Single Sourcing May Kill You

I have never been a proponent of single sourcing. I also don't believe in having an endless number of suppliers for every product.

Yet what I've always strongly recommended is having a primary and a strong secondary vendor, because as seen particularly in the last year with the economic downturn, that as a buyer, you can be left swinging in the wind if you only have one supplier and that supplier goes belly up. Your business could be compromised to the point of bankruptcy.

The powers that be have always argued with me on this point. "Oh...we can get better pricing by consolidating volume! We win -- our supplier will do anything to keep the business." Well that's a nice naive thought that doesn't take into account the fact that firstly there is an a limit to volume pricing....for every 1000 let's say you add, you don't get a tremendously better deal, because there is a limit to the profit that a supplier can give up. Secondarily, you may actually get better pricing by ensuring that you continue to have some competition going on by keeping at least two suppliers in the game. And thirdly? One that the government of Canada is now seeing -- there is a tremendous risk relying on just one supplier.

In the paper today it says that Ottawa is "rethinking" their sole source to GlaxoSmithKline for the swine flu vaccine. No kidding! The inability to supply the vaccine after the federal, provincial and local governments have created a panic of "if you don't get the vaccine you will die" is almost criminal. But what is worse is the fact that bureaucrats who don't understand the implications of lack of supply and who inherently put their misguided trust into one supplier are those that gave in to the "powers that be" whom I argued with often in my career.

As I said in my previous blog....the lack of supply and quite honestly the logistics surrounding getting people vaccinated should have been put into the hands of a competent supply chain professional. By the time now that the vaccine will be available..the flu season will be mostly spent...I for one am not getting the vaccine, because I also have never bought into the Chicken Littles out there...and I used to work for a vaccine manufacturer!

Swine Flu and Supply Chain

Quite honestly, I never thought that I would be referencing these two items in the same blog, but as the disaster of the logistics surrounding the distribution of the swine flu vaccine escalate, it begs the question...where is any thinking surrounding supply, demand and distribution.

In Toronto, people have lined up for upwards of 6 hours, just to get the swine flu shot. No opportunity to book times, just show up like for rock concert tickets and good luck. Beyond the fact that most of those in these lines will probably get sick with the flu now given the cesspool of germs that they were inhaling along with hundred of other people -- because let's not forget that it takes 10 days for the vaccine to be effective -- it seems to me to be an unconscionable that this could not have been organized better.

I mean it is not a surprise...this has been in the planning for months. And now when enough vaccine was going to be delivered next week, all of a sudden there are only 1/4 of the expected amount being made available, because, we are told, of the manufacturers shortage. Makes you wonder who paid more for the vaccine so it is getting delivered elsewhere first.

If there was a logistics expert hired to manage this process, this whole fiasco wouldn't have happened. Would there have been unexpected issues? Sure, but there always are. However, if you are an expert in supply chain and deal with these types of logistical issues day to day -- you can figure out better options pretty quickly.

So yes, the swine flu vaccine situation is a supply chain issue. Hopefully at one point in time, those in charge will see that and get the proper assistance.

The 5% solution

The Ontario Government is struggling with a 24 Billion dollar deficit...and they are looking at a 5% solution for cutbacks, but are not quite sure how to attain this.

Having worked in the public sector at one time and knowing others who do today, I will honestly tell you that there is way more than 5% the government could be saving without affecting services.

Firstly, let's get rid of "March Madness". This is still occurring in all areas of the public service, whereby if budget monies have not been spent, there is a mad rush to do so prior to the end of the fiscal year of March 31st. I have lived this first hand, having all sorts of ludicrous purchases made just to spend the money...because if you don't spend it, you won't ever see it again...such is the mentality of many in the public sector. It would be interesting to see what would happen if starting February, all government purchases would have to be scrutinized for "worthiness" prior to purchases being made.

Secondarily, some of the processes within the government are so arduous (like issuing 164 page RFPs) that you need a small army to executive. If these were simplified, then you would be able to implement solutions faster and moreover reduce the number of personnel required....which is where most of the dollars are spent today.

