Every parent stresses the importance of education in the lives of their children. This is a key component of a successful adult life. The same can be true about a corporation and their sourcing professionals. Successful corporations support, foster and continually educate their sourcing teams with rigorous training requirements. In a recent article entitled “Reaching Sourcing Excellence, Part 3: Sourcing Skills Go Straight to the Bottom Line” they talk about the areas in which education can make a significant difference in a company’s bottom Line as it relates to procurement.
The example they highlight in the article is the world famous Heinz Company. They have one of the most educational and support focused training regiments in the business. Their program requires the following:
1. Mandatory certified purchasing management (CPM) status
2. 60 to 80 hours a year to enhance CPM capabilities
3. Six Sigma training
4. Seven-step sourcing process training
5. Negotiation training and business process alignment training
The article goes on to state the effects that were quantified from their program. “To date, the company realized $80M in cost savings and 14 days of raw material inventory were recovered, significantly affecting working capital, margins, and expenses.”
This strategy or outline may not work for your company, but there are numerous opportunities available to educate and nurture the talent of your team. Here are just a few suggestions on things to consider in implementing new programs.
• Force-ranking employees based on skills
• Providing complete sourcing business process training for all employees
• Establishing continuous sourcing training and education programs
• Establishing recruiting programs with leading supply chain schools
• Removing employees that would not meet the vision
• Hiring more advanced skill sets to fill the gaps
If you are lagging in what you believe your success and savings marks should be, take a look at your talent, your training programs and how you develop your team’s abilities.
2010 should bring a flurry of new acquisitions with many established companies looking to expand product lines and increase growth within the organization.
Of these companies looking to expand through acquisition, raising capital expense to fund the newly acquired business unit will be a challenging experience in ramping-up operations with manufacturing and warehousing distribution.
Many companies will be looking to outside warehousing and distribution ( 3PL’s ) assistance in order to compensate the need to either add-on to a existing building or to reorganize a current floor plan.
It makes perfect sense when acquiring a new business unit to have the flexibility of outside warehousing and distribution. With all the challenges the current organization has with product line simplification, product integrity, customer retention and merging of operations and customer service the 3PL can add much value to the company but lending it’s expertise in distribution challenges.
Having the flexibility and an open working communication with the outside warehouse and distribution facility allows valuable time to evaluate and streamline the newly acquired business unit or product line.
The organization can now grow and nurture the new product line or reduce the number of SKU and not have it interfere with the current core business.
Effectiveness, is key to competing in today’s business environment. Logistics is a process, a supply pipeline which connects you with your vendor/supplier and your customer.
Whether you compete domestically or globally competitors, vendors, suppliers and customers are worldwide.
The significant cost of logistic/distribution effects the entire supply chain. Logistics importance integrates and develops long-lasting alliance is between the vendors/suppliers and customers. Logistics contributes to a competitive advantage, viewed as a comprehensive process objective, making your product more competitive in the global marketplace.
Ask yourself how does your business unit measure up? Is your logistic/distribution network competitive? Does your current logistics/distribution network meet the requirements of your customer? Most importantly is it currently effective?
To summarize, a formal logistic program will create a competitive advantage for your business unit.
Service and cost benefits can distinguish you from your competitors.
A formal logistic network program will enhance your status as a supplier domestically and more importantly in the global network.
Have you ever considered taking the air or reconfiguring your current packaging?
Many companies do not take the time to analyze their current packaging of finished product once the product has been prepared for the end-user.
Many times I have walked through distribution warehouse centers and simply picked up a master carton of blister carded product and gave it a real good shake it’s amazing how much wasted space is in that carton.
Think about it, air probably makes up 10 to 15% of the carton contents along with the blister carded product and serves absolutely no purpose other than taking up excess space.
Multiply that carton by how many other cartons are stored on that skid with the 10 to 15% of excess air contained in the package and overall you may have 75% product 25% air stacked in a single bin location.
Excess air in packaging results in higher warehouse storage costs, increased classification of product for carrier tender equals higher transportation costs, plus out of spec carton configurations results in higher component costs.
In the grocery industry many consumers will start seeing new package configurations for many of their favorite cereals and snacks, manufacturers of these products are developing ways of reducing size and packaging costs by reconfiguring packaging and ensuring product integrity.
It is important for manufacturing to periodically review and evaluate current packaging of their product, in order to determine if costs and distribution in transportation are being maximized and are not storing excess air in the packaging.
More companies are looking at centralized distribution and servicing their customer base in a timely manner in order to control costs, control inventory overhead and to improve overall customer service.
Centralized distribution sometimes has its own challenges and issues based on schedules, inventory and transportation network.
