Procurement Heroes, what is your number one challenge to reducing indirect spend?
Put another way, what is your biggest barrier toward the strategic sourcing of the indirect spend at your company?
According to this article the answer given but an awful lot of procurement professionals surveyed is one thing: maverick spend.
Also called rogue spend, after the fact procurements, unauthorized procurements and a whole host of other names. I was personally a bit surprised to hear this was the most popular response.
In a joint survey by Supply Management and Expense Reduction Analysts, 71 percent of procurement professionals named managing the purchasing of non-procurement employees as the No. 1 challenge to their efforts to reduce indirect spend.
Seventy-one percent? Really? Wow, count me as part of the other 29 percent and perhaps that makes me a bit lucky.
I don’t count rogue spend as my number one hurdle to reducing indirect spend. My employer does a pretty exemplary job at curtailing that problem. We still have it, sure, but it’s a small percentage of our work and when it happens the leadership of The Company aren’t shy about coming down with both feet on the offender.
The article debates a few ways to reduce maverick spend, and I’ll tell you my employer’s secret:
1) Have a firm policy on no rogue spend and have a leadership team that is willing to back it up across the board, all the way up the to CEO. If your executive team isn’t onboard, then the offenders will always find a way.
2) Provide plenty of Procurement approved ways for The Client to get what they need with not a lot of hassle. Online ordering, eCatalogs, established blanket agreements, etc.
It’s been my experience that the rogue spend is hardly ever the large multimillion dollar purchase, it’s usually the little pesky little stuff that The Client doesn’t want to have to hassle through the procurement process to purchase. Make it easy to get those small but essential items and The Clients will quickly follow the right path. Guaranteed.
Now, to answer the survey question from my perspective. The number one obstacle that I personally have to getting a good handle on indirect spend is lack of planning by all of the different business centers. Some do a great job, many do a terrible job.
When I only know what we’re buying the moment a requisition lands on a buyers desk (with a “rush” or “urgent” flag), then it’s awfully hard to be strategic and to get the best deal for The Company.
That answer came in second on the results of the survey.
It’s a tough world out there, and for as much as we in procurement take a step forward in credibility and value to our employers, we clearly still have a lot of steps yet to take.
Okay, Procurement Heroes, let’s get out there and squash some mavericks and rogues! Good luck out there!
Image used royalty free from FreeDigitalPhotos.net.
Toward the end of January I had a day, it was a Tuesday I believe, where both my desk phone and email were inundated with cold calls from a variety of salesfolks.
Given the kind of work I do, the commodity I specialize in, and the fact that finding my work contact information pretty easy, I am used to a certain level of cold calls. This particular Tuesday logged a notable increase over the norm.
I had a chance to chat with my favorite Marketing and Sales person later that day, and I made the comment, “Man, am I getting deluged with cold calls today. What’s up with your people?”
As a career procurement person I find it’s my duty to rib my career marketing friend every chance I get.
He laughed and then sighed. “It’s this time of year,” he replied. “Hard to make a sale just after the holidays.”
I suspect there is a lot of truth to that. The first calendar quarter of the year is a tough buying season, regardless of what quarter it happens to be on the fiscal calendar. I suspect these salesfolks are trying to make SOMETHING happen.
On one level, I have compassion for those eager people on the other end of my phone and email. They are hustling to make their commission-based living.
On another level, I have no compassion whatsoever for cold calling salespeople.
After talking to my friend I had some time to think about what he said. About salespeople working every angle to drum up business in a slow season.
I thought back over my procurement career and wondered if I could think of an example where a cold call actually got me to convert the sale.
To be brutally honest, I cannot think of a single example. There have been a few where we later included the supplier on an RFx bid list, but I can’t think of a time where that supplier actually won the award.
Yeah, not one example over the almost twenty-five years of my career. My sample size is very large because I receive A LOT of cold calls.
I was curious about this topic so I took to the web with the question “Do cold calls really work?”
What I found are a lot of articles arguing both sides of the question. Cold calling remains cheap, easy and fast, but cold calling is often done badly and is quickly becoming obsolete in favor of social networking.
In my personal not-very-scientific sample I have learned it just doesn’t work. In fact, in many cases it leaves me cold (pun intended) and causes me to be a lot less interested in working with the supplier.
Then how, a salesperson might ask, can I earn your business?
