Corporate Gifting at Christmas -- The Right Way

It's the week before Christmas,
And all through the office halls
The rattling of cellophane is heard,
As the delivery person hauls
A basket for Larry,
A basket for Sue,
A basket for Robert
And a basket for you.
The eyes widen far
To take in the sight
Of goodies galore
That can be eaten tonight.
Thank you supplier A, B and C
The cookies are great
But you see, there is a policy
Because these gifts are somewhat seen as bait
Oh yes you give them with sincerity
To demonstrate with clarity
How you appreciate my business
And hope next year will equal in prosperity.
I don't want to seem
Nasty and mean
But isn't there another way,
You can show how much I mean?
There is no home for some children and their mothers
And there is only the advance of disease for many, many others.
But they deserve just like us,
A holiday filled of dreams
And You could make a difference by just
Giving the basket and gift money to a worthy cause because it seems
This would make Christmas truly what it has always meant to be
A time to give to those who don't have as much
As you do and me!
Larry, Sue and Robert
They have money to buy gifts
And a family at home.
They aren't spending Christmas,
Afraid or alone.
They and their family are healthy and happy
And can't even fathom
Being given a diagnosis
That a disease truly has them.
It would be much better for you and for me
If you donated this money so that someone can be
Happy at Christmas, or at least have a chance
Next year for a cure, to this disease that has advanced.
So that at Christmas this time next year
They'll be smiling for sure
As they hug their loved ones
And hold them oh so near!

Merry Christmas and Happy Holidays!

Procurement Game Show Series (7): The Gong Show

In the late 70's The Gong Show, hosted by Chuck Barris, hit the airwaves. This was a so-called talent show, where celebrities would judge contestants, and after pretending to restrain themselves would give really bad acts The Gong. The show would always throw in one or two people who actually were talented (someone had to win a prize, after all). The top scorer of the day won the grand prize of $516.32. It was the first true TV show that capitalized on individual's need for their fifteen minutes of fame; but also demonstrated how many people actually believed that they truly had talent and were devastated (and sometimes angry) when they were given the Gong.


How often has it happened to you --you get a proposal or a presentation from a supplier where you wish you could remove all protocol and pull out The Gong and end your pain and suffering (as well as theirs)? Over the years I have truly been exposed to The Good, The Bad and the Absolute Ugly in this regard. Vendors who don't know what they are selling, have not bothered to define what is being bought, or present in such a painfully amateurish way, that euthanasia may be the only effective answer.

This is not just the territory of small inexperienced suppliers, in fact, although by no means immune to this failing, it occurs equally as often by larger vendors, often the incumbent on an account. It is unfortunate that the latter is often driven by arrogance and a feeling of entitlement.

Why do suppliers insist on either responding to RFPs for which they are truly unqualified or present a poorly thought out response that does not reflect the requisite business needs and seems more like an act from the Unknown Comic?

Procurement professionals will appreciate a supplier when they do not respond to any and all RFPs and waste the time of the reviewers. In fact, demonstrating that your firm would be ill-qualified for a particular opportunity, might put you in a good position for future business, as you inherently gain the respect of the buyer with this approach -- as you demonstrate a respect of their time and an understanding of you business capabilities.

Also, when given the opportunity to present your offering, provide content and map it to the business drivers of your potential client. Be clear, concise and direct. Don't waste anyone's time with "vapour-ware" which is not related to the issue at hand. And please, have someone present who is good in front of a crowd. Don't have a person present who comes across as nervous -- this signals to the buyer that there is a lack of confidence in the offering.

I believe it would be advantageous to have a Gong in all procurement offices around the world. The efficiencies that would be achieved but eliminating the wasted time would be huge!

Procurement Game Show Series (6): Greed and Deal or No Deal

Greed is not only one of the Seven Deadly Sins, it is also a game show hosted by Chuck Woolery. Greed is the selfish desire to obtain wealth and material possessions at the expense of another person's welfare and this is the premise of the show. Contestants are at first brought together as a team and inevitably pitted against each other. They can choose to for the benefit of the team and ensure wealth for everyone, or they can allow their avarice to take hold and only focus on the best outcome for them.

Unfortunately when considering a deal both from the buyer and the supplier side there are elements of Greed that become part of the equation. The buyer often is focused on getting the best deal -- which is appropriate. The problem occurs when the buyer attempts to extract a pound of flesh and tip the scale significantly so that the supplier is left bloodied and bruised. Although a short term monetary benefit might be derived for the buyer, if the focus is on the long term a mutually beneficial partnership is what is desired.

Which brings us to Deal or No Deal! This new game show phenomenon has a very simple premise. The contestant pickS a case which he/she believes to contain $1 million. The odds are 1/26...which when considering is not that bad!

However, the game begins when the contestant starts to eliminate the competition one by one -- choosing cases which they hope contain the lowest possible dollar amounts. As their "luck" continues the Banker offers increasingly more money to have them "sell their case" because the odds become greater that it contains a substantial sum. As the game progresses and more and more cases are opened and as the offers climb, contestants are risking huge sums of money cheered on by the audience, and as well, as what they deem to be their lucky streak and actual investment in the process.

Isn't this what also happens in a business deal. As competition is eliminated one by one, and the odds start to favor a "Deal" there is an increasing reticence to walk away and say "No Deal" -- even when it is evident that the "No Deal" option is the best alternative.

