Author: Christopher Meyer

Is Procurement Ready to Say Good-Bye to the Spreadsheet?

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(Featured Image from Microsoft website.)

Yesterday, June 27th, I ran across an interesting tweet. Jon Hansen (@piblogger1) tweeted the following:

I wholeheartedly agree with Jon. In this age of blockchain and and small app startups disrupting almost every industry you would think that procurement, and supply chain in general, would be ready to part ways with spreadsheets.

But are we?

An article from Robert Half reports that 63% of U.S. companies still rely on excel spreadsheets. And a Small Business Trends reports shows that 84% of Small Businesses rely on excel!

This comes as no surprise for a number of reasons:

  1. Spreadsheets are cheap or free. A small business needing to keep costs down can get Microsoft Office for the low price of $10 or so a month, or just utilize Google Spreadsheets for free. OpenOffice is another free offering that has a program just like excel. The list of free alternatives goes on.
  2. Spreadsheets is easy. I don’t care who you are, spreadsheets is easy to learn. And once learned, spreadsheets can be utilized to do a plethora of things. Organize data, create charts and tables, analyze said data and charts/tables. Even an iota of training can lead an employee to create a generally acceptable presentation of data. Want to learn more about how to do things in spreadsheets? There are a number of excellent free online resources, or you can pay for a book, or even pay for an advanced class at your local community college. Big solutions providers? Not so much.
  3. Current ERP/WMS haven’t done a good job creating a viable replacement for spreadsheets. Despite SAP, Oracle, Coupa and others making great strides, the numbers I cited above speak for themselves. Enterprise Resource Planning (ERP)/Work Management Systems (WMS)/etc. do not provide enough of a solution to effectively unseat the spreadsheet.

I have personal experience in this area.

The company I used to work for had used an industry specific WMS for decades. Spreadsheets were the norm for day-to-day operations. As I left, the company I worked for was beginning the long road to a major upgrade of the WMS. But when asked about spreadsheets and additional functionalities, the WMS supplier replied that the company would still need to utilize spreadsheets.

Two small businesses I’ve worked with in the Greater Omaha Metropolitan area use spreadsheets for 80-100% of their operations. One of the businesses effectively has a WMS at their disposal, but that only covers a small fraction of what they need to track, and the WMS doesn’t connect with the business owner’s bank account. Enter spreadsheets. The other small business is just starting up, and there is zero dollars in the budget for even NetSuite by Oracle. Spreadsheets fill that void.

Conclusion

I think, as do many others within supply chain and procurement, that it’s time to say good-bye to spreadsheets. It’s 2019, after all.

But, then again, we were supposed to have flying cars and cities on Mars by this point…

Maybe someone will come along and create that perfect ERP that finally replaces the spreadsheet.

Consulting

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Last Friday I had the amazing opportunity to do consulting in the Omaha Metro Area.

The client was a start-up gym looking to better manage their inventory of supplements (collagen peptides, protein, etc.) and workout equipment (knee sleeve, wrist wraps, etc.).

It wasn’t anything high end. No C-Suite meetings. No hundred dollar steak dinners.

Just one hour with some Bulletproof Coffee while working on spreadsheets at Whole Foods.

I built them a spreadsheet to manage their inventory, forecast their demand, determine their economic order quantity, safety stock, and order point. All the while I explained the math and basic principles behind it what I had built. In the end I offered my continued availability.

Now the gym is better prepared to deal with its increasing demand for supplements and equipment. Of course, as they grow they’ll need better software than just an excel spreadsheet.

But I got them started on the right track.

*

If you’re a start-up or small business looking to improve your supply chain, shoot me an email and set up a free introductory consultation: meybestprocurement@gmail.com.

Supply Chain Flywheel

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In February Jim Collins came out with the small book “Turning the Flywheel: A Monograph to Accompany Good to Great“.

In it, Collins discusses the Flywheel concept, and how organizations like Amazon and a failing school on a military base leveraged the Flywheel concept, and made it their own to become GREAT.

