Levelling the intagible playing field of professional services procurement (Beyond Referrals Profile)

“I stated that the worst thing a purchasing person can do when using an RFP to buy professional services is to exclude a project budget.  Immediately, a rebuttal was offered, “But if I give them the budget,” stated the attendee, “they are all just going to come in at that budget.”  He was right.  But he failed to recognize that as a distinct advantage for both the vendor and the purchaser.  When everyone’s price is the same, the buyer can compare expertise and value across a consistent price spectrum and purchase the services of the best expert they can afford.”

From the PowerPoint “A Decent Proposal”, Cal Harrison, Beyond Referrals

 

In many ways my interview with Beyond Referrals President Cal Harrison, was one of the most interesting I have ever had, as the subject of quantifying the intagible attributes associated with the effective acquisition of professional services is a subject upon which my own research on strand commonality has been centered.  Specifically, how does one identify and uniformly (re reliably) measure an intagible attribute in which a consistent best outcome or result can be fairly achieved. (Note: funded by the Government of Canada’s Scientific Research and Experimental Development Program, I wrote a white paper in which I outlined the challenges of services procurement and the possible methodologies that can be employed to impirically determine a legitimate and meaningful outcome on a consistent basis that can of course be justified.  As an advocate of utilizing an agent-based model my research considered a variety of methodologies including similarity heuristics.)

The fact remains, that Cal Harrison’s firm Beyond Referrals, takes a thoughtful and insightful look at the inherent flaws in the RFx process, and attempts to elevate the exercise from one of perfunctory compliance to that of a tangible and meaningful process.

And while his emphasis is on the procurement of services, it is becoming abundantly clear that traditional RFx methodologies are largely ineffective in all areas of procurement including the purchase of goods.

The RFx Mirage

In an excerpt from one of the many articles I have written over the past year on the challenges of the RFx process, the following observations were by far the most telling.  (Note: refer to the Web Resouces section at the conclusion of this post to obtain copies of the corresponding reference material.) 

In an effort to gain a more in depth understanding of the reasons behind increasing levels of supplier apathy, particularly in the public sector, I have recently participated (indirectly) in a number of Requests for Proposals etc. (RFx’s) at the Federal, Provincial/State and Municipal levels.

The impetus behind this exercise actually began in 2005 when I spoke at an automotive industry conference for suppliers.

Consisting of more than 200 senior executives, the following is just a sample of the comments I received from the audience:

“I do not think that buyers spend any time at all analyzing RFQ’s . . . once they have sent them out they go directly to the price auction and get on a phone and those who cut the price get the business.”

“We spend too much time working on RFQ’s . . . the RFQ process chews up dollars and time for something that is going to bring us no return.”

“It (RFQ’s) will have a negative effect on my business . . . we should charge the issuers of RFQ’s for responding.”

These of course represent only the tip of the proverbial ice berg.  There is a general perception that the RFx process is ultimately little more than an elaborate fact finding mission that is geared toward bolstering and justifying a pre-ordained outcome.  Otherwise known as an exercise in decision justification.

At its best, the public sector RFx process can act as a negotiating mechanism to leverage down prices with a preferred supplier.  This of course only works if the exercise provides a true reflection of market conditions and prices.  Something that is virtually impossible to do without broad supplier engagement.  Refer yet again to my post on the dangers of vendor rationalization.

At its worst, the public sector RFx process is considered to be an ineffective legislative requirement which needlessly lengthens the procurement cycle in which a “gravitational leaning” toward a particular vendor already exists.  (Note: I will touch on Harrison’s issue with a “relationship-centric” process, which incorporates the expertise of specific individuals within the consulting firm versus properly assessing the expertise of the firm itself.)

While the above example demonstrates that problems do exist, the greatest consequence of current RFx methodology for procuring both goods and services, is tied to the fact that it actually acts a deterrent for many quality vendors.  In short, your current RFx practice may actually be keeping the most qualified firms away, while opening the door to the least desireble sources.

But I know the consultant?

In the previous section I made references to “preferred supplier,” as well as “a gravitational leaning toward a particular vendor,” as a way of illustrating the general consensus by the majority suppliers who are highly skeptical of the RFx process.  The quote “the battle that is won before it begins,” comes to mind here.  (Note: the actual quote by Chinese general Sun Tzu was “that the battle that is won before it begins is something the common man cannot comprehend.”)

The predilection toward a certain vendor is one of a number of interesting topics that is covered in Harrison’s presentation “A Decent Proposal” (refer to the Sponsor Presentations section to access the Beyond Referrals PowerPoint).

“Unfortunately,” according to Harrison, “too many professional service providers still hear that their competitors were selected because the purchasing committee felt more comfortable with the people in the other firm.”

While he is not making the suggestion that the “people factor” is something that should be readily discarded, Harrison does suggest that there are several problems with heavily weighting one’s decision based primarily on the relationship factor in the selection process.

For example, given the mobility of individual expertise, the decision to engage a consulting firm based on existing relationships (nee comfort levels) can leave a company dangerously exposed should said contact leave the firm.  This is particularly problematic if the firm that was selected does not, in and of itself, posess the required expertise separate from the aforementioned individual.

Even in those situations in which the primary contact remains in the employ of the winning firm, issues resulting from an uneven or disjointed internal network of expertise can still pose significant problems.

A consulting professional who had attended one of my many conferences indicated that the majority of their firm’s failed or difficult projects was the result of the sometimes wide chasm of expertise between the senior consultants that win the business, and those that are charged with executing the program on the front lines.  Think of the importance of the proficient transfer of the baton between runners in a relay race.  No matter how fast an individual runner completes their leg of a race, a poor handoff will cost the race for the entire team almost every time.