The question becomes, particularly for the supplier, as to a Deal at what cost. In a recent Harvard Management Update an article entitled "So How Well Are Your Customers Serving You" by Anne Field provides a case in point. In the article Sunil Gupta, the Meyer Feldberg Professor of Business at Columbia and a visiting Harvard professor suggests that the old 20/80 rule (20% of your customers generate 80% of your profit) is a thing of the past. It has been replaced by 20% of your customers generate 220% of your profit, while the bottom 20% may provide a negative profit of 100%.

How, as a supplier, do we allow ourselves to focus on the deal and not the monetary benefits. In some cases I have heard sales reps. say --"As long as we get the deal the profit will come"; "We can always sell more profitable business once we have the deal"; or "We can't let our competition win this". Perhaps this can be seen as reasonable and rational. In some cases it is a strategy to go in with a loss leader, but this is not usually where it ends. The supplier often allows scope creep, and to a certain extent has already positioned the company as willing to do anything at any cost -- just to maintain the client.

This is when a client becomes costly to maintain, and allowing your competition to lose money on them might be a welcome strategy.

The cases are opening, the risk is increasing and if you open one more case you could lose more than a few thousand dollars, you might have allowed flawed thinking to put you in a position to lose your business. So the question is:

Procurement Game Show Series (5): Beat the Clock, Dog Eat Dog, and Match Game

Remember the game show Beat the Clock? The whole premise of the game was to be able to complete certain stunts, prior to the allotted time running out.

In the business world we often are asked to play contestant in Beat the Clock. How often have you heard a sales representative say "It is our quarter end, so we can give you really a good deal if you act now!" Reminds me of the hawkers of the Ginsu knives --"But wait! If you act now you also get this special meat cleaver as a special incentive!"

How often do we fall prey to this type of pitch? The intent of this time limited offer is to get you to make decisions prior to being able to determine whether this is the right direction for your company. Hurried decision making is the dream scenario for those vendors who do not necessarily believe that they can win the deal on their own merits. The reality is rarely is there a time limit on any deal. If a vendor is truly interested in your business, that "lowest" price or additional options will be available whenever you are ready to make a decision -- and you can ensure there is a true match between your needs and the offering of the supplier.

Which brings us to Match Game! Gene Rayburn was the master of the six celebrities who were asked to match their answers to completed sentences with contestants. The contestant who had the most "matches" got to choose a celebrity for the "final round" and could win what at that time was a reasonable amount of money. What was interesting is that for the final round, Richard Dawson was most often chosen celebrity for this "match". Why? Well similarly, as we are trying to wend our way through the multiple pitches and responses from sales representatives, we are striving to find those companies, who most often seem to understand how we think and understand our business issues. We are playing an intense Match Game throughout the decision making process -- from choosing who is to be invited to respond to an RFP; through evaluation of responses; negotiation; and finally contract award. If Richard Dawson was in sales, he most assuredly would often be the Last Supplier Standing!

Unless of course another company has learned its strategy from the game show Dog Eat Dog -- wherein the contestants are asked to perform outrageous stunts and dares, but mapped into the process is a significant level of smarts and strategies. Often, when you least expect it, the sidelined contestants actually end up defeating the so-called top "dog." How is this related to the procurement process? Well, unfortunately, too often, when a supplier knows that they have been sidelined, as they did not present the most comprehensive, cost effective proposition, they attempt to come through the back door, use senior level relationships to sway decision making, or attempt to use the reciprocal business card (even though in many award decisions this has already been taken into consideration). Knowing that their value proposition was not compelling to get them to the negotiation table they rework their offering and attempt to get back into the game by finally answering the questions correctly. We would all like to believe that firms immunize themselves against this type of questionable ethical effort, but the reality is these suppliers too often get a second chance. It becomes imperative for corporations to question how this supplier will be as a long term partner, if they opted not to put their best foot forward when it truly counted!

So let's stop playing Beat the Clock, ensure that we chose the right option through Match Game, and let's keep the Dogs in the Pound!

Game Show Series (4): You are the Weakest Link...Goodbye!

How many times did Anne Robinson the host of the Weakest Link say this to contestants who then walked out sheepishly, head hung low, wondering how they ended up in this situation.

When considering the Supply Chain, an organization is only as good as its weakest link, and many corporations today are finding that this can result in significant issues for them from a client delivery and revenue impact perspective.

Too many businesses see their supply chain only as the procurement and fulfillment piece through distribution centers to the client, but supply chain is much bigger than just the logistics piece. If one truly wishes to understand a supply chain it begins with a client need and ends with invoicing of the goods to hopefully a satisfied customer.

So what does this mean? Actually that all aspects of the organization are in fact part and parcel of the supply chain. The Sales teams are intimately involved in the process and with the client they establish demand that drives the entire system. Of course even prior to sales is the Marketing group, which works with sales to determine what items should be focused on and be front and center in the marketing efforts. Then there is Finance who works with both the procurement arm, sales and marketing to define an appropriate go-to-market pricing strategy that ensures the continued profitability of the firm, taking into account all costs, and issues surrounding what the market will bear....and so on, and so on...etc.

Usually the weakest link in a corporation is the communication that lacks between these various teams, not understanding the close linkages each of them has to the other and that only by working together can a corporation be ultimately successful. Ad hoc communication cannot replace formal structures that ensure full cooperation and information sharing by all.