Okay. Here’s some hard truths:
1) If your company is good, if they do good work at a good price and deliver on time, then I will know about you. Procurement people talk. More than you may think.
2) Be willing to take on some small pesky orders and do them well. If you do get an RFx from me, read all of the directions, respond on time and answer ALL of the questions. Be willing to show you have something a little over and above the suppliers I already know and trust.
3) Speak to me like a human being and not a “prospect.” Use plain English. Don’t be arrogant. Don’t be smarmy. (amazing how many salespeople are still oh-so-very smarmy)
4) If I tell you I don’t have any business for you, accept it gracefully. Don’t get weird, don’t keep calling every week and don’t be pushy. That will get you nowhere and waste both of our time.
5) Don’t push for a meeting. Why would I give you an hour of my very valuable time to let you pitch me just so you can check a box and show your boss you had a meeting? If I want to meet, I’ll suggest it.
6) If I do agree to a meeting, make it easy on me. The meeting should be no longer than a half hour (or less). You schedule the time, you set up the conference bridge, you facilitate the meeting. Make the slides brief and meaningful. Speak in value statements and not sales speak.
7) If I give you my email to send me a line card, do not add my name to your company’s marketing list so that I then get blasted with everything your company has to say including blog posts, contests and free tickets to WidgetCon! In Las Vegas! The hottest show in town!! Can you say spam filter?
8) Say please, say thank you, say you appreciate my time. In a genuine and not smarmy way.
9) Know a little something about my company and what we do before you get on the line. My company does weird stuff and we’re not like every other company out there and I can tell right away if you haven’t done your homework.
10) Don’t be “that guy.” Speak like a normal person. Treat me with respect and I’ll return the favor. Be honest, be genuine, be trustworthy and be real. That goes a very long way in any Procurement Hero’s book.
Oh, hey, got to wrap this up. My phone is ringing. Again.
Image found here.
Today a couple of my hardest working buyers are putting together a fairly major RFP. This will be a multiyear deal with multiple awards and a very long bid list. There is a nice book of business at stake.
Part of the reason this RFP is happening is that there is a supplier currently doing the work that has caused The Company no end of headaches, lawyer’s time, and delays.
So while we’ve finished the work (finally!) that the incumbent is doing, and this RFP is follow on work, I got a question from my lead buyer today.
“The Client included Crappy Supplier on the new bid list. Do we really want to send them the RFP?”
Now that’s a very good question. A very, very intriguing situation, actually.
This is where every Procurement Hero needs to separate emotion from their profession, which can be hard to do.
To be honest, my initial gut reaction when asked the question was “No way in heck!” We spent far too many exhausting hours managing this supplier and fighting with their challenging leadership.
Common procurement courtesy says even if the supplier is troublesome, by virtue of being the incumbent, they should receive a copy of the RFP.
But there are some caveats and considerations hidden in that answer:
1) If the situation with the incumbent has gotten so bad that neither party is in the mood to continue (i.e. termination notices have been sent and received) then in my opinion**, no need to send an RFP that the supplier won’t bid on and The Company wouldn’t award.
2) If the supplier has gone bankrupt or become insolvent during the course of their contract. No need to send an RFP to a supplier that may no longer exist.
3) If the procuring company is a government agency and the supplier is on a suspended or debarred list or if a commercial procuring company and they have their own “no fly list” (many do), then absolutely not. The supplier doesn’t get the chance to participate in the RFP for reasons which are already clear to everyone well in advance.
4) If you think you’d have to deal with a lot more backlash by not including the supplier. Some bad suppliers will make a stink over just about everything. You as the Procurement Hero come from a stronger position by saying “Your bid was considered and shown not to be the best combination of price and technical factors” than to have to explain why a supplier wasn’t included in the competition at all.
5) The industry is so tight knit that you suspect the questionable supplier will end up with a copy of the RFP anyway. May as well send it to them and control the message. Also if there are very few suppliers in that space and you simply need to consider the supplier, poor performance or not.
All business factors considered, it may just be easier to include the questionable supplier on the bid list and let the natural course of proposal evaluations bear out the right answer.
That said, if you do choose to send an RFP to the troubling supplier, check your RFP language. Make sure you have a statement in the section regarding selection criteria to the effect that, “…The Company’s own experience may be a factor in selection of the successful bidder.” This of course assumes your RFP is not lowest price, technically acceptable.
