several years ago, I had a very interesting conversation with a senior sales executive for one of the largest office supply companies in the world.  They shared that "none" of their 19 "lowest-margin" customer accounts had been priced through an auction.  He said that "all" 19 of the company's lowest-price accounts had been contracted with customers; following either a "RFP plus negotiation" or a "re-negotiation with a current customer".  Very interesting observation from a leading supplier in one of the most-frequently auctioned spend categories...
 
Strategic Procurement Solutions' instructors present onsite training workshops for corporate and governmental clients at their locations around the globe.  Programs which feature negotiation skills include The Negotiator Challenge - Advanced Procurement Negotiations™ (2 days) and Expert Strategic Sourcing™ (3 days).   Our company leaders are also featured presenters of online multi-week web training programs like Procurement Negotiations™ and Strategic Sourcing & Cost Reductions™ on one of the most-dynamic web-based Virtual Learning Platforms (VLP).  Contact us at Click for Training Brochures for brochures about either of these training modalities.

About the Author - Mark Trowbridge, CPSM, C.P.M., MCIPS is one of Strategic Procurement Solutions founders. His 30+ years in procurement leadership began in the Manufacturing, Airline, and Financial Services sectors...culminating in a role leading three-quarters of the strategic sourcing activities, and all of the contracts management responsibilities, for Bank of America (then, the USA's third most-profitable company). During his final two years with Bank of America, Mark's areas of responsibility delivered a Quarter Billion Dollars in cost reductions. During the last 19 years, Mr. Trowbridge has worked in the consulting field with many leading corporate and governmental clients. His business travels have taken him throughout North America, Europe, the Middle East, and Asia. He is a frequent author on supply management topics, with articles appearing in publications like Supply Chain Management Review, Inside Supply Management, IFPSM's eZine, eSide Supply Management, and Strategic Procurement Solutions' own Best Practices in Supply Management Journal.  Mark's  is among the top 1% Most-Viewed LinkedIn profiles.

  "Raising the Bar on Procurement Efficiency"... by Robert Dunn, MBA, C.P.M., Principal
The concept of "benchmarking" is often applied to supply management efficiency by the big consultancies and trade associations.  But what do we achieve by comparing one procurement operation to levels achieved by a group of others?  Too often, benchmark studies merely identify "average" performance levels for a group.  True benchmarking studies and surveys need to be targeted to reflect the performance of leading performers; not just mediocre levels.
 
Important Question - How can procurement organizations at any level of development take their groups to a higher level of performance and efficiency?  How can they raise the bar?
 
The answer is not so simple as to just benchmark certain portions of their Source-to-Payment (S2P) process against industry averages.  You see, the process of procurement is as much an art as it is a science.  Yes, there are quantifiably-measurable cycles and ratios that bear meaning; such as...
 
- Request-to-Payment Cycle Timing
- % of Spend Under Negotiated Contracts
- % of Transactions Through eProcurement
- % of Spend Through pCards
- Etc. 
 
But there are many other elements which require observation and knowledgeable insight to properly-evaluate; like...
 
- Negotiation Expertise
- History of Sourcing Strategies in Major Supplier Relationships
- Supply Chain Risk Mitigation & Management
- Contract Quality
- Supplier Performance Management, etc.
- Etc.
 
In order to have validity with executive management, sometimes it can be helpful to utilize an objective third-party to evaluate procurement efficiency.  An objective review should not be subjective though, and (at a minimum) should include Review of S2P Performance, Expenditure Analysis, Review of S2P Process Steps, Policies & Procedures, Internal Procurement Staff Interviews, Internal Stakeholder Interviews/Viewpoints, External Supplier Surveys, Procurement Staff Skills Assessments and Benchmarking to Top-Performing Peer Organizations.
 
But if you do utilize a consultancy, make sure it is composed of persons who have held 'real' procurement jobs in top-performing organizations.  Don't hire anyone who has been a pure 'consultant' most of their career.  In a quote many supply management professionals might agree with, Coach John Madden once said, "A consulting position might work in another profession, but not in pro football.  There's no such thing.  They give a guy a parking spot and put his name up as a consultant, and in six months, they erase the name."
 
Strategic Procurement Solutions regularly performs 360o Supply Management Efficiency Reviews for companies and governmental agencies.  Our reviews have identified between 10:1 and 166:1 in cost benefits for clients compared with the moderate fees paid for a several week-long evaluation.  Recent reviews have included the world's largest manufacturer of lawn/garden furniture & accessories, one of the largest design/build construction firms in the Middle East, a major US city emerging from bankruptcy, a Tier 1 technology distributor, and a Fortune 150 energy firm. Feel free to click here at Click Here for 360 Review Brochure for a PDF brochure about these services.

About the Author:  Robert Dunn, MBA, C.P.M. is one of Strategic Procurement Solutions' founders.  His 40 years in procurement leadership covered management positions in the Government, Technology and Financial Services sectors; culminating in a role directing all of BankAmerica Corporation's procurement operations.  He has served as President of two ISM/NAPM affiliates, and taught supply chain management at the post-graduate level for California State University - Hayward and St. Mary's College - San Francisco.  He has also worked with major corporate and governmental clients in the consulting industry for the past 18 years, and was one of the founders of Strategic Procurement Solutions.   Robert has worked on major procurement initiatives in North America, Latin America, Europe, and Asia. 
 He is a noted author, with articles published in publications like eSide Supply Management and Strategic Procurement Solutions' own Best Practices in Supply Management Journal (the latter of which is now distributed to over 13,000 readers).

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