In discussions on the global economy it is not unusual to hear about exports versus imports. For some time this has been an indication of a nation’s strength and position in the economy regarding which direction the scale tipped – export value or import value. Today, supply chains are global in nature creating interdependency between multiple countries that in many ways changes the dynamics because imports are necessary to create the exports.
In theory each country wants to see exports increasing and imports decreasing. The United States has experienced a trade deficit for years where imports far exceed exports. As more production jobs get shipped overseas, the United States produces less and less in goods and has increased their consumption. It’s been said that we have a nation of consumers. According to the US Department of Commerce recent statistics support this. The Nation’s international trade deficit in goods and services increased to $40.3 billion in April from $37.1 billion (revised) in March, as imports increased more than exports. (June 4, 2013)
But with the changes today’s economy there are other factors to consider. Looking at what each nation in a particular supply chain provides shows different value that all contributes to the final product. Along those same lines, employment throughout each step of the supply chain creates added value that is not included in the raw statistics. If you only look at the size of the country and the value of the products you fail to acknowledge the local value that in turn supports each nation.
With the increased interdependency there is opportunity for growth. Developing nations with reduced costs are positioned to enter the global marketplace and compete. Sourcing for your business may take you to new places and new sources you hadn’t previously considered or were not previously in existence to consider. Or maybe there is room for your business to expand and partner in a different way within the global supply chain. Economic prosperity for your business is there, opportunity is there, you just need to find it.
A nice addition to Bellwether’s ePMX: software suite, the Receiving module is an easy, powerful web-based procurement module. Read more about the Receiving module here.
Bellwether ePMX: Modular system offers its Inventory & Warehouse Web-based Module. Read more about the Inventory Module here.
Supply chain glitches like shipping and production delays often have a huge impact on your business. However, your key performance indicators may not pick up on all your trouble areas. Here are 3 questions every CEO and purchasing manager should know the answers to. If you don’t know the answers to these questions you should start asking these questions and talking about them.
In today’s business environment it’s not uncommon to see heavy use of buzzwords like lean and agile, collaboration, or abbreviations like CRM, CPFR, IT, SBO, etc. This is all part of making sure your supply chain is efficient, but throwing them around in conversations doesn’t make it so.
Look at your customers and see how you treat them. You’ll find that there are different levels for different customers. What is your service policy? Understanding the needs of your different customers, how products are delivered, and the underlying cost drivers. What do your customers really value that your supply chain can help with? Are you offering daily delivery options when grouping together would be more efficient and keep your customers just as happy?
You could be losing money on certain product mixes or certain geographic locations. Costs need to be visible and understood. What is your cost per pallet, item, or widget? What is your cost for storage and delivery to the end consumer? What percentage of orders leave the warehouse with a negative balance from the start?
On the revenue side can you improve delivery timing. Products not on a shelf don’t sell! Can products be brought to market faster? On the cost side of the equation, procurement and inventory management is a big factor. Many only look at the cost per item when making decisions when the total cost of the supply chain including shipping, delivery, warehousing, storage and all steps along the way should be factored in as well. A different vendor with a higher cost per item may be a better option when looking at the situation as a whole
Many of you reading this article ask yourself this question regularly, wondering what you are willing to do, sacrifices you are willing to make, or how close to the line of right versus wrong or even beyond the line you are willing to go. Instead, let’s consider this literally. How far will you go to relocate for the purpose of advancing your purchasing career?
Everyone has different priorities, things of importance that guide all their decisions. Some build their work around where they want to live and some live wherever their work takes them. You probably know someone right now who was born and raised in the city where they currently live and work. They experienced all their “firsts” through the years in this city. First steps, first bike, first car, graduated high school at the old Whatever County High before there were multiple schools or the big fancy one was built years ago and very few even remember the old one. Maybe they got married and started a family and all the grandparents are nearby. They never had any intention of ever seriously leaving and finding work elsewhere. They searched to see what jobs were available in their area and that is what determined their career path.