And this is Harrison’s point . . . erroneously measured or contemplated intangibles in the selection of a services provider are the foundational weak links in the majority of RFx’s, usually leading to unsatisfactory results.

Why Beyond Referrals?

By now, you are probably well-versed in my disclaimer relating to my emphasis on the fact that I am not a voice piece for the sponsor – in this case Beyond Referrals.  In assessing the viability of their value proposition for your organization, it will be up to you to determine how they may be of service.  In this regard, I will once again direct you to the Sponsor Presentations section of the PI Blog to invistigate the Beyond Referrals perspective in greater detail, and at your own convenience.

This being said, I start out each and every seminar and conference at which I am speaking with the following statement, “to consider the time that we spend together as being useful, it is my objective to challenge and even inspire you to think outside of the framework of that with which you are most familiar, and most comfortable.  In essence to empower you to see a particular situation through a new or different lens of understanding.”

The value of the Beyond Referrals presentation (and subsequent value proposition) is that it challenges you to do the very same thing with regard to your current RFx practices.

While Socrates contended that “the unexamined life isn’t worth living,” one might infer those same sentiments by saying that the “unexamined RFx process isn’t worth doing.”  While I won’t comment on Socrates’ deeper musings, given the emerging results from extensive research, shining the light of scrutiny on your current RFx process in terms of the procurement of services is definitely a worthy pursuit.

Web Resources:

The Bands of Public Sector Supplier Engagement: http://procureinsights.wordpress.com/2007/12/13/the-bands-of-public-sector-supplier-engagement/

Dangerous Supply Chain Myths (Part 2) Revisited: http://procureinsights.wordpress.com/2008/06/19/dangerous-supply-chain-myths-part-2-revisited/ 

 

Use the following link to learn more about our Sponsorship Program; http://procureinsights.wordpress.com/pi-sponsorship-opportunities/

The Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in English, Chinese, Portugues and Russian with new language versions being added in the near future.

The Disconnect between the Procedural Demands and Operational Requirements of Effective Contract Services Engagement (CW Solutions Profile)

“You take what you can get in order to pay rent, buy food, she explains.  If you can find a group that might have potential for hiring on permanently, you take the risk of staying around and putting in a lot of hours, proving yourself to these folks.

She says she has been in several Microsoft groups that wanted to hire her but couldn’t because, she was told, the group lacked head count or had a hiring freeze.  So, she says, you continue to be a contractor.  Working holidays.  Or just simply eating the time.  Or even making up time when you get sick.

It is a risk on so many levels when contracting.  But to be led to believe that you have a possibility of being hired on permanently and then not, well, it’s almost like a big lottery game with these folks.”

Sumpreme Court refuses to hear appeal of Microsoft “permatemp” settlement, Mike Blain, WashTech News (November 13, 2002)

 

When Jeff Nugent from CW Solutions directed me to the above referenced landmark case in the context of his firm’s value proposition, I must admit that I had not fully comprehended the risks associated with contigent or contract workforce engagement.  Certainly not the degree of risk an “ineffective” process posed and continues to pose to organizations that attempt to balance procedural demands with operational requirements. 

And even though current labour legislation in both Canada and the U.S. combined with the introduction of “governors” such as Sarbanes-Oxley represent a systematic and purposeful evolution of increased scrutiny that is designed to eliminate conflict, the disconnect between critical stakeholders remains.

For example, in the Microsoft case (Vizcaino v. Microsoft), in which the plaintiffs and their attorney’s received a $97 million settlement, the declaration by contractors such as Rebecca Hughes (a former Microsoft contract editor) that the verdict “is great news for workers,” was less than enthusiastically received by other contracters.  As one Microsoft contract software engineer put it, the Vizcaino case ruined “a good situation for him and thousands of other Microsoft contractors.”

Against this backdrop, one cannot help but wonder if a happy medium can be achieved in which all stakeholders on both sides of the contract employment issue can reach an accord in terms of both legitimate and effective engagement practices.  This is a particularily important issue from the standpoint of the modern supply chain given the expanding workforce vacuum and the relative paucity of experienced talent.  (Note: see the Web Resources section at the end of this article for my previous posts on the subject of the pending talent crunch.)

Certainly the increasingly common practice of hiring back fully pensioned workers on a contract basis to make up for a poor or non-existent workforce succession plan will raise serious questions.

That notwithstanding, how do employers successfully balance the apparent disconnect between the heightened procedural demands of contracting as a result of increased legislative scrutiny, and the operational requirements of the organization in which “getting the job done” is the prime concern?  A task I might add that is made considerably more complex by the different levels of government intervention through various acts at the federal and/or provincial and state levels. (Note: the following link should prove to be a useful starting point in terms of sifting through the employment laws at the Federal and Pronvincial levels; http://canadaonline.about.com/od/labourstandards/Canada_Employment_and_Labour_Standards.htm.  For U.S. readers, visit the U.S. Department of Labor’s Employment Standard’s Administration at http://www.dol.gov/esa/.) 

Balancing Risk and Needs?

In an upcoming post I will be discussing the risks associated with the actual RFP process and as suggested by the individual that had been interviewed, the “three premiums” that must be paid to ensure a fair and fully compliant engagement process. 

That said what is a viable approach that an employer can take when attempting to balance the contradictory interests of different stakeholders on both sides of the employment fence?

In a March 14^th, 2003 article by Michael Yanta that appeared in the Houston Business Journal (see web resources for the corresponding link), the issue of co-employment and the litigious elements associated with not fully undertanding its definition, introduced a third party into the equation – the staffing firm.

