I was recently asked this question: "Shouldn’t we set an objective for the number of suppliers that we want our supply base to shrink to?"

I know that in some circles it is popular to make public pronouncements about the degree to which a company plans to reduce its supply base. For example: "Company X announced today that it plans to reduce its supply base from 30,000 active suppliers to 5,000 within the next 18 months."

I’ve always wondered what the executive was trying to accomplish by making such a pronouncement. Perhaps it is part of the same logic as announcing internal layoff targets—trying to signify seriousness and suggest a degree of cost reduction. 

But the problem is that simply reducing the number of suppliers doesn’t guarantee good results. The appropriate number of suppliers—in a category ...Read More

Comments (0)

On occasion, I come across a humorous website that deserves to be mentioned—even to an audience of serious-minded supply management leaders. My latest website find is courtesy of my wife Nancy, who I heard laughing recently at her computer. She was viewing a graph at www.graphjam.com. 

I won’t tell you the particular graph that caused her to laugh, but go visit the site yourself. You’ll undoubtedly find something worth sharing with your spouse or colleagues.

Comments (0)

One area of opportunity is payment terms. It is also an area ripe for disaster, if approached improperly. 

When we work with clients on designing and executing a procurement transformation plan, one aspect (of many) typically involves analyzing current payment terms and making recommendations for changes (and how to approach suppliers). 

One classic error companies can make is to take a very arrogant approach, literally “dictating” that their supply base accept a new, aggressive payment term. 

The latest example of taking that approach appears to be AB InBEV, the large global brewer. News stories both in the U.S. and in Europe report that AB InBev has changed payment terms from 30 days to 120 days (in one fell swoop). To say that this has generated controversy and ill will is an understatement.

Sources tell me that this highly-ag...Read More

Comments (0)

In the near term, what’s a procurement professional to do if your employer discontinues investing in your ISM membership, or more generally discontinues investing in your ongoing development and training? 

Assuming you are serious about your profession, and interested in advancing your skills and ultimately your career or responsibilities, my recommendation is straightforward: 

• Don’t ignore the warning signs. As indicated in my last posting, failure to invest in people is a leading indicator of future serious issues at a company. 
• In the near term, pay for it yourself. The “cost” of falling behind far exceeds the “savings” from deferring your professional development. Don’t make the same mistake your current employer is making. Invest in yourself—it’s the one investment tha

...Read More

Comments (0)

A reputable source told me last week that a major U.S. corporation recently informed its procurement staff that the company will no longer pay for their professional membership in ISM. Is this another example of "penny wise and pound foolish" behavior? 

Let’s do the math on this decision. 

• Annual dues for ISM vary by affiliate, but average about $200 per person per year
• Assume the member attends 5 dinner meetings at $25 per event = $125 per person per year
• Potential corporate cost savings per procurement employee per year = $325 

In terms of the total “investment” that a company makes in its human resources, $325 per person per year is a pittance. To put this in perspective: a new PC alone can run a few thousand dollars per employee every two to three years. 

Wha...Read More

Comments (2)

Procurement professionals know the difference between cost avoidance and cost reduction. Cost reduction unquestionably creates value for an organization, by lowering costs compared to prior-period actual costs. Realistically, it is the objective that senior management cares about. Cost avoidance is a potentially dangerous game to be playing, because it often means that actual costs continue to increase year over year, though perhaps “less fast” compared to some expectations. You can literally go out of business while reporting great cost avoidance results. 

I have to admit being a purist on this topic; that might be because of my financial background prior to becoming a CPO. For maximum credibility, and for relevance to your company’s Income Statement, focus on—and measure—cost reduction. 

You probably noticed a few weeks ago the ma...Read More

Comments (0)

Just a few weeks before General Motors’ Chapter XI filing, seven GM officials dumped most or all of their stock in GM. 

For the full story in the Wall Street Journal:

http://online.wsj.com/article/SB124213933912010873.html

Given the already-low price of GM stock at the time, no-one could have received large proceeds on their sales. So the question that begs asking: why do it at all? The stock sale certainly didn’t send a strong positive message about management’s view of the company.

Comments (0)

I recall one challenging sourcing effort, years ago, where the supplier sales rep was arrogant, and smug, when dealing with the sourcing team. And, he had reason to be over-confident—he had contacts throughout the customer’s organization, from the corporate office to plant locations, from the general manager level to the loading dock. This supplier rep was literally “plugged in” to the customer’s organization. As a result, he knew more about the company’s current activities, and near-term plans, than the sourcing team. 

It took a while for the sourcing team to realize what was going on, and why it was having difficulty with this supplier rep, but once it did recognize the issue, it went into action. It identified, over the course of several weeks, all of the internal contacts that the supplier rep had in his network. And then came the bri...Read More

Comments (0)

There are some obvious, and not so obvious, factors that affect the ultimate success of your sourcing teams. One of my favorites is the challenge, and the discipline, to have all your employees “speak with one voice” to suppliers. This posting, and the next one, originally appeared in this blog one year ago—and are repeated now due to the timely nature of the topic. 

Are you frustrated with suppliers who do end runs around your sourcing teams? 

Do you wish senior management would stop talking with suppliers, or at least ask you for input on what to say? 

Does your supplier always seem to know more about what is happening at your company than you do? 

“Speaking with One Voice” is a key success factor in strategic sourcing and supplier relationship management. It’s an important internal discipline...Read More

Comments (2)

Let’s recap some fundamentals that I first described in December, 2008: 

Why do some companies commit to building organizational capabilities in supply management, year after year, and others do not? …

Based on what I have seen at companies in various industries, there is a straightforward link between “executive awareness” of the value of strategic supply management, and top management’s willingness to invest in supply management.

As I have seen often, the road to success in achieving an organizational commitment to training and development starts with creating executive awareness:

• Awareness of the current state of supply management practices at your company, compared to supply management best practices
• Awareness of t

...Read More

Comments (0)

In recent posts, I’ve described some classic mistakes that corporate and procurement leadership can make. Here is another: cutting training budgets. And, based on the low attendance at recent conferences, many companies are evidently succumbing to the temptation. 

We first identified this risk in October, 2008, when we posted the following:

Under the pressure of a weakened economy, companies will look to all forms of discretionary spending to reduce costs. Typically travel and training are at the center of the cost reduction bulls-eye. While there may be rational agreements for cutting back in these areas, cutting spending for all forms of training may be cause for problems later.

Procurement will be expected to produce results that will be consistently positive—going str...Read More

Comments (7)

Having just returned from a series of conference presentations, the subject of professional education is on my mind. 

It has been on my mind for other reasons as well. A few weeks ago, Charles Dominick, of Next Level Purchasing (and author of Charles’ Purchasing Certification Blog), interviewed me on the subject of what it takes for someone to become a CPO. 

In his blog, he includes a PODCAST of our conversation on that important subject. Find it here: 

http://www.purchasingcourses.com/purchasingcertificationblog.html

The relevant post is dated Monday, May 18. There is an article, as well as the link to the podcast. 

Enjoy! 

Comments (0)