Best Practices in Supply Management Journal

52nd Edition, October/November 2011

Articles In This Issue
"Moving Upstream in the Supply Chain"
"Trends in Procurement Contract Drafting"

SPS News, Founder Appearances, & Career Opportunities


Mark Trowbridge will be a keynote presenter on the topic of Finding Additional Savings through Supplier Management, and will also present our two day Advanced Procurement Negotiation workshop in Dubai at the MENA Strategic Procurement Conference October 30 - November 2.  Find out more at Dubai Conference Sign Up


Mark will also be presenting our two day Supplier Performance Management workshop in Malaysia (Kuala Lampur) on October 17 - 18.  Find out more at Malaysia Conference Sign-Up

Job Opportunities:  We are currently helping clients fill the following SCM career opportunities.  Please contact Strategic Procurement Solutions through our website if interested...


-  Sourcing Consultant, Information Technology, Financial Services Sector, Madison, Wisconsin.  Permanent Hire Position, Base Salary Between $75K and $95K, Excellent Bonus and Benefits Package.  Relocation Negotiable. 


- Sourcing Manager, Information Technology & Business Process Outsourcing, Service Sector, Raleigh, North Carolina.  Base Salary Between $85K and $95K, Excellent Bonus and Benefits Package.  Relocation Negotiable.


- Sourcing Consultant, General Administration Expenditures, Financial Services Sector, Madison, Wisconsin. Permanent Hire Position, Base Salary Between $75K and $95K, Excellent Bonus and Benefits Package. Relocation Negotiable. 


- Wells Materials Sourcing Specialist Position, Oil/Gas Sector, Anchorage Alaska, Permanent Hire Position, Base Salary Between $115K and $125K, Excellent Benefits and Bonus Package.  Relocation Negotiable.


- Offshore/Subsea Drilling Category Manager, Oil & Gas Sector, Texas. Permanent Hire Position, Base Salary Between $115K and $125K, Excellent Benefits and Bonus Package. Relocation Negotiable.


- Onshore Wells Category Manager, Oil & Gas Sector, Texas.  Permanent Hire Position, Base Salary Between $115K and $125K, Excellent Benefits and Bonus Package.  Relocation Negotiable. 













































































































































































































































































































































































This electronic journal is now distributed bi-monthly to more than 10,000 Supply Management Professionals around the globe.  Click on the "Join our Mailing List" button if you would would like to receive without charge, and feel free to forward to your SCM colleagues!  In return, just keep SPS in mind if your organization ever needs top quality Supply Management Consulting, Employee Skills Testing, Training, P2P Efficiency Reviews, Cost Reduction or Staff Augmentation Services.



"Moving Upstream in the Supply Chain..." - by Mark Trowbridge - Principal, CPSM, C.P.M. 

Over the last decades the field of supply management has transitioned from transactional procurement to a foundation based upon Strategic Sourcing. The latter stage has certainly yielded great financial results for many leading organizations, with a high proportion of Fortune 500 sized firms having utilized the process. But some experts estimate that only 30% of companies in North America, 20% in Europe, and 10% in Asia have comprehensively applied Strategic Sourcing across all spend categories. So there is still great opportunity for many organizations.

But what if you've employed a Strategic Sourcing model for some time, where can additional savings be found? A few years ago, the Chief Procurement Officer (CPO) of a global petroleum enterprise commented to Strategic Procurement Solutions leaders that, "Gentlemen, we've sourced every one of our spend categories multiple times. Doing it yet again is not going to yield the same benefits that it did initially. So now we need to move upstream if we want to yield more benefits".

What did he mean by "move upstream"? This expression is one that some of our leading clients are beginning to use with more-frequency.

This article will describe several ways to move upstream:

The Entire Supply Chain Is Now Fair Game - It used to be that sourcing groups focused primarily on the suppliers closest to us in the distribution chain. But today, everything on the upstream side of the supply chain is fair game for source optimization. Negotiating with multiple segments in the supply chain can yield surprising results.


Decoupling the Supply Chain Can Yield Greater Savings - Today's sourcing groups are increasingly decoupling segments of the supply chain, and putting it back together to achieve lower TCO. For example, a large healthcare industry client of Strategic Procurement Solutions is installing a new enterprise-wide ERP system. Rather than hiring an expensive consultancy to handle all tailoring and implementation work, however, the procurement group has broken the integration tasks apart and has selected optimal cost providers to perform key tasks (project oversight, programming, testing, training, etc.). A majority of the standard coding activities will be performed offshore. And the consulting oversight role has been significantly reduced. This all has resulted in significant savings.


Note: Decoupling can increase risk if the buying organization is now responsible for the completed deliverable. Various ways exist to mitigate this risk, via prime/sub contracts, dependent deliverables, careful scope definitions, etc.


Leveraging Combined Purchases with Suppliers - Are there products and services that your organization procures, that are also bought by your suppliers? The oil sector CPO mentioned above, asked Strategic Procurement Solutions to work with the firm's prime suppliers to determine whether group leveraging opportunities existed on shared expenditures. So if a key contractor would be building a pipeline for the energy company, could that supplier buy valves, tubing, concrete, etc. off of the energy company's contracts for those products? And if so, could the energy company's project costs be reduced?


Inbound Freight Is Being Removed from Supplier Oversight - As many studies have shown, an organization's suppliers rarely charge exact freight costs when invoicing a customer for a delivered product. Strategic Procurement Solutions' experience has indicated frequent overcharges of 18% - 35% in the "pass through" freight charges imbedded in many suppliers' invoices. As one of our freight sourcing services, we often help clients to move inbound freight charges to their own accounts, and to subsequently leverage their outbound rates to reflect increased volumes. That has resulted in savings on both the upstream and downstream side. Note - But care must be taken to minimize the associated "risk of loss" exposure which can occur.