For those of you who, like the many organizations to which the Houston article referred, are unfamiliar or “unclear” with how a co-employment arrangement is defined, “co-employment is a legal doctrine that applies when two separate businesses exert some control over an employee’s work assignments or conditions of employment.  Once again, I would strongly suggest that you become familiar with both the laws that govern your particular region as well as your organization’s interpretation of said legislation as it relates to co-employment.  This is especially important if you do not want to end up as a neutralized stakeholder where your departmental needs take a backseat to an overly zealous mandate centered on litigation avoidance over operational imperatives.

Yanta went on to say that “both the Internal Revenue Service and various courts have found that a temporary worker of a supplier working at the customer’s work site – even though paid and treated as an employee of the supplier – may still be considered an employee of both the supplier and the customer for legal purposes.”

This blurring of the lines as Yanta put it, can have “costly” consequences.  As a result, getting the proper resources through the most effective delivery mechanism re staffing firm, is a critical part of the entire process.  Some might even suggest that it is the most important part of contingent workforce engagement.

Why CW Solutions?

As always, it is at this stage that I would like to emphasize the fact that I am not a voice piece for the sponsor – in this case CW Solutions.  In assessing the viability of their value proposition for your organization, it will be up to you to determine how they may be of service.  In this regard, I will direct you to the Sponsor Presentations section of the PI Blog to invistigate the CW Solutions perspective in greater detail, and at your own convenience.

Proceeding with this understanding, and based on both my interview with CW Solutions’ founder Jeff Nugent, as well as my research into this interesting aspect of the procurement process, the firm with whom you partner has to possess an intimate and “balanced” knowledge of the proper procedural (re legislative) requirements associated with contingent workforce engagement, while fully understanding the operational requirements of the position(s) being sought, and do so against the backdrop of diverse stakeholder interests involving the client’s (nee de facto employer’s) HR, Finance and Legal departments.

This of course leads to the question, why CW Solutions?

If I have correctly understood Jeff’s overview of his firm’s services, it would appear that CW Solutions removes the inherent risks of contingent workforce engagement, without resorting to the traditional draconian measures associated with a centrally imposed, restrictive process that stifles access to a needed company resource.

CW Solutions’ “practicle compliance” mindset, which is outlined in slide 3 of their presentation, claims to remove the unnecessary barriers to productive “regionalized” engagement, while satisfying head office guidelines.  Guidelines that are becoming increasingly important based on precedents such as the Microsoft “permatemp” case.

Web Resources:

Supreme Court refuses to hear appeal of Microsoft “permatemp” settlement: http://www.washtech.org/news/display.php?ID_Content=381

Technology and the Growing Talent Crunch: http://procureinsights.wordpress.com/2007/08/01/technology-and-the-growing-talent-crunch/

Talent Attraction and Retention in a Global Economy (White Paper): http://procureinsights.wordpress.com/2008/01/16/talent-attraction-and-retention-in-a-global-economy-white-paper-release/

Firms hiring temporary workers face co-employment challenges: http://www.bizjournals.com/houston/stories/2003/03/17/focus5.html

 

Use the following link to learn more about our Sponsorship Program; http://procureinsights.wordpress.com/pi-sponsorship-opportunities/

The Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in English, Chinese, Portugues and Russian with new language versions being added in the near future.

Metric Synchronization Versus Standardization: The Real Value Behind IEE (Smarter Solutions Profile, www.SmarterSolutions.com)

“Like a politician stumping for votes, proclamations by senior executives (and many industry pundits) that people and not technology are what is important rarely translates from the realm of oratory pontification into meaningful real-world application.

This is due in large part to the fact that outside of the framework of political correctness, communication as Bill McAneny offered in his book Frankenstein’s Manager – Leadership’s Missing Links is actually a desire and not a skill,  a skill that is in short supply according to his findings.  In fact, second only to the ubiquitous lack of people skills complaint, ineffective communication said McAneny is the most common charge leveled at an organization’s leadership.”

The above excerpt from my 2007 white paper “Talent Attraction and Retention in a Global Economy” was originally referring to countless industry studies such as the 2007 ISM, CAPS and AT Kearney paper “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” and in particular the seemingly contradictory relationship between the principles of effective communication and practical collaboration.

What is interesting is that the same paradoxical elements that have undermined the majority of supply chain initiaves are also the factors that have influenced the ineffective implementation of countless business management strategies like Six Sigma.

In fact, in a comment I received the other day regarding my August 1^st post (Beyond Lean Six Sigma, the hidden IP value in contracts and bridging the procedural-operational gap in the acquisition of services), one reader emphasized the importance of communication originating at the senior level.  Specifically, he opined that “For all this to work in concert, and for the technical elements of Six Sigma to be effective, you have to set the proper management orientation.”  The reference to “management orientation” certainly suggests that McAneny’s findings are in deed universal.

Based on the significant impact that effective communication has on a successful strategy, be it Six Sigma or any of the other numerous “best practice” disciplines, it is a safe conclusion that all are rendered largely ineffective where the channels of collaboration between key stakeholders have been siloed by self interest.

And it is this precise point that formed the basis for my research into Forrest Breyfogle’s Integrated Enterprise Excellence (IEE) program.    

Beyond Six Sigma?

In my post from April 24^th titled A Dichotomy of Perspectives: A Discussion on Forrest Breyfogle’s New Book on Integrated Enterprise Excellence (see link under the Web Resources section), I had voiced my usual concerns relative to a strategy’s “attempts to establish an absolute standard in which success is based on the organization adapting to the model versus the model adapting to the organization.”

In particular, the statement that “IEE is a system of checks and balances that will stay in place regardless of management continuity, changes in competitive conditions, or the economic climate.”

While the precept behind this statement is not in and of itself inherently flawed, it is the misintepretation of its effectivenesss in the vacuous hierarchy of ineffective executive leadership and in particular communication (refer back to McAneny’s book), that the greatest damage to organizational synchronization is done.