To view Supply Chain only as procurement to fulfillment is like putting blinders on a horse...trying to discount other factors that could potentially render a direction unpalatable.

Eventually a blinder view of Supply Chain will result in an corporation's epitaph being: "You are the Weakest Link....Goodbye!"

Procurement Game Show Series (3): The Price is Right so Let's Make a Deal

In the long running game show series The Price is Right, contestants vie for the opportunity to win prizes by coming the closest to what the true price of the product is. In many ways the procurement process reflects aspects of this but hopefully only when all the other components have been negotiated.

Unfortunately too often organizations weight the price of a product or service too highly compared with the quality and other aspects that severely affect the total cost.

You see cost and price, although often lumped together are two infinitely different parameters from which to define the best alternative.

Price focuses only on the actual dollars paid, while a cost matrix considers all elements which can eventually render the actual price meaningless.

In procurement, price should never be the deciding factor -- it should be what is called the total cost of ownership(TCO), or the total deliverable cost (TDC).

What goes into TCO or TDC? Items such as:

• Quality of product or service, which can be determined through references, piloting the product/service etc.
• Warranty provisions
• Total scope -- is one firm only providing the basics and then "nickel and diming" you on minor additions to the scope?
• Flexibility to adjust to changing business needs
• The ability to re-negotiate pricing throughout the term of the contract based on fluctuating demands and also the price that the product demands in the market place
• Servicing of the account -- response to issues
• etc., etc., etc.

When Monty Hall asked contestants to pick Door Number 1, 2 or 3, they did so blindly and often they could end up with a donkey and cart (with Jay in whatever weird costume he was in at the time). This could very well end up being the door an organization chooses if they focus on the price rather than all the other parameters that go into defining the cost!

The Procurement Game Show Series (2): Lingo and the $64000 Question

The game show Lingo asks contestants to guess five letter words when originally only given the first letter. If you begin to calculate all the combinations and permutations, it is sometimes amazing that anyone every gets through the game board, and not surprising when they don't.

We often encounter "Lingo" when dealing with suppliers for product or services that have are more technical in nature and it is inherent on the procurement professional to ensure that the supplier tries to speak in "lay man" terms, so as to provide a complete understanding to the entire team, and not just those technically oriented. Too often the "razzle, dazzle" of the high tech terms can leave many scratching their heads, or sometimes, unfortunately, believing that they have understood what was said, when in effect they truly didn't.

When negotiating a deal for a higher tech product or service, it is not necessary to understand all the widgets and do-hickeys and how they work. But it is important to understand the basic logic flow and not be concerned about asking for further explanation.

The $64,000 question is not necessarily answered by those who are experts in the field, but sometimes by those who are following a thread of conversation and are unable to make sense of the logic flow. It is at those times when a procurement professional can utilize self-deprecating humor such as "I'm not a rocket scientist like the rest of you, so can you please bring it down to my level and explain it in terms I can understand!"

Several times in my career this has resulted in winning not $64000, but much, much more, as it is when these type of explanations occur that the veil is often lifted off the jargon and the true nature of the product or service is revealed. In some instances disputes have been resolved because often when using "Lingo", there is an inherent believe that each side understand each other, but when looking on the board, several of the letters are still missing. It is the individual without the technical knowledge and by asking questions that can cause those missing letters to fall into place, and often the word that is spelled in not the one that everyone thought it was.

The Procurement Game Show Series: (1) Make the Connection and The Dating Game

Make the Connection was a game show in the earlier era of TV. A panel of four celebrities tried to determine the sometimes illusive connection between two or more contestants. What linked them together? Often the relationship was difficult to ascertain, as on the surface there were potentially thousands of combinations and permutations to guess from.

Similarly procurement professionals are often faced with the daunting task of sifting through literally thousands of suppliers who wish to obtain business from their corporation. Which vendors will provide the best options? Are you able to clearly define a link between their products and services and your needs? Is the connection which they are indicating to you of true value or is it somewhat misleading?

After much review and associations of linking your corporation to a few of the supplier contestants, further exploration of a potential relationship begins. There may be several vendors who have a similar product or service, but variations exist and thus exploring a potential alliance begins.

When determining the viability of doing business, many questions are asked, compatibility is determined and there is a desire to discover how much of what someone is saying is in effect real and how much of it is "vapor-ware". Similarly on the 60's show The Dating Game bachelors/bachelorettes were provided the opportunity to question three potential mates, who although significantly different had in common the fact that they were of the opposite sex and thus a viable option. The possible contenders were sequestered behind a screen so that their actual appearance could not affect the decision making process. It was about their personality, not about their outward manifestation. Often you could see the disappointment on the "chooser's" face as their pick, although demonstrating depth of character, did not have the attractiveness of the other possibilities.

When choosing a potential partner for our corporations, we need to be aware that as human beings we are not immune to the "flash" or outward appearances of marketing collateral and of the sales personnel and pitch. When we begin the "dating" ritual, we may be swept away by the appearances and style, as opposed to the depth of offerings and support. We are programmed to be visual beings and as such, because we don't have the business luxury of putting our potential supplier behind a screen (although wouldn't that be an interesting process ) we need to be aware that the "nerdy" guy with the gap-toothed smile, might be a better partner in the long-run. The beautiful leggy model or the GQ -looking man may have little behind their appearance to offer. Behind the veneer there may only exist a vacuum, hence the saying "all style, no substance."

