Author Archives: Paladin Associates - Barb Ardell
Aberdeen’s recent report, “From Preservation to Prosperity; The CPO’s Agenda for a New Decade” (1), identifies top pressures driving Procurement’s focus: • Top down directive to cut costs 69% • Increasing supply risk 27% • Lack of visibility into enterprise spend 21% • Insufficient number of staff 20% • Insufficient skill of staff members to capitalize on savings opportunities 18% • Increasing globalization/supply chain complexity 18% Bottom line: Procurement organizations are being charged to do increasingly more with existing or fewer resources. This pressure has rightly … More
As a sourcing professional, my most difficult negotiations aren’t with suppliers but rather with internal customers. Based on conversations with my colleagues, that experience is not unusual. One measure of this challenge is “savings leakage” (savings negotiated but not realized). Aberdeen Group reports average leakage rates of 21% as Purchasing strives to implement its sourcing decisions. Best In Class companies experience about 14% leakage whereas All Others see 24% leakage (1). Small companies experience up to 40% savings leakage (2). … More
Your company has wisely contracted for an eSourcing solution. You are relying on it to deliver process improvements and sorely needed cost savings. You’ve trained your people, but you recognize that the challenge has just begun. Internal adoption is key to your success. The challenge you face is culture change. It is the biggest obstacle in any software deployment. Less than 15% of your user base will be “early adopters”. The majority will take a “wait & see” approach, and … More
In my April post entitled “Take A Long Term View”, I described a client facing a sourcing dilemma. They were purchasing materials from a distributor who had installed “free” equipment in exchange for a commitment to buy the related supplies. They had previously solicited bids every two years and believed their “supplier partner” was competitive. They couldn’t imagine a way to save money given the high switching costs, so they were unwilling to diligently source this requirement. This sole source … More
In a recent Friday Rant entitled “Reverse Auctions Have Become the Aero-Bars of Sourcing”, SpendMatters’ Jason Busch describes the all too frequent abuse of Reverse Auctions. He quotes David Clevenger, formerly of FreeMarkets, who notes that “the problem with reverse auctions may be the same as with any powerful weapon in the wrong hands”. A knife can be used for murder or for life-saving surgery. I believe there are at least two factors that contribute to abuse. I recall Stephen … More
We put a large piece of business out for bid telling suppliers we plan to award a five year contract with indexed pricing. Suppliers bid accordingly and we make the award. The lawyers are unable to reach agreement on the final contract terms but the supplier behaves as if the contract was signed. Three and a half years into the award period we decide to go out for bid telling the incumbent we have no obligation since the contract was … More
Today’s economic situation is unprecedented and calls for unusual actions. As we know, suppliers are not reluctant to re-negotiate an existing contract when there have been substantial, unanticipated changes in the marketplace. Likewise, buyers should not be shy about doing the same. Although you may be under contract for the next six, nine, twelve months or longer you should approach your suppliers to discuss price relief where markets have declined substantially. Hopefully, you will have a “Meet or Release” clause … More
Aberdeen Group recently issued an updated report entitled: “Spend Analysis: Pulling Back the Covers on Savings” (October 2008). Consistent with their August 2007 report, the opportunity for those employing spend analysis is impressive! Specifically, enterprises implementing spend analysis have been able to: Drive 25% more spend under management; Achieve a 5% to 20% cost savings for each new dollar of spend brought under management; Realize 67% higher savings on their spend; Achieve 11% higher contract compliance. With results like these, … More
I am a sourcing professional and my husband is a sales executive. This has made for some interesting dinner conversations over the last 30 years. I am currently working with a client on a sourcing event. The client’s sole source vendor (a distributor) has wisely placed significant “free” equipment on site which, of course, uses proprietary materials. The client doesn’t want to incur the significant switching costs nor the disruption to its operation by changing vendors. The requirements include other … More
The current economic downturn has transformed a number of industries from sellers’ to buyers’ markets. Corrugated is the poster child. Now is the time to lock in favorable pricing. But be wise as you contract. Those who are short-sighted may suffer the consequences as the market fluctuates, as it inevitably will. Early last fall, corrugated buyers were lamenting an impending price hike. After acquiring Weyerhaeuser in August, International Paper announced a record high linerboard price hike effective October 1. According … More
How many bidders do you need for an electronic auction? There are a variety of “expert” opinions on this question. Is it three, four, five? I have heard all of these recommendations. The correct answer is: at least two. But the actual number depends. I have experienced circumstances where two bidders were plenty. It was a sellers’ market. There was significant over capacity, and the two bidders were hungry. They fought for the business in a bidding war, and the … More