Then you also have people who are very career-minded. Sometimes they have families and sometimes they are single and have an easier time picking up and moving on short notice without ever really putting roots down anywhere. Either way, these people have a clear career path planned with an open end to be able to relocate should that prove to advance their career.
If you are willing to move to be in a better position to advance your purchasing career do you restrict the move to only certain cities, within the same state or maybe within a certain radius of wherever “home” is so that you can get back to your extended family for holidays, vacations, etc. Or do you go anywhere necessary, considering it a short term sacrifice to get you where you ultimately want to be?
According to one survey by DSJ Partners of European purchasing staff, more than half are considering relocating to advance their careers while others are moving to increase their income or find a better work/life balance. Of those looking to relocate, more than 60% say the United States is their intended destination. So back to the original question – how far are you willing to go? Like your European counterparts, are you willing to move across the world? Something to consider as you plan out your career path within the purchasing industry.
Every well-managed procurement department is going to have cost-savings as one of its goals. It’s easy to get caught in the trap of always trying to negotiate better pricing from your vendors. But is that the complete, well-rounded solution to maximizing cost savings? Even if you have highly skilled negotiators on staff you are probably falling short of your potential. It’s not enough to do one thing well. There are many things that need to be addressed. Examining key performance indicators (KPIs) can help your purchasing department focus in on the areas that will make the greatest impact and maximize cost savings for your business.
Total Cost Savings – This is where all the attention generally lands with discussions about procurement. It measures the total about of money saved from year to year. These are numbers, facts, and figures that can be directly attributed to the P&L statement. It has a direct impact on the financial success fo the company.
Managed Spend as a percentage of Total Spend – Managed spend is the amount the purchasing department influences directly through its sourcing and strategic decisions. Total spend is what it sounds like – the total amount of money spent each year excluding labor. The idea is to get the amount of spend under management to increase as a percentage of total spend.
Percentage of suppliers accounting for 80% of the spend – We’ve all heard the 80/20 rule. This KPI looks at how consolidated your suppliers are. It’s not uncommon to have about 20% of your vendors get 80% of your spend. This can be tracked from year to year, but new product introductions or changes in sales will effect this number.
Contract Compliance – You want to look at contract provisions, pricing agreements, terms, and conditions and see how well everything stays true to what is outlined in all the contracts.
Cost Avoidance – Prices go up, that’s a given. Your actions can result in a supplier delaying a price increase. This results in a spend that is lower than it would have been. Or maybe you add additional services or training without paying additional costs for those things.
Implemented Cost Reduction Savings – These are real savings that have been finalized and implemented. They have moved from the theoretical paper world into the real world of changing your costs.
Procurement ROI – One way of measuring the purchasing department’s effectiveness is to compare the implemented cost savings to the operating budget. This would be another number to track over time and watch for improvements.
Quality – In manufacturing you look at Defects Per Million (DPM). This is a number you want to see go down over time to show quality improvements. But service businesses need to be concerned with quality as well though that number is a little harder to define.
Delivery – The bottom line here is ensuring every department gets what they need when they need it. Does the promised date line up with the scheduled date of delivery? Do they both match the actual delivery? Businesses with enough volume can also track this as an overall percentage of on time shipments.
Procurement Cycle time – How long does it take from the time a requisition is submitted until the order is placed? This can be measured, tracked and improved upon.
There is a growing emphasis worldwide on creating innovative energy solutions that are sustainable and at the same time economical. This pressure comes from governments, private business, civic groups, news organizations and even individual people. We are no longer content to simply buy energy. Today we have to look at various forms of energy, alternative solutions, price, both buying and selling, all while making it work within the context of our business.
Changes in government have helped necessitate behavior changes in the energy businesses seek out and use. Traditional and alternative solutions are all being incorporated. Everything including gas, coal, nuclear, wind, water, solar, geothermal, biofuel, ethanol, and hydrogen are options to consider. Even with everything on the horizon, companies are hesitant to invest too heavily into alternative green sources of energy. With all the options available, none of alternative sources have truly risen to the top as the main option to compete with traditional energy sources.