Many who read this will believe that they cannot be affected in this manner, however psychology is against you in this -- as our subjective consciousness, very often overrides our objective one. It is one of the reasons that to minimize the "attractiveness" affect it is important to have a procurement process which levels the playing field. Using an electronic RFP process is effective in achieving this goal and ensuring that all suppliers are treated equally -- no extra meetings, inquiries etc., by one vs. the other -- no golf games, dinners etc. By engaging in this so-called "relationship" building you are allowing a "contestant" to tip you in the direction of the subjective. Have several parties participate in the evaluation. In this way, if one individual is more subjective, the effect is neutralized by the others present.

So first, Make the Connection and then play The Dating Game, but be careful that you are not just imaging a link so that you can spend time with the supplier who has surface attractiveness.

Remember "you can't judge a book by its cover", both in life and in business

Deal or No Deal, Let's Make a Deal and other Game Shows

While watching an recent commercial for the new game show phenomenon, Deal or No Deal, I was struck by the fact that so many of the game shows from both today and yesteryear have significant elements of the buy and sell relationship as their premise.

With that in mind, I will begin a series of entries to this blog, which will focus on how game shows mimic aspects of what is faced every day in procurement and supply chain.

Have you ever heard a supplier say "Let's Make a Deal?" When a sales rep tries to indicate that there is a time limit to the offering - isn't it like playing "Beat the Clock." What about the "Price is Right", "I've Got A Secret", "Press Your Luck", "Truth or Consequences", ,"Dog Eat Dog" and let's not forget "The Weakest Link!"

All of these game shows and others with their very clear relationship to the procurement and supply chain will be addressed in weeks to come. So stay tuned, we now return you to your regularly scheduled program.

The Boy Who Cried Wolf -- Disaster Planning and the Supply Chain

We all remember the fable of a shepherd boy who tended a flock of sheep near a village and devised a plan to provide some amusement to his stultifying boredom. Several times he brought out the villagers by crying "Wolf! Wolf! and when the town's people came to help him, he laughed at them because they had fallen for his ruse.

The Wolf however did come at last. The shepherd boy ran again to the village, but when he cried "Wolf!" this time, his neighbors did not heed his cries or offer any assistance as they believed that the boy was, again, just "having them on". The Wolf obliterated the flock at leisure.

The moral of this story is that no one believes a liar, even when telling the truth. Yet I believe when considering Disaster Planning for the Supply Chain, this story has a different moral -- When constantly barraged with news coverage of a real or threatened catastrophe, we have become desensitized and an immunity develops that creates its own threat -- that of indifference and that could prove disastrous for business operations and the Supply Chain.

In the last several years we have witnessed the scourges of 9/11, Hurricane Katrina, and SARS, to name a few. Now there is talk of a pandemic and how, theoretically, it could impact both our personal and business lives.

There is a great deal of chatter about having contingency planning in place for any and all such disasters, yet as soon as the immediate threat has passed by, the priority for action sinks as other critical business issues take precedence.

Some corporations surely have full scale disaster plans, but how many of them have been tested in a mock scenario? Most businesses, however, have done minimal, if any planning towards an interruption in supply chain, perhaps believing that it will never affect them, or that they would be able to react in a crisis. They forget that hope is not a strategy!

There is also a tendency to focus on "The Big One", while the reality is there are many minor threats that could result in an interruption of business. The pundits who subscribe to the world coming to an end and the predictions of Nostradamus are being played out. may be missing more common hazards to business continuity

Have you planned on strikes by any of your suppliers? Are you protected against a sole supplier going bankrupt? What about a disruption in the border crossings, a train derailment etc.? What about blackouts? When the most of the North East of Canada and the US went dark -- how many companies were left scrambling?

Crisis management should not be left until a crisis occurs. There should be available a continually updated business continuity plan, that should be both general and specific at the same time. There will always be disasters that occur that could never have been predicted (such as 9/11) and any disaster planning can never capture all eventualities.

Yet by focusing on both the small scale and large scale contingency planning, a discipline will be set that will provide an agreed to process. The process needs to be tested to determine its viability -- engage in a trial run.

Also, once developed, it cannot gather dust on a shelf, as so many of them do. The plan needs to be dynamic, to allow for change in personnel, business activity, suppliers, customers, locations. To review it any less than once a quarter is, in and of itself, a recipe for disaster.

Make sure that when an unexpected catastrophe occurs, either large or small, that your business is prepared. Otherwise, your clients and suppliers will be reverting to their business continuity plans which they had available in the event that your firm goes bankrupt!

Gym Class and Supplier Diversity -- Choosing the Right Team

Remember when you faced those horrifying moments in school when the teacher chose two kids to be the "team captains" and one by one children were picked. I remember standing there as the biggest, faster and more popular kids were recruited. I knew that I could contribute significantly to the success of the team, not in size, speed, and popularity but in agility, creativity, stamina and strategy.

Yet when you are young those things just don't seem to matter, and as the ranks of the "chosen" swelled, there were always those of us remaining who were praying to whatever god might listen to please have them "pick me" and don't let me be the last outcast standing!