I first heard about it on the Tim Ferriss Show. During the interview, Jim Collins discussed the monograph, how it applied to businesses, departments, and even our personal lives.

I shared that portion of the podcast (starting at 1:40:00 or so) with a colleague, and together we built the flywheel for our Supply Chain Division at the company I worked for.

The Supply Chain Flywheel

Here is the Flywheel we came up with.

  • Increased Stakeholder Engagement
  • Quality Scope of Work
  • Better Market Position
  • Better Market Relations
  • Reduced Total Cost of Ownership
  • Increased Stakeholder Buy-In

As described by Jim Collins, each step in the Flywheel cannot but help cause the next step.

Increased stakeholder engagement cannot help but lead to a better quality scope of work. A better quality scope of work cannot help but lead to a better market position. A better market position cannot help but create better market relations. Better market relations cannot help but reduce the total cost of ownership of the materials/services being sourced. Reduced total cost of ownership cannot help but lead to increased stakeholder buy-in. Increased stakeholder buy-in cannot help but lead to increased stakeholder engagement…

And so on, and so on, and so on.

Doom Loop

The Doom Loop, of course, is the exact opposite, and each step in the Doom Loop feeds the next.

  • Decreased Engagement
  • Poor Scope of Work
  • Poor Market Position
  • Poor Market Relations
  • Increased TCO
  • Reduced Stakeholder Buy-In

Conclusion

Supply Chain/procurement should strive to reach the flywheel described here and, of course, improve upon it. Maybe there’s an additional step your team or department needs to add. Try and develop it.

And if you do need a hand to start your flywheel, the MEYBEST Procurement Solutions: Strategic Sourcing Training is a great place to start.

Should Procurement Just Get Out Of The Way?

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I recently read an article whose author stated that procurement “should just get out of the way” of stakeholders.

This is a surprise from my perspective. Articles over the past few years, and my personal experience, have shown that procurement and stakeholders need to work closer together. This article seemed to recommend the opposite.

The Idea

It may seem that, too often, procurement gets in the way of work being completed.

Procurement should provide information to the stakeholders, and ensure the procurement process is as smooth as possible. The result of a sourcing event should allow the stakeholder who requires the service/material to get what they need when they need it.

In the most recent project I worked on for vehicle parts for the Transportation Department of the company I work for, it was the stakeholder who told us what they needed. Then, it was my team and I that sought out current and new suppliers, set-up supplier workshops, and worked with the stakeholder to craft a detailed scope of work.

With the award to the now strategic supplier (the supplier who was awarded the business had been one of ten suppliers previously used), the stakeholder is able to order what they need online through the supplier’s website.

But my team and I aren’t stepping away. We are tracking supplier performance against agreed upon key performance indicators (KPIs), dealing with stakeholder/supplier issues, and conducting semi-regular benchmarking of pricing on small selections of parts to keep the supplier honest and competitive.

The Risk

The risk is that when procurement “gets out of the way” spend returns to the unmanaged state it was before. Instead of a handful of strategic suppliers, stakeholders go to whomever they see fit. The synergies and savings created by procurement are lost.

You want to avoid this situation.

So, while procurement should streamline things for their stakeholders as much as possible, procurement should never just “get out of the way”.

 

Communicating Change

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You’ve completed the sourcing event. The agreement is awarded. The supplier begins full implementation next Monday.

And then the storm hits.

The employees on the line are up in arms. No one told them things were changing, and unbeknownst to you entire processes and policies needs to be changed. Their supervisors aren’t happy either.

With resistance from below, you go to senior management for assistance. But they only had a high level view of your sourcing event and the change it would bring, and have difficulty providing assistance.

What happened?

When Change Begins

News about change, whether good or bad, is not like wine. It does not get better with age. From the very beginning of your sourcing event you must craft your communication letting those affected within the organization know what’s going on.