With so many different energy options available, energy procurement has turned from a simple buying to decision to what could be considered a serious risk-management objective for every business. Some buyers will create an entire portfolio from energy objectives. Risk can be managed by utilizing long-term contracts to buy energy, sell it back and rebuy at lower prices.
There is also the attempt by some to have a total energy plan that encompasses all forms from start to finish. These companies find ways to utilize waste products generated during their normal business processes. This approach has many benefits including cutting waste management costs, reducing carbon emissions, and potentially earning money by the production of energy through the use of waste products that can be sold back into the energy grid in that area.
The typical individual from home gets a monthly bill for electric and/or gas. When they plug the coffee maker in each morning, turn on the hot water for a shower, or sit down in front of the television after work, they expect the energy necessary for every action to be readily available. They don’t give it much thought usually, other than to complain about the high cost of energy when the monthly bill comes in the mail.
In reality, energy procurement is a very big part of today’s world. Every human being on the planet, in some way, is affected by energy, whether they know it now or not. Energy procurement is a complex maze to be navigated.
A Brief Introduction to Bellwether’s powerful, easy-to-use web-based purchasing software.
A Quick Introduction Into The Powerful Yet Easy Functionality Of Bellwether’s ePMX: Requsition Application
Today we hear more and more about the global economy. The world is shrinking, jobs are being outsourced overseas, and purchasing managers deal with international markets to find the best deal on procuring finished goods and raw products for their company. But in all the excitement about the global economy don’t forget about the local options. In many cases, you will find that buying local has many benefits that far outweigh just buying for price overseas and can even be better priced right here locally.
Local sourcing is trending with greater interest in supporting your own community, but if there is a significant price difference that feeling of support will vanish. Finding cost-effective local sourcing can give you some variety in your product line-up and greater agility. Changes in the market necessitate supply chain adjustments. When sourcing overseas those adjustments are slower to take effect when dealing with high volume producers and shipments often by boat. Local vendors can make adjustments more quickly and as such are more agile.
By utilizing locally produced goods you can broaden your product lineup while simultaneously build closer relationships with your customers. There is a sense of pride when you go to the store and buy goods and products from people you know or from companies you see in your own backyard. This doesn’t even mention the good PR generated from supporting the community around your business demonstrating a desire to invest and build those around you.
Companies should find a way to partner with local suppliers when possible. It may take some creative thinking. As an example, consider the cost of ordering locally produces foods packages in jars or baskets or something that may typically be recycled by your company. Instead of following traditional recycling processes and then rebuying new jars/baskets/widgets for packaging whatever food product you source, provide those recyclable items back to your local source to allow them to use. This serves the same purpose for you to recycle and then also works to lower your cost with the local vendor by supplying your own packaging. This is just one example of a partnership. Start tossing around some ideas and see if you can come up with a creative partnership to be able to start using local suppliers for some of your needs.
No matter how big your business is, don’t overlook the power of bartering. Bartering is often used with small companies or those with smaller budgets, but even larger businesses can find benefit. It could be that a waste product from your business is a valuable commodity to another business. One example of this is a kitchen or restaurant that would have to find an environmentally safe way to dispose of the oil from the kitchen. This could be provided to local farmers to use in bio-diesel fuel in exchange for locally produced fresh ingredients used in the kitchen.
Finally, looking at the personal connection can also be a tremendous asset. Having the ability to meet your supplier face to face provides a greater opportunity for personal connection and relationship building. When you truly know someone, face to face, and they are not just a voice on the other end of the phone half way around the world, then that personal touch comes into play in business. When your business has a crisis or needs a sudden order by a surprise deadline, when you have a personal relationship with your supplier you can call and ask for the favor that they will probably do. Try doing that to a faceless person around the world and you may get a simple “I’m sorry, that’s not possible.”
As you can see, there are many benefits to sourcing locally. Even if you looked and ruled out local suppliers, take another look, think creatively, and see if sourcing locally can now work better for your business.