Now, how is this related to Supplier Diversity? Because just like in gym class, it is not necessarily the biggest, fastest or the most popular that provide the formula for success.

• The biggest often takes for granted their position, with an attitude of entitlement: "Aren't you lucky to have me!" And when there is a problem encountered, it may be difficult for them to firstly accept responsibility and secondarily to really care -- because they know that regardless, they'll always be a top pick.

• The fastest may be able to provide everything you want right now and get to the solution immediately, without focusing on what is truly needed. "If it has worked before, it will work again -- it doesn't matter what your unique nature is -- because this will be done quickly". Remember the parable of the tortoise and the hare? The tortoise was in there for the long haul, always trudging forward and not "taking a nap". Fast may not mean longevity or stamina.

• The most popular gets chosen, just because everybody knows and likes them. They are recognized, perhaps charming, engaging and at one point in time, there actually may have been some substance. But when it comes time to show the mustard in the competition, they are often happy to just rely on their reputation, and not contribute any further. They feel comfortable with their popularity and don't feel the need to do anything else.

As time progressed in school, we came to realize that those that were the last or close to last picks, were the ones that often won us the game. They were driven to succeed, they had no laurels to rest on, and every time up, there was a requirement to prove themselves. They provided the loudest cheering and motivation to keep the team's spirit up and often suggested alternative ways of doing things to stymie their competition's defenses. And often we were amazed at their inherent abilities in the particular sport, because nothing was taken for granted and they spent more time practicing to hone their agility.

Corporations often make the mistake of picking the biggest, fastest and most popular suppliers, without giving due consideration to those who are smaller, more diverse and ultimately more capable.

There is continuously a call for corporations and the public sector to obtain cost savings, and the historical response has been -- "Reduce the supplier base and let's only go with the biggest, cheapest..." and so on.

Unfortunately this is a false economy, similar as in picking teams in gym class. Reducing the supplier base to only the "larger firms" ends up often times getting you the bigger, faster or more popular "classmate", but frequently not the most agile, strategic, or responsive one. Furthermore, just as in sports, there are times when the more diverse and/or smaller firm might be better suited to a specific project. Think of gymnastics, or the jockey on a race horse, where it is more appropriate to be of smaller girth.

Lowest price is also a misguided approach. The thought process should be focused on best value and total cost of delivery/ownership. Wayne Gretzky wasn't the lowest price for a hockey player -- but he delivered the best value and the teams that hired him ended up being more profitable than they would have without him. Based on the "lowest price" approach in the corporate and private sectors, Wayne Gretzky never would have been given an opportunity to play hockey, until he "sharpened his pencil" (or more appropriately his stick).

Smaller, diverse suppliers may not always be the lowest price, but if you look closely at value, they will most certainly win.

Canada has been slow of the mark to embrace anything related to Supplier Diversity. Oh sure, all companies have programs related to workforce diversity, and at a recent breakfast meeting two Presidents of the Canadian Subsidiaries of US based companies spoke extensively about their commitment to workforce diversity and the benefits that their corporations had gained from embracing this concept. However when I lauded them on this approach and then suggested to them that logically the same advantages could be derived from developing small, women and minority owned businesses within the corporation their mouths went agape, and it was suggested that only their US organization focuses on this.

These corporations were not unique in their stance in Canada. Yet it leads one to wonder why, if beneficial and adopted in the US, why isn't it in Canada. Let's face it, the US is a survival of the fittest culture and if there wasn't any clear and present profit motive met with Supplier Diversity programs, they would have long gone the way of the dinosaur.

It is time for both the private and public sector in Canada to actively adopt supplier diversity programs. It makes good economic sense, not just for the country and the GNP, but for the business as a whole, for all the reasons stated above.

This is not a band-wagon. It is sound business practice and it's about time that we start picking the right members for our teams.

Shakespeare, Ethics and Common-Sense

If Shakespeare was alive today, he would probably already have penned a tragedy reflecting the lack of ethics as continuously reflected in procurement activities world-wide.

"To take or not to take -- that is the question. If I get discovered, I might suffer slings and arrows, however I might have amassed an outrageous fortune. There may be a sea of troubles it may cause, yet I can always (with lawyers) oppose and thereby end them!"

In Canada we've had to deal with the sponsorship scandal, and the media is still reporting on issues related to activities in Ottawa. In Toronto, the MFP inquiry should have resulted in a stringent approach to procurement activities, and now questions are being raised about the TTC sole source to Bombardier.

The jury is still out on the most recent issues in Ottawa, as well as the TTC, and we all must realize that there are always two sides to every story, and the one that results in the best headlines usually wins; and this doesn't always mean its the truth!

But to paraphrase Dr. Phil -- "WHAT WERE THEY THINKING!"

Perception of reputation is the reality, and continuously individuals in both government and business flirt with the ethical boundaries. As Lady MacBeth discovered, there you can't wash away the taint that results when it is perceived that ones' "hands are dirty".

Ethics is not rocket science. In most cases it is common sense. If someone is faced with an "ethical dilemma", implies that a problem exists that seems to defy a satisfactory solution. Yet most often times the dilemma is created by pressure from an outside source, and the inherent knowledge that it is not necessarily the "right" approach.