This of course formed the basis for my previously highlighted concerns (some might even say cynicism).  Because, it does not matter how sound the foundational principles of a program such as IEE may be in theory, it is at the level of practical execution that poor communication leads to the eventual derailment of any initiative. 

According to Breyfogle, these communication challenges may be a symptom of the “hidden agendas that can undermine the system; e.g., this lowering the water level will expose the hidden rocks that I have been hiding behind for years,” mindset on the part of stakeholders who are made insecure by the prospect of a self-examination process.  Similar to the “I didn’t know I was sick until I saw a doctor” complex.

And the recognition of this basic truth is what appears to differentiate Forrest Breyfogle’s (and Smarter Solution’s) IEE methodology from the rest of the pack.

Communicative Contrasts

Before I delve deeper into IEE’s epiphany (although it would appear to be a safe assumption that this was neither a new or sudden insight on Breyfogle’s part) pertaining to the importance of effective communication starting at the senior executive level, I think it is important to provide real-world examples outside of the framework of a particular program.

One of this Blog’s most popular series of articles was the Yes Virginia posts, which sought to understand the success of the Commonwealth’s eVA initiative as compared to the Government of Canada’s (GoC) Way Forward program.  (Note: see the corresponding link to the entire series below, paying particular attention to the October 23^rd, 2007 Summit Simulpost.)  

Even though both programs started at approximately the same time (fall 2001), the stark contrast in success is palpable.  While the Canadian program has and continues to languish under revolving leadership, eVA has achieved and in certain instances likely surpassed its original targets.

While there are many reasons for eVA’s success, at its foundations is senior management’s acknowledgement that “government is not just a single business but is actually comprised of many different lines of business.”  By seeing that “government goes beyond a mere org chart,” the Commonwealth program’s leadership was better positioned to understand the “special needs, special rules and special challenges associated with the procurement practice of each entity.”

What is ironic is that both Virginia and the GoC started with the same principles of a “one enterprise” methodology through which all departments would be called upon to adhere to a shared services platform.  The difference is that shortly after launching eVA, Virginia recognized that a non-collaborative single standard was tantamount to a “monolithic undertaking” in which “centralized control (or the illusion thereof)” was the driving force, was untenable.

Senior management’s ability to recognize the flaws associated with the shared services ideology was simply the first step.  The crucial step was directly linked to their courage and determination to change course and build a program based on both internal as well as external stakeholder input.

Now as I had indicated in the original post, I do not want to mislead you into thinking that the Commonwealth did not experience a degree of pushback from stakeholders.  Certain elements of the program did illicit some degree of criticism.  The key differentiator between the GOC and Virginia was the willingness on the part of senior management to listen and understand stakeholder concerns and take the appropriate course of action to remove barriers.

And it is within this type of “open” environment that IEE can shine as an ingenious collaborative engagement mechanism. 

Why IEE?

Once again, I would like to emphasize the fact that I am not a voice piece for Smarter Solutions.  Its viability as an effective methodology for your organization will be up to you to determine.  In this regard, I will direct you to the Sponsor Presentations section of the PI Blog to invistigate the Smarter Solutions value proposition in greater detail, and at your own convenience.

That said the purpose of this post is to provide you with a point of contextual reference.  And as I tell my seminar audiences, my sole purpose is to stimulate you to think outside of the framework of that with which you are most familiar and most comfortable.  In essence, help you to see through a new or different lens of greater understanding.

This of course leads to the question, why IEE?

Over the past weeks I have had the opportunity to talk with Forrrest Breyfogle as well as Fred Bothwell from Smarter Solutions.

As I am sure you can imagine, besides sharing the same enthusiasm for our respective professions, there was a willingness on Forrest’s and Fred’s part to openly discuss the principles of the IEE program, and in particular its key differentiators (or unique attributes).

To begin, and as a point of reference, Fred provided a case study on Oracle Packaging, one of IEE’s early adopters.  (Note: I am likely not the only one to think that the “other Oracle” might derive some benefit from a collaborative teamming with Smarter Solutions.)

Oracle Packaging converts aluminum ingots into sheets of foil used to produce the lids for yogart containers.  According the the case study, IEE analysis showed how changing the width of the foil used could reduce work in process (WIP) or in-process inventory by 30%.  This is a significant reduction in that WIP poses several challenges including the level of capital investment and the potential risk of goods expiration.  (For all of you who have read my articles centered on Bridging the Communication Gap between Finance and Purchasing, WIP represents a good opportunity to open a dialogue with your CFO.)

Other program benefits included; improvements to production scheduling leading to a working capital reduction of $232K (without having to change the manufacturing process), a lead time reduction that is half that of the industry standard, a 5% reduction in raw material orders for internal production, and the potential to reduce scrap by 50%.

While Smarter Solutions can undoubtedly provide a variety of similar case references, the real question is why does it work?  Even more importantly, what was the collaborative mindset of senior management within client organizations such as Oracle Packaging?  And finally, to what degree did it contribute to the successful outcome?

Even though I will leave the specific answers to these as well as any other questions you may have for the one-on-one session between yourself and Smarter Solutions, I cannot help but think back to my interview with Bob Sievert from the Commonwealth of Virginia.

In particular the conclusion that while Ariba was one of the technological cornerstones of the eVA platform, the program’s ultimate success had very little to do with the technology that was selected.  It was once again the willingness and ability on the part of senior management to proactively engage key stakeholders both within and external to the Commonwealth’s supply practice.

To me, the ability to facilitate a productive dialogue between stakeholders as a means of leveraging IEE principles is Smarter Solutions true value proposition.  It represents an important starting point for any program.  If they (being Smarter Solutions) are as adept at this area of practice as they appear to be, they have gone a long way towards justifying their “Beyond Lean Six Sigma” moniker.  And it is on this basis that I would encourage you to check them out for your own edification.