Other factors that should be considered is the size of the of the distribution center, the layout of the facility and capabilities of handling many more multiple shipments on a daily basis can result in many more LTL carriers.
Zone distribution to major market zones can eliminate much of the congestion and the handling of freight multiple times elevating issues with shortages, damages, and non-timely deliveries.
It is important to identify major market demographics pertaining to customer base, product distribution, field sales force and capabilities of end users and master distributors.
A major candle manufacturer based in the United States was faced with major issues such as damages, lost shipments, inventory shortages and untimely deliveries.
By developing major market zones utilizing 80/20, the manufacturer was able to overcome many of the above challenges and issues by driving carrier tender to specified market zones based on schedules ultimately utilizing local end-user delivery suppliers.
What’s a buying/leveraging group?
A buying group is a collection of buyers that aggregate their demand into a single ‘account’ and negotiate with a commercial carrier/s for better prices and/or improved services and more importantly a “Known name” in the industry. The group of buyers should be organized around an industry sector or geographic region.
How do buying/leveraging groups work?
A group is usually formed when an individual or business decides use bulk buying tactics for transportation services. Once a sufficient group of customers is formed, the guaranteed customer base is used to negotiate volume discounts with service providers and carriers.
What are the advantages?
Buying groups are low risk and require little or no investment and the groups don’t have to be physically co-located just share the same “common goal.”
What are the drawbacks?
Buying groups depend on a guaranteed level of spend and are therefore at risk of being undermined by carriers offering the larger companies in the group separate deals (known as ‘cherry picking’) the group must also be accountable and be geared towards the 80.
Summarize:
The buying group or leveraging group is making a commitment to each other business unit to share information and a “guaranteed” piece of the business. “Commitment” is the largest most important piece of the organization and must be maintained and monitored on a regular basis and each business unit must have a say in each and every move.
Buying groups can grow expeditiously to encompass other units….. all geared to the “common goal.”
Many manufacturers are willing to work with suppliers and customers, and meet their logistical and distribution needs or requirements. After all, good practices increase efficiency and competitiveness, and save money. Furthermore, assisting customer and supplier needs usually means continued business.
On the other hand, the different set of requirements from each major supplier or customer may prove unattractive or overwhelming to manufacturers. Some smaller even middle sized suppliers and customers may not be able to devote the necessary resources on their own, to be able to implement necessary changes and to realize “potential” cost savings.
As a manufacturer interested in the “survival” or future “positioning” of your supply chain, be ready to actively participate in the supplier’s and customer’s efforts by investing time, resources and other assistance.
Some examples of assistance to suppliers and customers include providing access to tools, information, or programs that your company has had success with. The offering of training and mentorship from your staff or if your currently too lean at your business unit….implement through the assistance of a third-party consultant and being as available a resource as possible to key suppliers and customers when needed.
Your business is only as good as your long term “loyal” suppliers/customers… in this tough economy identifying new “opportunities” could spell the difference between “success” and “failure.”
Inventory optimization and transportation share a common thread when balancing and justifying either enters the scene. No matter how the replenishment was decided, eventually what has been ordered needs to be moved from the suppliers to the manufacturer’s business unit location or drop shipped directly to the end-user.
Many business units operate under “just in time” manufacturing guidelines and on-hand inventory is a major concern when justifying inventory cost vs. the actual transportation spend.
So many business units have inventory whether (raw material or product components) that carry very low inventory carrying costs but based on either their commodity class, weight, usage, cubic capacity or origin location has impacted and may drive up the transportation spend.
By increasing order size and purchasing full truckload quantities (many suppliers have special pricing in place for truckload purchases) and comparing the actual carrying cost of the inventory vs. the mode of transportation, the business unit may have an overall savings with inventory and the transportation cost.
Of course a lot of variables need to be addressed and the capability of adding additional inventory on the business unit floor must be clearly defined, but if analyzed and optimized correctly it may well end up as a “slam dunk” for savings with inventory and transportation.
Transportation costs when implemented correctly reduce the (COGS, cost of goods sold). It directly impacts the profitability or margin, most important profitability directly shows up in the bottom line, and provides extra cash for any other priorities perhaps low value inventory.
A large portion of companies operate in the blind when it comes to negotiating transportation/rule contracts because they leave the negotiating process in the hands of a Traffic Manager, Purchasing Agent or Cost Account who may have little or no understanding of the company’s goals beyond cost containment.
Those companies that seek to elevate their Transportation Management Department by integrating it into a larger logistics-oriented or “leveraged buying group” strategy find that unless their transportation negotiators actually worked for an asset based carrier, they only see and hear an outsider’s perspective on whether they are getting the best price /service. In the game of negotiating transportation contracts, knowledge is power. The more you know about your carrier’s cost and pricing practices, the better you can negotiate a fair price.