But you know that this would actually require some planning and thought. Not something that is in high supply these days when dealing with politicians.

Corporate Social Responsibility

I am quoted in this article recently appearing in Inside Supply Management. The article Calculating TCO for Intangibles is interesting. I gave a lot more insight than what appears in the article, however, suffice it to say this is an important topic that requires a lot of dialogue amongst the C-suite and other levels of all organizations.

The Incredible Shrinking Customer Service

This title may not be the best grammar, but I think it brings the point across. Do you remember the 1957 movie, The Incredible Shrinking Man? The plot was that a scientist gets contaminated with radiation until basically he is microscopic. Well, that is what is happening to customer service today.

As corporations put millions of dollars into marketing and saying how they are the best, the have chosen to forget about the fundamentals, which is after the flash causes the buy, then the crash can cause the burn. That is, once you buy, what is important is after sales service and particularly how a firm deals with an issue.

I have always, in my corporate and private buying roles said, every supplier will encounter issues...so I never judge them on that, but on how they deal with it and how they move forward to resolve it and ensure it doesn't happen again.

You would figure in these recessionary times there would be a significant focus on maintaining your current client base -- that is keeping your clients "happy". Yet it seems in many cases the opposite is true...once the sale is made, damn the torpedoes, there off to the next potential victim.

This last weekend on a personal note, I've had two extremes...the good, followed by the ugly/bad. Yet even though this is a personal anecdote, this is also highly applicable in business to business transactions.

First, the good. I have been looking to buy appliances for quite a while and although I had always bought them previously from a major retailer, I chose to go to a appliance distributor. They have ads on the radio and I started going there about 6 months ago, trying to find the right 3 appliances -- issue was space. Well, over 6 months, dealt with the same sales person, and finally this last weekend I made the buy. At this point the sales rep, gave me the name of the installer this distributor uses, and said to save money go direct to him. (and he is the best) He also asked that I call him when I am told that the appliances are ready for delivery and he will coordinate drop off, pick up etc. He also said anytime if I have a question or issue to call him, because he would hope that he'll get referral business...well you can bet he will.

Second, bought some new light fixtures for outside the house. When the electrician was here..it became obvious the fixtures were manufactured crooked. The electrician and I went to the store (he had recommended this store) and they said well the others are a little crooked but perhaps good enough...no way ..said I. So I bought two others, slightly more expensive, but a known brand. To compensate for the issue, they gave me two tiny chandelier bulbs, which are too small for the fixture. Well got them back to the house...the first one was OK, the second, not so much. So the electrician went back, got a new one, and suggested they give me light bulbs for free that would properly show in the fixture...you know what they said to him...sorry, that will cost us $7 so we aren't going to do it....they didn't care that the electrician lost time, spent gas etc. and as well my day was shot...for $7...so do you think that I will be recommending this lighting store...no, in fact I will be trashing them at every opportunity.

I have many other examples, and it seems recently things have gotten worse. If it keeps going like this, we will have to chase customer service into the next dimension, because just like the incredible shrinking man, customer service is soon to be microscopic in many organizations.

Good Consultants Vs. Bad

Ok, it might seem a little odd for me, a consultant, to be writing a blog on how to procure consultants, but let's not forget that my specialty is in procurement and consultant and contract labor spend is often a major category for most public and private sector companies, except most often, there are no controls, consistent processes, or benchmarks surrounding pricing/disbursements. Furthermore, everyone knows someone who is in the "body shop" or consulting business.

So it is very difficult for organizations to actually know the value of the spend, because there is so much leakage surrounding it. And furthermore, often, during the contracting phase, the issue of disbursements is often overlooked. If you read the headlines in the newspapers, this is often what gets press.

I am getting a little tired of consultants taking the bashing for poor procurement practices...such as the media reports at eHealth and now Cancer Care. Interestingly at no time has anyone said that the consultants haven't done their work. The issue mostly is how the contracts were awarded, the pay rates and the disbursements (or in other words expenses).