Upcoming IEE Webinars:

Tuesday, September 23^rd, 2008 (12:00 noon Central Time): http://www.smartersolutions.com/webinars/08072008WB1.htm

Books by Forrest Brefogle: http://www.smartersolutions.com/store/home.php?cat=2

 

Web Resources:

A Dichotomy of Perspectives: A Discussion on Forrest Breyfogle’s New Book on Integrated Enterprise Excellence: http://procureinsights.wordpress.com/2008/04/24/a-dichotomy-of-perspectives-a-discussion-on-forrest-brefogle%e2%80%99s-new-book-on-integrated-enterprise-excellence/

Yes Virginia! Series: http://procureinsights.wordpress.com/page/2/?s=yes+virginia

 

Use the following link to learn more about our Sponsorship Program; http://procureinsights.wordpress.com/pi-sponsorship-opportunities/

The Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in English, Chinese, Portugues and Russian with new language versions being added in the near future.

Finding the hidden Intellectual Property (IP) value in procurement contracts (Future Path Profile)

Looking beyond what Future Path President and CEO Greg Waite referred to as the “casual conversation” surrounding the issue of Intellectual Property (IP) rights within the majority of procurement contracts, I thought of my own work as a consultant.

I am often retained by both public and private sector organizations to prepare studies or reports on a variety of topics ranging from the viability of digital signatures within the contract routing process to assessing the changing technological landscape and its impact on current as well as contemplated e-procurement strategies.

Employing a patented research methodology, I have been told that my papers provide a unique insight and perspective that in many cases have resulted in a competitive advantage for the client.  In this context, the question of ownership relative to the findings and corresponding conclusions has rarely if ever been broached.

As the author of the paper, and combined with a significantly lower consulting fee as a result of the time savings associated with the methodology (which is centered on Web 4.0), I am of course not inclined to surrender these rights – at least not at the present price point.

But the real issue is that I have never even been approached about the IP value of the work.  And this is precisely the point that Greg Waite was making when he used the term “casual conversation.”

Knowledge is Power

When Sir Francis Bacon coined the phrase “knowledge is power,” I am certain that he hadn’t contemplated it’s meaning in terms of IP value.

Nonetheless, it is indeed an accurate reflection of what has become an overlooked enterprise “asset.”  This is due in large part to the fact that as an adjunct of finance, purchasing imperatives have traditionally been centered around lowest or “best value” pricing, thereby reducing the negotiation for IP value to one of indifference in which its unrecognized value is bantied around as a “lost leader.”

This while you were sleeping mindset is best illustrated in the following Future Path case example.

A firm is looking for an ERP system.  The RFP goes out with the typical feature list, training, consulting, customization etc.  The ERP system is forecast to cost $50M.  A proprietary piece, covering consignment sales and inventory to the company’s 500 retail unit partners is in the RFP.  Also the development of an e-learning system will also be jointly put together.  The typical contract would certainly have all the proper IP rights in there.  But there is no doubt that the ERP vendor will take some or all of the IP arising from the e-learning system and the consignment inventory system to future customers.  With an IP perspective the procurement team would work to identify all unique value add coming from the requirements and would identify the consignment inventory system and e-learning system to be proprietary and a source of innovative advantage over the competition.  At the very least, it is a major source of negotiation.  It might actually be more beneficial to let the vendor create a commercial and therefore portable consignment and e-learning system with royalty sharing.  Or the vendor may wish to be unencumbered and therefore have to reduce his (or her) cost to have 100% IP ownership and business flexibility.

The above example certainly raises the question, how much value from both a monetary and competitive advantage standpoint has your organization “unknowingly” surrendered over the years?  Like high blood pressure, it could be the silent killer – at least for your balance sheet.

More than plug and play legalese

What is interesting is that most organizations have likely spent considerable dollars implementing an application in which a buffet of plug and play legal terminology is made available to the purchasing department for incorporation into a contract.

While these solutions may satisfy the technical elements of the law, to what degree (if at all) do they take into account the IP value associated with the transaction?    

While the vast majority of contracts seek to protect the interests of individual stakeholders – some have reffered to it as the “belt with suspenders” clauses, in most cases it is unlikely that a value has actually been assigned to the contract’s IP component.  Enter Future Path’s Nucleus intellectual asset/intellectual property management system.

Why Nucleus?

As is always the case, these profile articles are designed to inform and where necessary facilitate an introduction between the Procurement Insights readership and its sponsors.  Therefore, the viability of any sponsor solution for your organization will be up to you, and you alone to determine.  In this regard, I will direct you to the Link To Our Sponsors section of the PI Blog to invistigate the Future Path value proposition in greater detail, and at your own convenience.

That said the purpose of this post is to provide you with a point of contextual reference.  And as I tell my seminar audiences, my sole purpose is to stimulate you to think outside of the framework of that with which you are most familiar and most comfortable.  In essence, help you to see through a new or different lens of greater understanding.

This of course leads to the question, why Future Path (and in particular their Nucleus product)?

Beside the previously referenced case study, a second example of the perils of expeditiously surrendering IP value in favor of “up-front” savings sounded an alarm that is worthy of consideration.  Specifically, it demonstrated that the development of a vendor’s asset is often financed 100% by the client.  This may mean that your company might actually be paying the lion’s share of the development costs to ultimately provide your competition with a solution that will give them a competitive edge.  A kind of self-inflicted wound.  Here are the specifics:

A company is looking at a web-based content management system.  It has operations in the US and France.  The vendor of choice does not have a language localization dictionary in French, though it has many other languages.  The client and or the procurement group request a quote for the French translation services, knowing that this is best left in the hands of the software company.  The software company quotes $25,000.  The total price is competitive with other vendors and this is the vendor of choice for a variety of reasons.  So the delivery of the French dictionary is built to the contract.  Though a small opportunity, the procurement department had the chance to look at the translation as intellectual property, in this case Copyright.  The client was paying full value including a profit.  The procurement department could have, and should have asked for a royalty of 20% to 50% for each sale of the dictionary to the software company’s clients.  This would open up an entire dialogue from which meaningful insights would surface such as, a) confirmation of the software company’s pricing model for subsequent customers, b) the level of interest on the part of the software company in terms of future market development, and c) the software company’s intentions relative to making the product available to competitors to name just a few.  The change in perspective is powerful, because the procurement group starts to treat the dictionary as an intellectual asset or property from which the vendor derives an ongoing value.