Understanding cost drivers from a business unit perspective is only half of “freight negotiations” the other half is understanding a service providers cost.
Some of a major service provider’s cost that need to be clearly defined and understood by the shipper are:
Minutes of down time at origin and destination
Cubic capacity of shipments
Handling units
Load ability
Density on the run
Claims ratio
Break bulk cost
Lane balance and imbalance
Miles between stops
Fixed cost
Sales personnel
Negotiating freight costs is an element of the micro-logistics component called transportation. Utilizing cost accounting principles and assigning an appropriate and relevant cost will facilitate “freight cost negotiations” and satisfy the need for meaningful and proper freight rates and charges for your business.
Be ready to understand the entire impact of “freight negotiation” not only from a shipper’s perspective but also from a carrier’s needs and drive for more “balanced” negotiations and ultimately agreements.
Every company struggles for talent, this is true even for the vendors supporting the practitioners. As such, we distribute our listings in numerous places and some work better than others. Rarely, do we use this forum to announce more jobs, but there are now a lot of positions we are trying to fill. Consequently, please pause for this commercial interruption and you might even find something intriguing.
European Support and Client Deployment Manager
Responsibilities:
Assist clients in understanding the value of the technology and helping customers improve their business processes
Manage new clients by assisting with adoption and deployment
Conduct and manage web and on site trainings for European clients
Incorporate skills which support client account management
Required:
Have a very strong, outgoing sales personality with a focus on entrepreneurial spirit and attitude
Corporate purchasing experience beneficial but not required
Willing to travel up to 25%
Account Executive – Midwest (Chicago)
Responsibilities:
Serve as primary contact for Iasta prospects in specific region
Ability to self-generate leads and develop pipeline
Identify needs of prospects and develop win-win solution proposals
Build reference-able client list
Manage sales effort using the Iasta CRM system
Maintain market awareness of client needs and competitive landscape
Required:
Applications software sales experience
Active experience and success in any one of the following: e-Sourcing, e-Procurement or SRM
Strong, independent work ethic that matches a successful entrepreneurial atmosphere
Email careers@iasta.com for more information or interest.
Many companies have worked hard to develop a “preferred” LTL carrier network for their domestic and trans-boarder shipments with each supplier adhering to the specifications of shipment tender.
However, many times export and import shipments are left up to the forwarder or transfer agent to make arrangements for the “door to port” or “port to door” also known as “inland freight” therefore adding another layer of charges utilizing specialized carriage.
Specialized carriers in the export and import market utilize a completely different rationale when costing shipments. Many in the export/import market utilize a “pick-up” cost and a “delivery” cost and a “line-haul” cost from point A to point B for the particular shipment.
Allow your “preferred” LTL carrier network to handle these shipments, preserving your contracted rates and discounts and allowing complete control and transparency of your tender to or from the port.
All LTL carriers whether union or non-union are all capable of entering and existing the ports.
Why are inbound shipments unique? It’s because companies don’t usually have the same kinds of controls over them as they do for their outbound shipments. In fact, many companies pay very little attention to this critical part of their business. When you leave shipping choices up to your vendors, you really have no control over the inflow of your goods and materials, which can lead to production delays, stock shortages, late deliveries, unhappy customers, and higher costs for your company.
There is no such thing as “Free Freight”! Vendors often reap extra profits for themselves by building excess freight and handling charges into their delivered, prepay-and-add, and “bundled” product prices. And, when they do negotiate reduced freight rates for themselves, they usually don’t pass the savings on to their customers. If your purchases are made on a freight collect basis, you may not be effectively leveraging your own company’s buying power to get the lowest freight rates possible.
You are the customer and you have the right to determine the freight terms and shipping arrangements that are best for you. Evaluation should be performed on your current terms and arrangements, your shipment volumes, and your alternatives to determine the purchasing terms that are best for your company. Remember…”leverage” is the key term to optimize your distribution network.
How can an organization eliminate or reduce waste and increase speed in their supply chain? One answer is to replace warehouses and/or manufacturing locations with “cross-dock facilities” or “landing pads.”
Tremendous pressure of global competition and just- in- time operations in the marketplace has spurred many manufacturers to adopt a lean production philosophy–and a lean supply chain that supports that philosophy. An important element in the identification and design of such supply chains is an effective line-haul- cross-docking-end user operation.