Early Stages

The idea phase is over, and the sourcing event is in full swing. Suppliers are being talked to, stakeholders are being consulted as to what they want. Here, too, communication of what is going on must go up, down, and across the organization to those affected. A simple update may suffice. “We met with X and Y Suppliers on these dates.” Maybe that’s enough to keep people informed that change is moving along – and coming their way.

During Change Design

The agreement has been awarded. Now you, your sourcing team, and the supplier are sitting down to hash out the key deliverables and milestones. Who is in that meeting? Are all those affected there? Who from the executive level has provided their guidance, or is in the meeting to match the supplier’s executive team? Has that executive been updated on what’s in the agreement, and the desired end state so they can support your vision?

Implementation

Before and during the implementation of the new supplier, communication is even more key. Daily or weekly updates with the supplier, the employees on the ground and their supervisors ensures progress is moving forward, and any problems are addressed immediately. The executive level will be wondering as to the progress of implementation, and if the savings and added value promised through the agreement will be realized.

Post-Implementation

This is your time toot your own horn. This is where you show the progress made, the savings and added value realized. Both quantitative and qualitative measures of success should be used in your communication through the organization.

But it’s not a time to sit on your laurels. This is where you engage the executive level, managers, supervisors, and even people on the line to reinforce the change. How many times has change come around, only to disappear and things go back to the way they were? Not only do you need to reiterate the story of the gains made for the organization, but you must gain buy-in from all levels to ensure compliance. When individuals decide not to comply, you must also gain the buy-in of their management to deal with them accordingly.

Craft Your Message

Throughout this process you must craft your message. You wouldn’t provide granular details of the change to senior management, nor would you want to give a strategic, 50,000ft view of the change to the line employees. Ensure your message gives the “Why?” and “What’s in it for me?” at the correct level of detail.

Conclusion

There have been dozens of books written on change management and communication. A lot of it’s the same information. Why do they continue to sell? Because people in organizations continue to fail at it. Keep to the principals above and you and your organization will be better prepared for the change your sourcing event brings.

Day One – When Negotiations Start

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A while back I began a project with a department in the company I currently work for. As we discussed the process, one of my colleagues asked me, “When will we start negotiations?”

My answer? “Day one.”

Negotiations start the moment you pick up the phone or type out an email in order to communicate with a supplier.

How?

The moment the sale rep or account manager begins talking to you, they are gauging you.

How do you communicate? Is your presentation strong timid? Are you to the point, or do you like to discuss things before getting to your point? Are you readily forthcoming with information when asked, or do you hold back?

Now you’ve communicated with them, the sales rep is going to do research on your company.

Are your financials strong? What were your sales last year? What does Glassdoor.com say you pay your employees, and what do your employees say about the company?

After that, each interaction, whether informal talking about hunting pheasants, or down to business hashing out rates and terms and conditions, are all negotiations.

In the MEYBEST Procurement Solutions: Strategic Sourcing Training, I outline at least three rounds of negotiations. These are formal rounds, scheduled in response to a sourcing event. It’s the informal, unscheduled interactions before, and even after, the RFx is complete and the agreement awarded and signed.

NOW

Start your negotiations NOW.

Investigate them NOW. Much of this can be done during need identification and gathering of facts and data. You and/or your stakeholders will already have an idea of which supplier or suppliers you want to consider for your sourcing event. Do this before you pick up the phone or send an email.

Craft your negotiations strategy NOW. It’s not going to be complete, and it won’t be the tactics and strategy you use once bids for the RFx come in. But it will set the tone for how you and your stakeholders will and will not interact with suppliers, individuals within your organization, the media (should they ever get involved), and even social media.

How many times in the past two years have negotiations been derailed due to inflammatory Tweets?

Conclusion

Whether it’s defensive (like holding information back), offensive (using information in your favor), or meant to stir up a commotion (like a number of politicians these days), crafting your negotiations strategy now, and then enacting it, will set you and your company up for success during your sourcing event and beyond.