While Future Path can undoubtedly provide a variety of similar case references, the real question is simply this . . . what is the current IP value that is presently available to your organization, and what is the cost of not knowing this answer? 

Use the following link to learn more about our Sponsorship Program; http://procureinsights.wordpress.com/pi-sponsorship-opportunities/

The Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in English, Chinese, Portugues and Russian with new language versions being added in the near future.

Beyond Lean Six Sigma, the hidden IP value in contracts and bridging the procedural – operational gap in the acquisition of services

Based on the initial level of positive response it is clear that you have noticed that I have launched a Sponsorship Program for the Procurement Insights Blog.

As you know, I have historically resisted previous sponsorship overtures as a means of maintaining the highest degree of neutrality in my articles and white papers.  However, it has become apparent that providing you with an ability to reliably access “relevant” information on the panalopy of supply chain related services and solutions is an important resource in terms of your practice.  The value of which has been further demonstrated by the frequency in which I have been approached by the professionals who attend my conferences requesting input on a variety of issues.  

A Sponsorship Program With A Twist!

I now recognize the clear importance of providing a comprehensive service that will enable you to go beyond the realms of analyzing case references and the diverse methodologies that define the modern supply practice.  And by providing true intelligence on the leading players in today’s market, you will have a solid opportunity to practically apply the insights offered through the PI Blog.  

To accomplish this objective, while still maintaining the uncompromising neutrality you have come to expect, we developed an all-inclusive program that ensures full access to all “quality” sponsors regardless of size or budgetary considerations.  This includes associations as well as non-profit enterprises.

For a nominal fee of $250 per year, these sponsors are offered  a level playing field through which they can share their unique value propositions with our readership.  A process that is unique to Procurement Insights as it is structured around an environment that is conducive to your preferred tempo and specific needs.

The program will provide you with multiple points of access to each vendor through three primary service links; the “Our Sponsors” listing in the Pages section, the direct URL links to individual sites through the Link To Our Sponsors section, and an ability to access PowerPoint presentations as well as videos through the Sponsor Presentations section.

In addition to the above, I will also be writing profile articles on each sponsor focusing on the key elements of their services or solutions and the “proposed” relevancy in terms of addressing the diverse requirements of a modern or global supply chain practice.  However, and this is a critical element of each post, my writing will not be along the lines of an infomercial or a mother’s reference piece, but instead will adhere to the highest standards of thorough research and responsible reporting.  In short, there are no free passes – a benefit and necessary byproduct of a nominal $250 annual sponsorship fee.

An Open-Ended Dialogue

What this means, is that I will delve into all areas of the service or product in the context of how it relates to the real-world challenges we face on a daily basis from both an individual or organizational perspective as well as from an industry persective as a whole.

The value of this approach is that it fosters a honest and open environment where the free exchange of ideas and experiences can be shared on a non-confrontational basis.  (Note: honest and constructive comments from all interested parties is encouraged.)

As a member of the PI Blog readership, and in the words of Joe Friday, you will get “just the facts” without the superfluous words of a madison avenue ad exec.   

For the sponsors, they gain access to a highly informed group of professionals within a venue where there are no hidden agendas or axes to grind.  This is an important element of the program as more and more organizations are taking their first bold steps towards leveraging the power of both Web 2.0 and the emergence of social networks to establish important communication links with their target audiences.

Integration Within The Current PI Format

Starting next week, I will begin posting the first in a series of profile articles.  These posts in and of themselves will provide important and non-branded insights into the dynamics of the forces which are reshaping supply chain practice.  And while there will be references to the individual sponsor’s services or solutions, it will be in the context of their unique approach to addressing a particular challenge.  The veracity of which will be solely your responsibility to assess.  In short, I will facilitate the introduction.  I will not however become an advocate for the sake of the sponsor relationship (now you can see why the $250 annual fee was an important part of the program).

And as outlined in the Editor’s Note which appears in the Our Sponsors section, while the apperance of a sponsor’s logo should not be construed as an endorsement by Procurement Insights, we have made a firm commitment to ensure that only the most credible organizations are provided with access to you our valued reader.   As such you can be certain that a sponsor’s appearance is a reflection of the high standards of ethical conduct under which they operate.

Upcoming Posts

We will be introducing two or more new profiles next week which will include:

Metric Synchronization Versus Standardization: The Real Value Behind IEE (Smarter Solutions)

Identifying the Hidden Intellectual Property (IP) Value in your Organization’s Procurement Contracts (Future Path)

The Disconnect between the Procedural Demands and Operational Requirements of Effective Contract Services Engagement (CW Solutions)

Use the following URL Link to learn more about the Procurement Insights Sponsorship Program: http://procureinsights.wordpress.com/pi-sponsorship-opportunties/

Here is a list of our current sponsors (with additional sponsors scheduled for posting over the next few days): Canadian Public Procurement Council, CW Solutions, Enterprising Non-Profits, Future Path, MERX, My Success Tree, PrintVision, QStrat Software, Smarter Solutions, Summit Magazine

 

The Procurement Insights Blog reaches 300,000 syndicated subscribers each month worldwide, and is currently available in English, Chinese, Portugues and Russian with new language versions being added in the near future.