Savings For You...Are Savings For Me - The aforementioned CPO asked if Strategic Procurement Solutions could perform our 360o Supply Management Efficiency Review with the oil firm's key suppliers. Any cost reduction or efficiency findings we found could then be discussed by the management teams of both the Oil/Gas enterprise and the supplier organization to calculate the net benefit.


Going upstream isn't always easy, but it is where top supply chain organizations are now focusing their efforts. We hope these ideas help readers who are seeking new ways to reduce costs. Email if you would like more information about our onsite Expert Strategic Sourcing™ training workshops or a 360o Supply Management Efficiency Review.

About the Author - Mark Trowbridge is one of Strategic Procurement Solutions' founding principals.  His 27 years of procurement leadership experience have included 12 years in the consulting industry, following successful corporate positions in the Manufacturing, Transportation, and Financial Services sectors that culminated in a role directing all Contracting Management and most Strategic Sourcing activities for Bank of America (then the USA's 3rd most-profitable company).  Mr. Trowbridge's business travels have taken him throughout North America, Europe, Asia, Malaysia, and the Middle East.  He is a frequent author for publications like Inside Supply Management Magazine, Supply Chain Management Review Journal, and eSide Supply Management.


"Trends in Procurement Contract Drafting"- by Mark Trowbridge, Principal, CPSM, C.P.M.

[Our other company leaders were on vacation, so Mr. Trowbridge was asked to write a second article for this edition...]


Over the last decade, Strategic Procurement Solutions has been asked by many leading companies to help them optimize their template contract portfolios.  This unusual service aids client firms by achieving a balance of legal and commercial protections, in pre-approved agreements which fit into a strategic sourcing methodology.


Over this time period, the attorneys of many Fortune 500 client companies have increasingly-embraced several trends in procurement contract formats and drafting.  This article will discuss five trends in today's procurement agreements:


Trend #1 - "Business English" Rather than "Legalese":  Many top organizations are making their procurement agreements more understandable.  Antique phrases like "herein", "aforementioned", "hereto", "hereinafter", "heretofor"... are being eliminated, and replaced by modern English descriptions.  For example, saying "in this agreement" rather than "herein".  This trend is well-embraced by procurement's stakeholders and internal customers, who previously-struggled to understand the business documents they were asked to manage.  It also is received nicely by key suppliers, whose sales executives are more-willing to approve contracts rather than having to route them to their legal counsel due to unreadable terms.  One of our clients is a Top 3 Global consumer goods company, which has simplified their contract wording even further by shifting from third-person to first-person statements, such as replacing "The Parties will meet to review the report on the 15th day of each month" with "We will meet on the 15th day...".


Trend #2 - Shorter Rather than Longer:  There's a theory that waving words under the nose of an attorney is like waving a red towel in front of a bull.  Some organizations feel that having lengthy one-sided contracts provides them with the greatest amount of legal protection.  Yet an honest discussion with their procurement leaders often reveals that a high proportion of their key suppliers refuse to sign the onerous documents; instead insisting on using their own agreements or heavily modifying the buying organization's documentation.  So which is get a fair & balanced contract signed without modification, or to have a supplier's attorney rip apart one-sided document every time?  Many sourcing groups are now realizing that the former is a clear advantage.


Trend #3 - "Rule of Ten" Numbering:  Back when legal documents were handwritten by scribes, numerical values could be misunderstood.  The same problem still exists on checks you handwrite for personal expenditures. That's why a personal check requires you write the value in one spot using numbers (for example, "$1,234.00"), and then handwrite the value in text afterwards ("One-thousand, two-hundred, and thirty-four dollars and 00/100").  But we don't scribe procurement agreements any longer.  Computers and laser printers have eliminated the need for redundancy in this manner.  The "Rule of Ten" is a drafting technique being adopted by many leading attorneys where numeric values ten and below are spelled out in text (i.e. "Seven") and those greater than ten are reflected in numerals (i.e. "125").  This technique replaces older drafting techniques which use both in the same sentence, such as "One-thousand, one-hundred and twenty-five dollars ($1,125)". 


Trend #4 - Tailored Template Agreements: World-class procurement groups are frequently developing tailored template agreements which reflect their organizational identiy.   For a professional appearance, Strategic Procurement Solutions' tailored client template libraries can reflect the organization's "look & feel" with logos, page formatting, and type font.  The documents also match the format of organizational sourcing documents to create a highly-polished package.  Interestingly, we are finding that most companies' legal organizations are trending away from clause libraries supported by CM technology tools, as they do not support procurement personnel choosing which clauses to incorporate into supplier agreements.  Instead, the attorneys Strategic Procurement Solutions works with seem to strongly prefer being able to review and approve a full template document so they can view the entire scope of the document. 


Trend #5 - Category Specific Template Agreements:  When Strategic Procurement Solutions develops template libraries for our clients, we typically create/refine category-specific templates for the firm's major spend categories.  These are designed to address 80% of contract transactions (Pareto Principle).  These templates share the same General Terms, and embrace a shared modular construction for uniformity.  Some of our clients have had as many as 50 different templates tailored for their use, and have thus greatly-streamlined their contracting processes.

Please email if you would like more information about ways we can create tailored template agreement libraries (or streamline/optimize their existing template agreements).

Copyright 2011 - Strategic Procurement Solutions, LLC - All Rights Reserved