Cross docking is defined as: the preparation of inventory/goods on incoming shipments so that they can be easily sorted at a terminal or warehouse or “landing pad” for outgoing shipments based on final destination to end user or distributor. The items are line-hauled cleared as one shipment then moved from the incoming-vehicle docking point to the outgoing-vehicle docking point then ultimately to the end user or distributor.
Example: Business units headquartered in either Canada or the U.S. who are located along or within certain miles ( ie: within 500 miles ) from the border should consider line haul – to cross dock facility – to end user. Many companies manufacture product in both the U.S. and in Canada duplicating the effort, sourcing raw material, components from same suppliers and adding endless inventory to the bottom line.
As we move to be more effective and cost conscious more and more companies have taken distribution and cross docking to another step, by eliminating their current across border manufacturing and warehouse facilities. Thus, securing product integrity and reducing major overhead expenses such as buildings, maintenance and labor costs while servicing the end user through “seamless” distribution.
Note that not only “outbound” shipments can be cross docked but “inbound” raw material and supplier components can be handled in this manner resulting in a very cost effective and controlled distribution environment.
Fact… 85% of most U.S. companies don’t have the time or the resources to effectively analyze their current transportation network and design a plan for corrective action, or have a formal logistic/distribution network in place. There are other ways of distribution and the movement of goods geared to customer satisfaction.
I will not rehash Jason’s points in this paper, it is well worth downloading. I will say that I can corroborate virtually everything he has stated. This is a massively growing area for Iasta, and likely all eSourcing companies that can work with F1000 sized companies. Integrated services components are critical to success of a coordinated eSourcing roll out. Some times, companies have the internal experts and bandwidth to pull this off, some times, they think they do, and most times, they do not.
To add to his statements with my own experience, companies generally need a standard set of dedicated resources:
Tactical: This implies just having some one to execute sourcing projects that are teed up, but do not have the necessary bandwidth to complete. This is generally short term and very quantifiable.
Categories/Assessment/Advisory: Here the company needs more than people to use software to complete tasks. Many times it involves a team of people that are loaded into a particular category or location with a specific savings target, as the goal. There is a large amount of data collection, strategy and execution needed and the time frame could be 1-6 months.
Process transformation: Much more involved than the previous levels, with less structure and a goal being conceptual, rather than finite. This again is a longer term strategy, but well worth the investment, if the sourcing organization has no..well, organization.
I make a habit of speaking to the leadership of our clients on a regular basis. One thing I can be very confident in, is that no one has extra resources. Procurement staffing is an area that will not go away and based on the results that we have provided, it is one of the absolute locks for ROI.
Add commentApril 16th, 2009Charles Dominick, SPSM - Next Level Purchasing
In Part I of this series, I shared some interesting statistics on the qualifications of today’s Procurement Vice Presidents and Chief Procurement Officers. In this Part II, I’ll share with you some additional findings on CPO qualifications.
These findings were gathered by examining 13 of the most publicized CPO hirings in recent years. Specifically, these are the CPO hirings we looked at:
Company | Date
BP plc | 2005
Chevron | Jan. 2005
Sara Lee Corporation | Mar. 2005
Tyco International | Jan. 2006
Dean Foods | Dec. 2006
Constellation Energy | Feb. 2007
Nortel Networks | Apr. 2007
Comcast | Apr. 2007
United Airlines | Sep. 2007
Goodyear Tire & Rubber | Sep. 2007
WellPoint, Inc. | Jul. 2008
Bristol-Myers Squibb | Jul. 2008
Chrysler | Dec. 2008
It should be noted that these 13 companies account for over three-quarters of a trillion US Dollars in annual revenue. So, they are leading companies and we can learn a lot from them.
We looked at three characteristics of the CPO’s that were appointed:
1. Whether they were promoted from within (came from the same company);
2. Whether they held a procurement position immediately prior to being appointed CPO; and
3. Whether they came from a similar industry
Please note that those who were promoted from within were considered to have come from a similar industry.
Here is what we found…
• Six of the 13 were promoted from within
• Eight of the 13 held a procurement position immediately prior to being appointed CPO
• Ten of the 13 came from a similar industry
• All who switched industries had a procurement background
• Only 1 who switched companies lacked a procurement background
• Four of the six who were promoted from within were not in a procurement position immediately prior to being appointed CPO
So what conclusions can we draw?
1. Like the transformational leadership skills described in Part I, industry expertise is very important
2. It is certainly possible to be promoted from within to the CPO position
3. When senior management gets to observe excellent leadership skills on a first-hand basis, that will lead senior management to considering promoting you from within to the CPO position, even if you don’t come from a procurement background
4. When senior management recruits you from another company and, therefore, did not have the opportunity to observe your leadership skills on a first-hand basis, a track record of procurement results matters quite a bit
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