Hemp in the supply chain

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The 2018 Farm Bill was passed on December 11, 2018, and hemp was legalized after decades of prohibition under marijuana laws. It’s estimated that hemp could be a $20 billion industry by 2020.

States, such as Kansas, had already passed their own industrial hemp legislation. With country-wide legalization, the opportunities for hemp and hemp products are taking off.

CBD Oil

The first thing many people think of when they think of hemp is CBD oil. The benefits of CBD oil are well documented, from pain relief, to relief for people with epilepsy, and even helping the elderly with Alzheimer’s.

While CBD oil from marijuana has up to 20% THC, the psychoactive compound that gives people a high, hemp oil has only trace amounts of THC, too weak to be psychoactive and in many cases too low to show up on a drug screening.  People can get the health benefits of CBD oil without the prohibited drug.

Hempcrete

A fraction of the weight of concrete, hempcrete is quickly becoming widely used in construction. Though it can’t be used for foundations, hempcrete walls can reduce the weight of a building, while its insulating properties can keep buildings around 60 degrees Fahrenheit even in colder months. The reduced weight and reduced utility requirements can save both the builder and the tenant a lot of money.

Hemp Fiber

Hemp fiber can be used for clothing. Hemp clothing is more breathable and even anti-microbial. But it’s the cost that makes it attractive. Hemp fiber is cheaper to cultivate and harvest than cotton or wool, and cheaper to produce than synthetic fibers while also having the benefit of not having the negative byproducts of synthetics.

Nutrition

Hemp seeds are known to be an excellent source of nutrition. They are full of protein, unsaturated fats, fiber, and several vitamins and minerals. Since hemp is so easy to grow, it makes it a ready and prevalent food source in a market where meat prices can fluctuate.

Paper

Hemp can also be used to make paper. This isn’t just an argument over the environment and deforestation, it’s also a matter of economies of scale. 1 acre of hemp can produce as much paper as 4-10 acres of trees in a 20 year period and hemp only takes 4 months to grow while trees take decades. Hemp paper is also stronger than paper made from trees since it has higher cellulose content.

The Supply Chain

I’ve talked a lot about the benefits of hemp in general in this post. The question is: how does it benefit your supply chain?

In my opinion, the answer is clear.

  • Lower cost of growth, harvest, and production
  • Greater sustainability over a long period of time
  • Reduced weight of materials
    • Lower fuel costs in transportation
  • Reduced risk due to reliability of the crop
    • Can reduce risks of tariffs on some products from outside the U.S.

The Supply Chain Questions You Must Ask

With these benefits, you and your organization have to ask yourself some questions:

  • How can we integrate hemp into our offerings?
  • What suppliers do we pursue?
  • How do we get involved in the supply chain at the source – the farmer?
  • When and how do we push our suppliers to integrate hemp into their offerings?

The future is looking bright for hemp in the supply chain.




 

In a tight labor market do you try to hire or automate?

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Today (12/20/2018) the Omaha World Herald released an article on the labor shortage in Nebraska. This is in spite the population of Nebraska creeping up to 2 million people, and Union Pacific layoffs releasing workers back into the available workforce pool.

Nebraska isn’t the only place that has a labor shortage. The United States as a whole has a shortage of qualified workers in both white and blue collar jobs.

This may not sound like a supply chain or procurement problem, but it is.

Do you try to hire?

While human resources/human capital may be the lead on hiring, procurement professionals are sitting alongside them. Generally, it’s procurement professionals that work agreements with traditional hiring or head hunting firms.

In the 21st century the procurement professional can also reach out to other sources of hiring. Variable or contingent workforce companies and sites can fill a need that standard hiring can’t. Your organization may not get a permanent hire, but they may get the person or people they need for that important project.

However, some companies try to keep jobs within the states they are located in. Yes, they may be able to hire a contingent worker or two from Canada or South Korea, but those dollars are leaving the state, and perhaps the U.S.

Do you automate?

If your organization can’t hire more people, perhaps it’s time to automate more processes. AI and blockchain are the touted technologies that will change tomorrow, but many organizations, especially medium and small businesses, don’t have the money for that now, and may not have the money for that even in ten years.