Career Exchange Post Notification (Ref. No. 1-Jul30-2008)

 

The following position has been posted on the Procurement Insights Career Exchange Page (http://www.procureinsights.wordpress.com/procurement-insights-career-exchange/).

 

If you have a position that you would like to list, or would like to indicate your availability to pursue a position with another organization, please send your information in confidence to jwhansen@sympatico.ca.

Senior Facility Location Consultant

Post Date: July 30, 2008

Reference No. 1-Jul30-2008

We are working on an assignment in the Chicago area for a senior location consultant.  We are looking for someone with supply chain experience in the area of location and site selection strategies.  This is a consulting position with excellent client contract in a firm where the practice is growing.  The ability to introduce and implement new processes and new consulting models is encouraged.  We would like someone with five or more year’s experience.  The salary is in the low $100,000 plus bonus.

 

We are looking for people in the Chicago area, as the client is not prepared to relocate at the present time.

 

To obtain contact information for this posting visit the Procurement Insights Career Exchange at: (http://www.procureinsights.wordpress.com/procurement-insights-career-exchange/).

Is There a Difference Between a Material Requisition and a Purchase Requisition? (A PI Q&A)

Network Member Question

 

Can anyone advise me of the difference between a material requisition and purchase requisition?

 

Manal Al-Asousi

Manager, Operations & Projects Development  – Kazema Global Holding Co.

Kuwait

 

My Response

 

Some pundits may splice hairs by saying that one process or function is internal facing (purchase requisition) and the other is external facing (material requisition), while others may suggest that they are interchangeable terms – similar to the “differences” between purchasing and procurement, it matters not in the end if the real-world processes that define your business model are not collaboratively identified and collectively understood.

 

With 85% of all e-procurement/supply chain initiatives failing to achieve the expected results, a debate surrounding terminology would seem to be an exercise in shadow boxing.

 

I am not suggesting that the varied definitions are incorrect or even in and of themselves unnecessary.  However given that most enterprises attribute the requisition process as being an integral part of an organization’s internal financial controls, perhaps a more pertinent question would be how to overcome or “bridge” the communications gap between finance and purchasing.

 

In the context of the results of a 2007 Aberdeen survey, the disconnect between the financial imperatives of the CFO, and the operational requirements of the CPO means that supply chain issues go much, much deeper than the discernment of industry terminology.  (Note: I have provided a number of links under the Web Resources section to corresponding articles discussing the survey’s results.)

 

Here are just a few of the findings from that survey:

 

• Of the total savings claimed by purchasing departments 73% are discounted as being invalid by the finance department.
• Less than 20% of CFOs feel that the work of the CPOs and their staffs as having a very positive impact on competitiveness.
• On average only 46% of CFOs feel that the procurement team has contributed to enterprise growth.

Once again, and given the fact that the requisition process is seen largely as a means of establishing the necessary control mechanisms deemed by the finance department as being important, doesn’t it make more sense to focus on collective process understanding and refinement through effective stakeholder collaboration?

 

 

 

Web Resources:

 

• http://procureinsights.wordpress.com/2008/07/21/is-there-a-difference-between-purchasing-and-procurement-a-pi-qa/

 

 

 

 

Procurement Insights Free Access Library: http://procureinsights.wordpress.com/procurement-insights-free-access-library/

Procurement considerations when dealing with a merger? (A PI Q&A)

Network Member Question

 

Aside from the basics of spend analysis and eliminating redundancy, I’m curious to hear of other’s experiences in dealing with merger/acquisitions and how the cultural elements were addressed in terms of promoting the use of preferred vendors and the adoption of expense management policy.

 

What are some best practices to promote optimal adoption of the governing policies and procedures in the absence of spend management technology?

 

Paul Nilsen

Purchasing Manager – Willis North America

New York, NY

 

My Response

 

In Part 4 of my Changing Face of Procurement Conference Series titled Winning Strategies for Vendor Engagement, I briefly discuss an M&A case reference involving organizations within the confection or candy industry.  I also review the same case in the critically acclaimed series Yes Virginia! There is more to e-procurement than software (Part 2) – see the link in the Web Resources Section.

 

Under the heading “Candy and supply base synchronization,” I wrote the following:

 

How important is effective internal collaboration?  Just ask a candy company in the U.S. mid-west.  As the manufacturer of a number of leading brands, this organization grew dramatically in a very short period of time through a series of acquisitions.  Unfortunately, an extemporal supply base was a byproduct of the transactions leaving the acquiring company with a highly suspicious, deeply segmented group of suppliers.

 

The biggest challenge as expressed by a senior procurement manager for the parent organization was convincing the former suppliers of the acquired companies that becoming part of the larger pool would expose them to opportunities for increased sales.

 

The suppliers weren’t buying the “increased opportunity” mantra and as a result, the transition process was challenging to say the least.

 

What is worth noting is that the degree of collaboration between the different purchasing organizations was not clearly established from the beginning.  This only served to fuel rather than douse the internal division fires resulting in both a practical and operational lack of cohesiveness and coordination.  The end result was a “territorial” struggle that manifested itself in a divided supply base.  This is hardly the environment for a successful consolidation. (Note: my August 3^rd, 2007 post titled Procurement’s expanding role and the executive of the future reviewed the results of a panel discussion hosted by CPO Agenda.  This will be a worthwhile read as it demonstrates the potential repercussions of excluding supply chain personnel in the early planning stages of an organization’s M&A strategy.)

 

What the candy company case as well as countless other examples of failed initiatives clearly demonstrate is that effective channels of communication and collaboration between diverse stakeholders both within and external to an organization determines the likelihood of a collective “best result” outcome.