Procurement professionals need to embrace a standard that is above and beyond reproach and act as a role model within the business communities that they serve. It take courage to be willing to withstand the slings and arrows of others, who may believe that cutting a few ethical corners is "expedient". In some cases in fact it may mean that you are willing to risk your job and position -- yet always remember if you lose your job because of an ethical stance, you have not lost your reputation or your career options in the procurement field.

Most of us will inherently "know" if something crosses the ethical boundary. The best question to ask yourself however is "How would this look as a headline in the news?" Headlines are taken out of context, so "reality" is irrelevant. If the answer to this question is "not great", then you know your direction.

If Shakespeare was alive today the denouement to his ethical tragedy would end thusly...

"Alas poor Yorick, I knew him well Horatio, a fellow of most infinite jest, of most excellent fancy, but we find him here after his misbegotten journey down the slippery slope of ethics -- alone, forgotten and vilified."

Follow the Yellow Brick Road to the World of "e"

"Dorothy - you are not in Kansas anymore"!

Many suppliers would prefer to stay in figurative Kansas and not embrace the utilization of e-tools in the procurement world. They lament the fact that only price is important now...not quality. It is amazing that after 10 years, the complaints are still the same and still completely inaccurate.

The story of OZ is about the pursuit of courage, intelligence and passion. It is about moving from a comfort zone....knowing that things may not be perfect, but nonetheless they are predictable. Suppliers like predictable, particularly if it leaves the buyer-supplier relationship in their favor.

e-negotiation is the electronic tool that gives buyers the greatest opportunity and from the perception of suppliers it is the greatest threat. Note, that the operative word is perception, because the reality is far different.

What started off as reverse auction (now called e-negotiation), can in fact be tremendously beneficial to suppliers. The fact is that a vendor will not even make it to the "auction" stage without the appropriate quality. Also, because of the fact that the process is done electronically, without manual calculations, etc., required, more suppliers will be able to participate, as the requirement to analyze 5 takes the same amount of time as to analyze 15. Opportunity knocks for those who have the intelligence to recognize it.

"That's the scary part. I don't know if I should smile, crack up, scream or run."

The biggest fear associated with "reverse auctions" is the driving down of "price" and the potential for exposure of the "price" to competitors. Again, there is a lot of perception here vs. the reality. Let's deal with reality.

Firstly, any worthwhile procurement professional focuses on total deliverable cost (also known as total cost of ownership), which considers both the tangibles and intangibles of a proposal. Pricing is only one component, albeit an important one, to the final consideration. Value for money, warranties, reputation, innovation, flexibility, etc., all plays an equally important role in the final decision making. So a supplier needs to understand how in the industry they rank against their competitors in these areas so that they can properly define their pricing strategy.

Secondly, there are many ways that a reverse auction can be set up. In some cases, the kimono will be open for all to see the actually pricing of competitors (although even in this instance the names of the vendors bidding are in most cases not viewable). There is also the potential for just having the rankings available -- that is are you number one or two etc., in the pricing -- without actually knowing the differential. This protects the confidentiality of the pricing; however, it also makes the bidding more difficult for the suppliers -- as they do not know how far they need to go.

When suppliers go into a high level face-to-face negotiation with a client they have their "A" team available and they have outlined their strategies and their bottom-line. Too often in an e-auction, suppliers have not strategized and do not have their key decision makers readily available, which makes failure all the more probable. Ensure you have a sound strategy with your BATNA in place, and always remember that the lowest price doesn't necessarily win -- decisions are made on both quality and quanitative aspects.

Relationships still matter -- even in the "e" world. I have never done business with a firm where I have not met the prinicples' and felt comfortable that they would work in concert with me to achieve my corporation's goals and objectives. Refusing to work with me when I've chosen to implement "e", which definitively saved my team significantly in cycle time and analysis, meant that this supplier did not understand the challenges that my corporation faced and as such I wouldn't want to do business with them.

As Dorothy said to Toto "I have a feeling we are not in Kansas anymore!", suppliers should help buyers and step up to the plate. Otherwise they might very well have the same ending as the Wicked Witch of the East.

"This little piggy....."

We all remember the little ditty about the piggy going to market while they others either stayed home, had none and of course the one that whined all the way home!

The moral of this story it seems is the piggy that went to market was in fact that one that was most successful, as opposed to those that sat by the sidelines and expected things to be brought to them.

Similarly, in procurement, if you don't go out to the market you will never achieve the appropriate level of success in your organization. You will continue to be seen as an obstacle; a tactician; non-value add...the list goes on. The mistake most procurement organizations make is having the false belief that because we built it "they will come."

So where is your market and how do you go to it?

Obviously, the market is all the potential internal organizations within your corporation. You need to work these groups similarly as all the sales people whom you deal with daily from outside the organization.

You need to define your value proposition -- ask the question as to why it is of benefit to these areas to work with you -- what can it get for them? Most procurement organizations make the mistake of saying -- well we can get it cheaper -- only to find out that an internal client will say, "well actually I got it cheaper than your deal." Of course that is because they are focusing on price, not on the total deliverable cost! Identify your knowledge of the marketplace, the subject matter experts on your team, and the fact that you are about more than just price!

If it is a group or individual that is used to doing things on their own, ask to be part of their team -- don't force your way in. Indicate your team's willingness to be a participant -- the best way to demonstrate value is not by telling them about it, it is by showing it. Numerous times I have done this where the value was clearly demonstrated and then created client satsifaction, thus client loyalty.