This kind of language puts everyone on notice ahead of time that previous experience with a supplier will be considered. (Don’t just cut and paste my language here, please check with your Legal team before dropping that into an RFP document.)
Forewarned is forearmed, as the saying goes. If you state it upfront, you save a lot of headache on the back end.
Remember one key aspect of any RFQ or RFP is fairness. You have to be clear about what will and won’t count when evaluating proposals.
Meanwhile, my own team of Procurement Heroes has decided to include the not-so-good supplier on the list. This just makes the bid list that much longer and we’ll swim in a pile of proposals for a while, but for us and for The Company, it’s just the right thing to do.
Good luck and safe RFP’ing to all Procurement Heroes everywhere.
**Nothing I say here is a substitute for the advice and counsel of your own company’s Legal team. I am not a lawyer and don’t pretend to be one.
Image found here.
Today most all business functions rely on data to make decisions. Big data, little data, cross section of data, charts, graphs, numbers, percentages, on and on and on.
Nowhere is this more evident than in the Procurement function. Most Chief Procurement Officers (CPOs) live and die by the data they can pull and look over and make decisions for the department.
Cycle time, cost to spend ratio, cost savings, number of POs placed by commodity. That’s just the beginning of the list of key performance indicators.
I’m not going to say data isn’t necessary. I mean, sure, it would be a lot of fun to say that and watch the angry eyes and pitchforks come out at the very thought. People sure are beholden to their data.
I think we can all agree that running the numbers and taking a look is a valuable part of running any procurement organization, but not to the exclusion of also using the gut when reading the numbers.
Intuition is an incredibly large part of data analysis and leadership, but this notion seems to get lost in the big data shuffle.
I’ll give you an example: Last month ended my company’s fiscal year. Always a challenging time and my team performed miracles, right up to the last hour of the last day.
Just this morning, our stats for last month were delivered (it takes the data crunchers several weeks to publish results). Knowing my own CPO loves to look at the stats, I took a quick look at the report so I could get ahead of the curve.
Right there in a boldly colored bar chart is the truth. My team’s cycle time for the month of September is about one day longer than the established goal. My team took too long to get procurements done on behalf of our clients.
And so of course, “Gah!” can be heard all around. “We’re not meeting goal! What do we do! Change! Fix! Improve!”
Well. No. For the eleven months prior, my team had been well below the goal and performing at a high level. So what happened last month?
From a customer service standpoint, I certainly don’t like extended cycle times, but my gut tells me that in the crush of year-end activities, The Client understands. All they want to know is that their money was spent before the clock struck 5pm on the last day.
And my team did that. They delivered everything on time, nothing fell through the cracks.
Included in that list of completed procurements were some pretty easy slam dunkers and some pretty large, ugly and complicated procurements. But nowhere on the pretty blue bar chart bar do you see that.
You also don’t see that the team was learning a new procurement system during that month. Or that there was also a policy change in how to handle a certain kind of contract.
All the bar chart tells me, and anyone reading it, is that my team missed the mark.
So should I come down on my team? Make changes? Demand improvement?
Hell no. I will share the data so they know how they did. Then I will compliment them, encourage them, and reward them because they turned in a fine performance, even if the data doesn’t agree.
At this point you may be reading along and thinking I am quite the simpleton. “Of course!” you might say, “It’s not just about data it’s about interpreting the data!”
But in the real world, it’s not actually quite that obvious. I spend a lot of time at networking events, teaching procurement classes and talking to my peers and I sure see a different story.
You’d be surprised at the bashing going on out there with data as the stick.
I am personally quite lucky as my own CPO uses a nice blend of both data and gut and that means I can rely on her to ask questions, explore the background, and look at the chart and then what is on the other side as well.
It seems the research backs this up. I was starting to despair a little until I came across this article and this quote:
According to recent research by Time Inc.’s Fortune Knowledge Group and global advertising agency, Gyro, 61% of business leaders said real-world insight tops hard analytics when making decisions. Okay, but what about the hard decisions? This same study showed that the more complex a decision is, the more we rely on emotional factors.
— From “Gut vs Data Driven Decisions: What’s the Best” by Andrew Hermann and found on corsource.com
Seems there is a place in the Procurment world for both data and trusting the gut. Neither alone is the best way to run the show, but together, well, that’s where the magic happens.