Now personally, when I do a contract for a client, unless I have to travel outside of a 60 KM radius, I don't charge mileage; I certainly don't charge for meals (I have to eat anyway); and lord knows, I'd never even think of billing the client for coffee. The only extraneous expense that I charge is parking -- because that is directly related to the client and in a major metropolis it can get quite expensive. And as an independent (highly skilled I might add), I don't charge what other independents do nor big firms...because I recognize I don't have overhead like the latter do. Why the former charge $3K plus rates, who knows.

So how do you procure consultants...Firstly, you don't need to tender everything, particularly if it is a smaller project and you need specific expertise. But what you do need to do is ask for a proposal that outlines approach and expected deliverables. You should know what the market pricing is, and you need to have a clear understanding of the costs of disbursements...don't pay for meals, mileage and the like...because this is a boondoggle. Make sure as well that any travel outside a specified area follows your corporate guidelines....not theirs.

I'll spec out full disclosure below, but this needs to be identified for any sole source arrangement. Also there should be some documentation that supports why this individual/company has the skill set required and why a tender was not required.

Make sure that there is a hold-back of 15 to 20% which will only be paid at finalization of contract. Oh and this brings me to another point. If you actually have a pretty clear project scope, have the consultant bill you on a fixed price vs. per diem base. Most consultants can pretty much figure out what a project will cost, and it will save you from having to pay for non-productive time.

If it is a larger project, of course you need to tender, but make sure there is no pre-conceived thought as to who to award it to...as my previous blog said, don't tender for the sake of tendering. Make sure that all conflicts of interest are clearly stated up front...that is has this person/company worked for you before, do you have a personal relationship with this person/company or anyone else (such as a wife/husband etc); have you ever accepted any service/good from this person/company greater than $100...well you get the idea.

I could rant on about this for a long time, but the reality is don't blame the consultants...there are always people who will try to take advantage of a situation -- but don't paint everyone with the same brush. If the appropriate procurement was done on this category...many issues could be avoided even more than those stated...because there is also risk, intellectual property, liability, not to mention what I have seen several times is that two different groups hire consultants for the same work, or a year later a consultant is brought in to do the same work someone had done before.

I'll stop now. But as you can see I could go on for a long time.

Deceit and Misdirection...the Ontario Way.

This entry is not about procurement or supply chain. It is actually about deceit and misdirection.

In today's Toronto Star, there is an article about civil servant salaries that made me believe that the current provincial mandarins should be put in the "Dr. Phil House" to understand what is meant to be truthful and above all open with the constituency it is serving -- the taxpayers.

The article, entitled Bureaucrats skirt rules to hide huge salaries speaks to salaries being paid to high ranking civil servants that are significantly outside the agreed to bandwidth for the positions that are held by these individuals. But beyond being outside the bandwidth, the government chose to pay them in a circuitous manner, not out of the budgets in the ministries for which they work, but through another almost hidden methodology, that quite honestly looks like minions skulking behind closed doors figuring out how they can pull the wool over those that the government serves.

The reason given? Well we have to be competitive to attract top talent. OK, I don't necessarily dispute this, yet there are three factors that I think are quite important to consider here.

• Firstly, if it is the case that the salaries are too low to attract "top talent", then why isn't the entire salary grid being reviewed to ensure that this is the case across the board, or is the "top talent" only those who have been deemed to be anointed by the politicos.
  
• Secondly, again, if the attraction of "top talent" is true, then why try to hide it? Why not put it out front that these people are worth the money being spent on them and they more than earn their keep? In my experience, people try to hide things that they can't defend.
• Thirdly, government workers have pensions the like of which private sector employees don't have. So, when trying to "attract top talent" isn't this a selling feature?

So perhaps we can get the Premier and all the cabinet ministers into the Dr. Phil house and see if the he can get to the underlying reasons for the intense deception that has become the norm vs. the exception in the corridors of the Ontario government.

The recent movie The Invention of Lying is probably used in training videos for the political mandarins....but they have moved well beyond the inventing stage. From what I can see they will be starring in an upcoming movie ... The Masters of Lying.