Your organization has to ask itself what processes or reports can be automated with programs, either purchased or developed in-house. If in manufacturing or warehousing what machines or robots can be built or purchased – and can you afford – so your organization doesn’t have to rely on as many human workers?

Whether a program or a machine, procurement professionals will be there to lead the sourcing.

Conclusion

I didn’t address outsourcing here. Many companies already do so, and it is a consideration your organization may have to make. But if the focus is on keeping revenue and tax dollars in the state your organization is located in, and in the U.S., outsourcing may not be an option for you.

The same goes for variable/contingent workforce solutions. Your organization may put a requirement for workers located in the U.S. only. How will that effect the hiring process, and the project(s) those personnel are being hired for?

You will have to look at the total cost of ownership of the hiring or automation solution your organization is considering.

Data Is King

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Today everything in business relies on data: sales, lost sales, materials in stock, efficiencies, budgets, demand, etc. It’s the exception to the rule that a business can run without at least some data as to the peaks and valleys of their sales.

This is no different for procurement. Today data is as important to an organization’s procurement and supply chain functions as it is to any other area. Data not only informs procurement about what’s going on, but is increasingly driving procurement decisions, such as how much to buy, how to enter negotiations, and even whether or not to eliminate the requirement for what is being procured.

Herein we’ll take a look at the ways data drives procurement, and how your organization can benefit from it.

Spend

How much you spend, what you spend it on, and how you spend is one of the most important data points for procurement professionals. What you will spend in the future is also important.

Why?

How much you spend gives you a number to work with, and helps the procurement professional set goals on reduction. What you spend it on can tell you if you’re spending too much for a material or service, or perhaps your organization is spending money on something it doesn’t need (ex. obsolete materials). How you spend can tell you if you spot buy, make multiple purchases resulting in paying for multiple shipments when you should consolidate them, and with how many suppliers.

Forecasting spend is important, too. What is that project in 12 months projected to cost you? Why?

Management

Gathering all of this information helps you manage that spend. Some companies can readily access this data and procurement professionals can begin tackling it. You may belong to a company like this.

Or, you may be part of a company that doesn’t have this data ready at hand. You may be the person that gives your IT department a heart attack. (It’s OK, they have health insurance.)

Managing this spend helps you and your organization make decisions on how to change certain purchasing trends, make decisions on how money will be spent, and why.

Unmanaged spend, also called Rogue Spend, accounts for roughly 29% of a company’s spend, according to The Hackett Group. If your annual spend is tens or hundreds of millions of dollars, your organization could be leaving millions or tens of millions of dollars on the table, something that directly effects the bottom line.

Getting spend under management helps you make decisions such as consolidating areas of spend and bidding out to find a single supplier that can supply it all in order to find better solutions that will help save money and avoid costs.

It can also help you begin the discussion on processes.

Process

Soft costs are hard for some people to grasp. They “technically” don’t exist, so why address them?

A perfect example is one I dealt with recently. Currently the company I work for has workers clean their own vehicles. The issue? That worker is being paid $30-$40/hour straight time to clean that vehicle. Lump on benefits, that’s roughly $45-$60/hour.

We began a project to contract vehicle washing services. Bids came back at around the $15/vehicle mark. A fraction of what it would cost for one of our workers to clean them. (The agreement is for approximately $65,000/year.) And vehicle cleaning would be done after hours, not affecting the work schedules of the workers.

The managers and supervisors we discussed this project with just shrugged their shoulders. “They’re on the payroll anyway, so why not just keep having them clean their own vehicles and not spend $65,000 a year?”

The issue is that these workers could be spending the time they are cleaning their vehicles doing their actual job. If you have ten or so workers taking time away from a job site throughout the month to power wash their vehicles, that reduces the efficiency of work done on that job and could extend the schedule of that job, even pushing it past the deadline. How much does all of that cost your company?