Create Client Executive, Business Development type roles in your procurement organization. Similarly to the sales organizations, you cannot mine for more business if you don't have individuals focused on your clients. The individuals in these roles, live and breath with the internal clients, participate in their staff meetings, strategy sessions and sell the benefits of working with the procurement team. When you are seen as an extension of their organization and not a "separate" department, you will see how much activity begins to flow your way.

Just as with the suppliers with which you deal, you feel more comfortable in working with an organization if there is a level of trust regarding delivery, issue resolution etc. These client executive roles will build up that trust and the postive bottom-line impact that occurs from the utilization of these roles, will more than pay for their salaries.

So stop "wee, wee, weeing" all the way home. It is the pig that goes to market that brings home the bacon!

"I don't get no respect"

Rodney Dangerfield could have had Procurement as a career! The number of times I've heard the sighs at senior levels in Procurement and Supply Chain wondering why they "don't get no respect" is significant.

So why is it, no matter where you go and what you do, the organization as a whole does not "seem" to respect the Procurement team?

Firstly, procurement grew up in organizations as the paper-pushing (PO) group...more closely aligned with Finance, than the business as a whole. This Purchase Order tactical process is still what will be mentioned by most if you ask them what Procurement (or Purchasing) do...
"Oh, they are the ones who cut the Purchase Orders and help us buy stuff."

Secondarily, there are many procurement organizations that are perceived to be an obstacle to getting business done! "If I get Procurement involved, they'll just slow down the process, it's like running an obstacle course!" In some cases this may be true (there are many horror stories out there), yet in most it is not. Unfortunately, procurement hasn't made the time to develop the relationships in the organization and explained their value add -- they just expect others to know and understand!

Thirdly, Procurement teams are much too humble. Constantly phenomenal business approaches, technological advances, reduction of total costs, alliances, strategic partnerships, etc. etc. etc. that enable gains in the financials through driving additional revenue and reducing costs occur....but alas...no one knows, because no one is telling them.

Finally, Procurement organizations have a certain arrogance which leads them to believe that because they are an internal service, that of course everyone will use them "because its mandated". It is amazing the creativity that people in organizations can find around processes and departments that they don't understand and don't recognize the value.

So what can be done?

The pity-party is what needs to stop first. If you are not respected, then you have not promoted yourself and your team effectively, and as such, have not earned the respect.

To start down the road of recovery it is necessary to view Procurement from a Sales, Marketing and Business Development point of view.

Ask the questions: Who is my market? What is my market expecting from my services vs. what I'm delivering? How can I close the perception gap? How can I package my services to appeal to my clients? Are there key individuals whom I should target, who can become champions of Procurement within the organization (or as I like to call them FOPs -- Friends of Procurement/Purchasing)? What organizational construct should I have that ensures ease of access and understanding of the services which I provide and allows for business development among the stakeholders? How should I be communicating to the organization and provide it with the insight that the team is about more than POs and obstacle creation?

In the next number of entries I will expand on the areas above and provide insight to Procurement organizations as to how they can obtain client satisfaction; create customer loyalty and have continual repeat business from all the internal stakeholders.

To Reach the Kingdom of Outsourcing you need to overcome a Moat of Myths

As consumers we are continuously engaged in outsourcing. We hire painters, plumbers, gardeners and mechanics. Some naysayers may retort by stating that they, in fact, perform many, if not all of these activities themselves. Yet they are in the minority and furthermore, have you ever looked at a professionally painted home or landscaped lawn and compared it to the "do-it-yourself" variety?

Surely most would agree that the quality and timeliness associated with the professionally performed work far exceeds that of the other.

So why is it when it comes to reviewing our business processes that organizations often balk at the thought of outsourcing? Fear mostly. The thought of losing control and the belief that many of the myths surrounding outsourcing are factual have kept many from even considering outsourcing.

The reality is that organizations that embrace outsourcing and leverage their resources to focus on their core business will in effect continue or be the market leaders of tomorrow.

So before you consider running for the hills at the mention of outsourcing, let's separate the moat of myths from the solid ground of facts.

Myth: Outsourcing a function means that the company does not consider it critical to its success.

Fact : Businesses often outsource functions that they define as critical to their success. According to the Outsourcing Institute over 30% of companies today are engaged in some form of outsourcing.

Consider how many corporations have outsourced their information technology, or the major automobile firms who outsource much of their manufacturing. Aren't car engine components critical to an automobile company's product performance and thus reputation? Isn't date and information flow critical to the success of all corporations?

Critical and core functions are not mutually inclusive. In fact, it is the visionary corporation that understands it may not have the expertise, resources or the strategic focus on a critical function and that having these services provided by a world-class outsourcer can significantly enhance them and thus their competitiveness.

Myth: Outsourcing can cost more when considering factors beyond headcount reduction.

Fact: If headcount reduction is the PRIMARY focus of an outsourcing activity then it is doomed to failure. When determining the relevancy of proceeding with outsourcing of a function a total cost evaluation must be considered.