 

If the organization to which you are referring is found wanting in this critical area, then no amount of data or spend management technology will make a difference.  If it did, then 85% of all e-procurement/supply chain initiatives would not fail.

 

I have also included corresponding links to related articles on the disconnect that presently exists between purchasing and finance, as well as the myth of vendor rationalization.

 

 

 

Web Resources:

 

• http://procureinsights.wordpress.com/2007/09/20/yes-virginia-there-is-more-to-e-procurement-than-software-part-2/
• http://procureinsights.wordpress.com/2008/01/31/bridging-the-communications-gap-between-finance-and-purchasing/
• http://procureinsights.wordpress.com/2008/06/19/dangerous-supply-chain-myths-part-2-revisited/

 

 

 

 

Procurement Insights Free Access Library: http://procureinsights.wordpress.com/procurement-insights-free-access-library/

Is There a Difference Between Purchasing and Procurement? (A PI Q&A)

Network Member Question

 

As far as I know, sometimes the terms “purchasing” and “procurement” can be used as the same meaning.  But in many cases it seems that both have different boundaries or meanings.  So what is really the meaning behind the terms?

 

Kurt Binh

Owner, SCM Vietnam – Supply Chain and Logistics Consulting

Viet Nam

 

My Response

 

In the traditional sense, there is a significant difference in that purchasing merely reflects the act of acquisition, while procurement encompasses more elements of the supply chain (re logistics, transportation etc.).

 

One might even consider purchasing to be the poor man’s version of procurement.

 

That said and for all intents and purposes, the debate (if one could call it that) is moot.

 

As a result of Supply Chain awareness increasing at the executive level due to its importance to an organization’s bottom line, defining and confining the role of the purchasing department to such a narrow scope does a disservice to the profession.

 

In an article from last summer titled Procurement’s Expanding Role and the Executive of the Future (see the first link under Web Resources), I reviewed a roundtable that was hosted by CPO Agenda.

 

In its entirety the post concerning the roundtable, which included CPO participants from organizations such as Nestle and Danone, is definitely a worthwhile read!  However, one point that stood out was the conclusion by the majority of senior executives in which they expressed the belief that the best individual to run a purchasing department is someone who does not actually have a purchasing background.  (At this stage the silence amongst my seminar audiences is usually deafening.)  It would not be unreasonable for one to conclude that the historically narrow definition of purchasing/procurement has contributed, at least in part, to this position.

 

Going beyond the realm of traditional supply chain elements (and by the way, the term supply chain is a misnomer in that it implies a sequential architecture when in reality, the acquisition process involves the synchronization of both internal as well as external stakeholders), it is important that supply chain professionals expand their area of thought and practice to include other departmental interests such as those of finance and in particular the CFO.

 

The importance of this point was demonstrated in an article I wrote earlier this year, in which I referenced a number of reports indicating that 73% of all savings claimed by purchasing departments were not accepted by finance as true savings (included amongst the savings claims that were denied was the myth of purchase avoidance).

 

Titled Bridging the Communications Gap Between Finance and Purchasing (see the second link), the research findings indicated that, “Too often, finance executives in Corporate America simply don’t believe that purchasing departments are really bringing in the savings they claim.”  This disconnect according to CFO feedback, “may be because financing and purchasing don’t speak the same language.”

 

Based on the above, the importance of differentiating between purchasing and procurement while interesting is at the end of the day an exercise in futility.  Therefore you need to look beyond the scope of functional distinctions to see and understand the broader role your profession plays in the day-to-day success of your organization.

 

Then, and only then will you be able to make the contribution in which all purchasing/procurement professionals are capable of providing.

 

 

 

Web Resources:

 

• http://procureinsights.wordpress.com/2007/08/03/procurement%e2%80%99s-expanding-role-and-the-executive-of-the-future/
• http://procureinsights.wordpress.com/2008/01/31/bridging-the-communications-gap-between-finance-and-purchasing/

 

 

Procurement Insights Free Access Library: http://procureinsights.wordpress.com/procurement-insights-free-access-library/

To Whom Should Demand Planning Role Report: The Sales or Marketing Organization (And Why)? (A PI Q&A)

Network Member Question:

We recently had a Supply Chain group meeting that was attended by Supply Managers from various companies.  There was a hot debate and each one had a justification for their respective positions.  Looking for an expert opinion.

Ashish Mendiratta, Director Supply Chain, Philips Electronics India Ltd, India

My Answer:

Your question would appear to inadvertantly create the hierarchical elements of a vertically-aligned organization and therefore build rather than remove the partitions that impede collaborative communication. The result, as demonstrated by the continuing high rate of supply chain/e-procurement initiative failures (approximately 85% of all programs fail to achieve the expected returns), is a disconnect between critical stakeholders both within and external to the organization.

As a means of expanding on this important concept, I would like to direct you to Part 4 of my 7 Part Dangerous Supply Chain Myths Series.  (See the direct link under Additional Resources.)

In particular, note the results of a 2007 Aberdeen survey of CFO’s, and you will begin to understand why the “chain” of command relative to reporting is largely a moot point in the absence of a collaborative environment in which a “collective” best result outcome is identified and achieved.

NOTE: You will probably find the other parts of the series to be usefull as well, so I have included the main access link for your convenience.

Additional Resources:

Dangerous Supply Chain Myths (Part 4) Revisited

http://www.procureinsights.wordpress.com/2008/06/25/dangerous-supply-chain-myths-part-4-revisited/

Dangerous Supply Chain Myths Series

http://procureinsights.wordpress.com/category/supply-chain-myths/

To learn more about the Dangerous Supply Chain Myths Seminar Series as well as our other Seminars, simply use the following URL Link: http://procureinsights.wordpress.com/seminars-and-conferences-with-jon-hansen/