Image found here
As the burgeoning Procurement organization that I live, work and thrive in continues to grow from a small “push paper” mentality to a best in class organization, it was only a matter of time before we had to begin discussing supplier scorecards.
Known as Supplier Business Reviews, Supplier Performance Reviews and a variety of other names, the supplier scorecard process is widely recognized as valuable, meaningful, and a part of any high functioning Procurement organization.
So why are so many organizations so bad at it?
For better or worse, suppliers business reviews and the scorecard are often a “nice to have” in any short staffed hardworking procurement organization. They are not front-of-mind when fighting the daily fires that a Procurement Hero faces.
In the many companies that have employed me, the cadence and application of supplier scorecards ALWAYS came as a push from leadership and not a drive from the Procurement Heroes out there doing the actual work.
Why is that? Why do we all (me included) balk at doing this valuable step in supplier management? Something we can all agree has value but can’t get ourselves to do with any regularity.
Well, for one, it’s time consuming. There has to be a survey of end users that needs to be created, unleashed and compiled. And then a presentation, and scheduling dates and who should be invited and how do we present the tough topics.
And then the actual event is always a drag.
Suppliers *love* getting this kind of feedback but always *hate* whatever score they are granted (even if it is a good score). Then the salesfolk push hard to understand exactly how to improve their score and then throw it back into the conversation at every turn for the next period of time between scorecards.
“You said we needed to do a better job of communicating and now I am emailing you every day with issues, and our latest sales campaing and can I come out and give your team our latest presentation and other stuff! Will this improve my score?”
Yeah. Painful. It’s a double-edged sword too, or at least when done right it should be.
The Procurement team should score the supplier and the supplier should have time to score the procurement team too.
Oooch. That feedback can be tough to take, but useful, if a procurement organization wants to grow and get better.
To be honest, the kind of suppliers that can take this feedback and improve are often the top scoring suppliers anyway. The suppliers with a low score will just get ticked off and often don’t use the scorecard as a way to improve.
So does this really drive change? In my experience, not really. Not unless the Procurement organization is able to build teeth into the supplier scorecards. Some sort of hold back of fees or an incentive program that relates to the score. That’s the only way it works and these incentives can be tough to establish and also tough to get buy in from the end users.
While I do see the value in supplier performance reviews, I also see them as a lot of work for not a lot of payback. At least how I’ve seen them work. Maybe some of you have other thoughts?
For an interesting read related to this topic, try this Procurement Leaders article:
Working in the Procurement role for quite a bit more than twenty years, I find that my view when reading business articles is different from most.
Over the weekend, I took a look at an article in SFGate about the bus drivers who pilot the shuttles for big tech companies in Silicon Valley.
SFGate tends to expire links rather quickly, but in the short term, here’s the link to the article:
I’ve always thought that driving a shuttle seems like a difficult job, having to navigate Bay Area traffic for a living is no easy feat. The article points out a lot more areas that make the job a real challenge. For example, the drivers have to work split shifts, something like 7am – 11am and then 4pm to 11pm. The hours in between are unpaid and since the drivers are on call, they can’t go home or get another fill in job or anything. They are stuck waiting and not being paid.
As I read the article and quotes, it certainly sounds like a difficult situation for many of these drivers.
But where my procurement brain kicked in was when the author of the article began dropping Google’s name liberally throughout the piece. Never outright blaming Google but making it clear that Google uses a lot of these buses, along with other tech companies in the valley.
I know that the name Google will entice a lot more page views than the name of a relatively unknown bus company, but to clickbait using those big names is unfair. These drivers don’t work for Google or the other tech companies, they work for a transportation company.
Entities that have employed me (including my current employer) have contracts with transportation companies for shuttle service. I have watched many a peer go through the RFP process to select a service that meets the needs of the company at a reasonable price. Issuing an RFP is certainly what any brand name big tech company has done.
Is it the fault or the responsibility of Google or Genentech or Apple to ensure that shuttle drivers are treated fairly? The fault lies squarely with the companies who employ the drivers. Yes, I know that supplier social responsibility comes into play here, but in any of those RFPs (I’ve read more than a few) fair labor practices are always part of the requirements. And if they aren’t they certainly should be.