When outsourcing a function significant opportunities for cost savings exist including:

• With experience and knowledge of best practices, the outsourcer can review the complete business cycle and deliver on-going best-in-class value;
• Benefits derived from leveraging facilities, equipment, personnel, technology, etc.;
• Enhanced knowledge and control afforded over process/methodologies used with metricing and monitoring SLA's and KPI's;
• Avoiding the need for capital investments for new technology, equipment etc., while having access to the latest tools. Obviously some aspect of this would be in the pricing of the outsourced contract, however, instead of a capital expense and all that this entails, the outsourced contract payments are an operating expense, thus potentially providing some relief to the balance sheet.

The fact is that outsourcing can result in a company quickly reaping the benefits through expertise, enhanced control, leverage, without any capital expenses and with reduced operational costs!


Myth: An Outsourcer will not be motivated by the same business drivers, as an internal group, to ensure customer focus and maintain flexibility in a changing market.

Fact: Whether you purchase a product, service or outsourcing, it is crucial that the customer set the ground rules and negotiates service level agreements, wherein expectations and targets are set and regular business review meetings are conducted to ensure that the supplier is "measuring up". Internal politics or other issues that an internal group is often faced with, or the potential budgetary constraints that often hamper progress or restrain flexibility do not restrict the outsourcer.

The supplier of outsourced services is there to support the client and to assist the client in meeting their goals and objectives. There is usually much greater conflict between internal resources than there is between a client and a supplier whose long-term relationship and payment depends on the customer's satisfaction.

Myths are created as a result of fear and trying to develop one's own interpretation of the situation given that fear. There is no need to dread outsourcing!

The outsourcing moat of myths is an illusion conjured up by some who just like things the way they are.

So are you going to stop corporately milking the cow and growing the wheat? Isn't it easier just going to the grocery store?

Volume! Volume! My kingdom for more volume!

How often have purchasers heard this refrain? There is a huge misconception among non-procurement professionals that the greater the volume (quantity or dollar) the better the discounts. And to a certain extent this will work -- for a while.

But how much volume is too much? Do those in the upper echelons of your organization constantly talk consolidation? What happens if you try to explain to them that any additional volume at this juncture is like adding a snowball to an avalanche...it's not going to make any difference!

If you are a successful procurement professional then you know the marketplace, understand the current conditions that enable you to negotiate a beneficial deal for your organization. If you go into a negotiation with a supplier unprepared and just expect to barter them down -- then be assured they are aware of this tactic and will have come in at much too high a price and will pretend to bleed at every step you take them down. When a supplier walks out of a negotiation and praises your negotiation skills and how they are feeling the pain -- BEWARE -- the false flattery probably means that they were more prepared than you and are just pandering to your ego, while they walk away with an inflated profit margin.

Another misconception is volume commitments will result in better deals. As before, it depends and the down-sides of this scenario far outweigh any benefit.

The very thought of committing agreed upon volumes is enough to make the hair stand up on the back of my neck! Not that in theory it isn't a bad idea, but we live in a real world where the practice is what counts. There is no spell or incantation that can't effectively make a volume commitment into good business sense.

Why? Well firstly, volume commitment is based on an accurate sales forecast. When was the last time you saw one of these? Now, I'm not necessarily blaming the sales team (oh maybe a little bit), but the volatility of the marketplace and the whims of the consumer (whether business or individual) are often times hard to predict. If you over commit, the result can be enough product in your warehouse to supply you until the new millennium. Significantly under commit and 1) you may have trouble with supply; but more importantly 2) you probably didn't get the best possible deal. Also don't forget that in the new Sarbanes Oxley world, a volume commitment is to be disclosed as a liability on the balance sheet, and must be tracked closely. This adds another layer of complexity onto an already complicated situation.

So is consolidation of volume bad? Of course not, consolidation of spend and increased volume do make a difference.The benefits, however, are not infinite -- there is a saturation point wherein if you got more -- it would be the supplier paying you to take the product or service! At this juncture you may begin discussions in another direction, more alliance and partnership oriented where each of you can bring some intellectual capital to the table to enable mutual growth in revenues.

Consolidation and limiting the number of suppliers can also have its limitations when considering flexibility. If there is a product constraint or your current provider happens to be acquired or goes bankrupt, what would you do? The answer -- you would pay a higher premium with another supplier because of the rapidity with which you would need to get supply.

In conclusion -- size matters, but only to a point!

Double, double toil and trouble;
Fire burn, and caldron bubble. -Macbeth -- the Three Witches

And so begins this blog. On a regular basis I will be posting the necessary incantantions, ingredients, and spells that one can wield to be successful in your Procurement and Supply Chain.

Well, isn't that how the area is often looked upon? It seems to have this magical aura according to the rest of the organization, as if we are a secret society that only after an initiation ritual do you gain membership. Or the opposite is true -- others believe that they can conjure up the best deal because they don't believe in the extensive knowledge that is required to be successful in this area.

So are those in Procurement and Supply Chain wizards or pretenders?

In my view the level of training, knowledge and understanding to be a success in achieving value for your organization through Procurement and Supply Chain is often underestimated. Of course we don't need eye of newt and incense to effect a significant bottom-line impact to the corporation (of course it would help). What is required is extensive insight into the machinations of the business, cooperation with all entitities to a common goal and a high level of professionalism, training, education and experience do go a long way toward success.

There are millions of dollars floating around corporations today. And it is the Sourcerers and their Apprentices who will enable you to find them.

Or perhaps you want to become a Sourcerer yourself?

Well, keep reading this blog and over time you will gleen some insight into the magic of the Sourcerer.