This could also include your procurement processes. Are there steps in your processes for purchasing, receiving, warehousing, and issuing materials? Or perhaps suppliers that provide services are late (costing you time and money) because of certain processes your organization follows such as unnecessary security checks.

Using spend data to look at your organization’s processes can help you address both hard and soft costs. The data gleaned from these calculations can help your organization become more efficient and effective.

Total Cost of Ownership

With spend managed you can begin to address Total Cost of Ownership. How is freight billed? How are shipments handled? How does the supplier bundle things? What’s the mark-up? What’s the cost of labor for the supplier to handle that product or service? What’s the cost of labor for your organization to accept that material or oversee that service? What are the manufacturing costs? What is the cost of holding inventory at the supplier’s location? What’s the cost of holding inventory at your location? Are there materials you can remove and still be effective?

All of these things, and more, go into the total cost of ownership. Tracking the total cost of ownership, perhaps through should-costing, can help you and your organization determine if you need certain materials or services, if there are features that can be removed, or if there are better ways of doing things.

Conclusion

Getting a handle on your data in procurement is as important as getting a handle on it in sales. As the procurement professional you need to be able to track how much is spent, what it’s spent on, how it’s spent, how much was spent in the past, and what your organization will spend in the future if you are to be effective in contributing to the conversation on how to change all of that for the better.

Will Amazon Be Your Sole Source Supplier?

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(Image © Amazon Logistics)

The recent trend in procurement and supply chain is consolidating suppliers as much as possible. This gains the organization volume discounts for materials and services, increases the organization’s negotiating power due to the amount of spend, and it removes the administrative burden of managing and communicating. While not all companies can sole source with a single supplier, many work down to two or three in a range of categories.

But have you considered utilizing Amazon as your sole source supplier?

On October 23rd, Amazon announced new Business Prime Benefits for organizations in the U.S., Germany, and Japan. These new benefits include:

  • Spend Visibility
  • Guided Buying
  • Amazon Business American Express Card
  • Extended Terms for Pay by Invoice
  • Upgraded Shipping Options

Where many business may buy from a major distributor, Amazon is set to be that distributor and compete with companies like Genuine Parts Company (think NAPA Auto Parts) and Grainger. Customers don’t have to deal with a dozen or more different suppliers. They find what they need on and buy through Amazon, and can even set policies and limits for their organization’s buyers.

Amazon is looking to make it as easy and transparent as possible. From the Amazon Business blog:

“Amazon Business Spend Visibility allowed me to perform several functions that would otherwise have been manually performed and incredibly time consuming,” said Chris Vanderbilt, Procurement Director at Alterra Mountain Company, who owns and operates more than a dozen ski resorts across North America. For example, to identify purchases out of compliance, Chris would have to download a transaction list from their procurement card provider, request info from specific users, and spot check purchases. Now, using Amazon Business Spend Visibility, he can quickly run a category spend analysis and identify non-compliant purchases across multiple companies and users.

You can learn more about Amazon Business Prime here.

Many people know about all the different markets Amazon has entered, such as publishing, audiobooks, and cloud servers. But now Amazon isn’t just working to compete with bookstores or MRO distributors, they are also moving to compete with the likes of FedEx and UPS.

In 2016 it was reported that Amazon was quietly building its own shipping company. That escalated this year with Amazon’s announcement that it would help entrepreneurs start their own package shipping companies. For about $10,000 (and some vetting) you can start your own Amazon package delivery company with vehicles and uniforms to match, as well as Amazon technology to track your workforce and deliveries.

This move is two-fold: Amazon now has full control of its small parcel shipping, while putting it in direct competition with shipping giants FedEx and UPS.

What are the implications of all of this? Market shake-ups in MRO/tools/parts and parcel shipping. Suppliers on Amazon will be driven to be more price conscious in order for Amazon Business customers to choose their product and price over the competitor, driving down prices (unless a supplier markets more on quality).

And could it mean that one day your business or organization may use Amazon as a sole source supplier?