So while I believe that many of these shuttle drivers are being treated terribly, and something really should be done, I also feel like it’s wasted energy to point an awful lot of fingers at the entitles that cannot fix it just to get a few more clicks onto a website.
If fingers are going to be pointed, perhaps they should be properly aimed.
But then again, truth and honesty in journalism doesn’t always create ad revenue.
Meanwhile, I stand with my fellow Procurement Heroes at these companies who conducted the best RFP they could and selected the company that offered the best combination of price and service and are now dealing with negative press and a difficult contract.
From there, we have to start talking about supplier management. And that’s a whole other blog post for another day.
Image found here.
Earlier this week, while locked in some pretty intense negotiations with a stubborn telecom supplier, I found myself reverting to some old ways. Not necessarily good ways, but sometimes effective ways, of getting a supplier off of high center.
Let me step back and explain.
I started my procurement career with zero background or education in the profession, but a small government entity liked the cut of my jib, and gave me a chance.
My years in that job are still among my favorite career related memories. I had incredibly strong and talented management, an excellent mentor and an environment where a young procurement professional could thrive.
I thrived so well that I started to eye bigger and better things. Inevitably I moved from my fairly small town to a very large urban area and took on a job with a then medium sized (and now gigantic) tech company.
This is where my career accelerated. I went from a “nice but firm” negotiating environment to “take no prisoners” style. The leadership at that company was brutal, brilliant and showed no mercy.
For a decade, I lived and worked in that environment and I learned how to cut and cut deep when it came to negotiating procurement contracts. I supported something of a firebrand of an IT director and a mercurial CIO. I worked hard for them, was very loyal and got results. They were loyal to me in return, giving me bonuses and gifts and making sure I felt well taken care of. And I did.
Eventually, over time, the company I worked for had grown and changed so much that it wasn’t fun to work there anymore, so I decided to move along.
My next role was for a profoundly large multinational tech company with a reputation for brutal negotiations. I fit right in.
At at the end of almost three years of traveling the world and learning to temper my style for a variety of cultures, I found myself burned out. I was tired of the aggressive style, the relentless pace, and the constant beating up on suppliers.
So I moved again. This time to a small non-profit doing scientific research. Since we receive a lot of funding from the government, we have to keep things like small business goals and supplier partnerships in mind.
The style here is quite different from anywhere I’ve ever worked. We do seemingly insane things like give way IP rights which makes sense in the environment, but is a bit shocking to me still. We allow higher prices for the sake of completing a deal. We aim to end each negotiation in as positive light as possible, meaning we’ll give up a lot to get the deal done.
It’s a mindbender, to be sure. In the two years here, I’ve had to learn to step back, to filter the brain, to be clever more often than using brute force.
Until earlier this week. This recalcitrant telecom company is hung up on one last fairly minor item in a substantial contract. I have been ready to award for a week and they have hemmed and hawed and whined. Negotiations are at a standstill.
Meanwhile, the underlying project that their service will support is slipping schedule. Never fun to mention to the federal government that you couldn’t deliver because Procurement couldn’t finish their work.
At the end of one long day earlier this week, I called the supplier’s sales rep to try to talk through their problems and get them moving forward again.
As the sales rep talked and whined, I became exasperated. I know she’s at the mercy of her unreasonable Legal counsel, but we had given and given until we’d hit the point that we couldn’t give away anything more.
Something slipped inside of me. Due to my own exasperation, mixed with exhaustion I suppose, the switch flipped and I went back to my old ways.
I very clearly, concisely and brutally sliced that sales person to shreds. When she protested, I did it again. When she raised an argument and got a little snotty, I went in harder.
And that’s when she started crying.
It’s been a long time since I made a salesperson cry. A really long time. And while I’m not especially proud of it, there is some vestigial Procurement beast inside of me from the old days that is at least a little bit pleased.
Of course, I immediately worked to make amends. I didn’t apologize but I said soothing things, said that I understand she is working hard but that we need to get this deal done. That she needs to stay focused and come back with ideas and compromises and not demands.
We’ve healed our rift and things are fine again. The deal still isn’t done, but they are at least making progress.
In the wake of this event, I’ve been pretty introspective. Back in the day, the “I win, you lose” method of negotiations was the way to go. That’s not how things work in the business world anymore and it’s definitely not the culture where I am now.
Even though this old dog has learned some new tricks, the old habits are still hard to break.
Image found here.