Best Practices in Supply Management Journal

61st Edition, August 2013

Articles In This Issue
"Beyond Strategic Sourcing"
"Indemnification - A Key Legal Concept to Understand"

Free Cost Saving Offers, Founder Articles & Appearances, and Job Opportunities.

 

Free Cost Saving Offers

If you'll contact Strategic Procurement Solution, readers companies may receive FREE cost reduction assessments related to their parcel freight and/or telecommunications expenditures.   These take just a few weeks, without any obligation for additional services. 

Upcoming Founder Articles & Appearances:

An article by Mark Trowbridge  titled "How to Find, Maintain, and Motivate Top Talent" appeared in Supply Chain Management Review Journal (May/June Edition).  Our readers can view the article at SCMR Article Link

Along with keynote speaker (Jay Leno), Mark Trowbridge will be a presenter at the upcoming Dematic Materials Handling & Logistics Conference in Park City, Utah on September 8th - 11th.  Visit the following link for conference information Conference Site Link

Mark Trowbridge will partner with ISM Sacramento Valley and APICS Sacrameno to present a one day version of our Best Practices in Inventory Management workshop on September 13th.  Please Click Here for ISM/APICS Sacramento Information

Our company's founders often partner with ISM, NCMA, APICS, and NIGP affiliates to present day seminars and dinner event keynote addresses.  More than 100 presentations have been made to local affiliates during our history.  Please Click Here to arrange a presentation for your chapter's 2013/2014 fiscal year.  Note - We now offer CPSM/CSM exam preparation training workshops.

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

-  Sourcing & Procurement Operations Manager, Financial Services Firm, Southern Wisconsin.  Experience implementing procurement technology solutions required.  Experience sourcing HR Services also required. Base Salary Between $105K and $135K USD, Excellent Bonus and Benefits Package.  Relocation Negotiable.

- Sourcing Leader, Greater Sacramento Area, California, Financial Services Company.  Base Salary between $75K and $100K USD.  Excellent Bonus and Benefits Package.  Relocation Negotiable. 

- Senior IT Buyer, Cincinatti Ohio Area.  Base Salary between $65K and $85K USD.  Excellent Bonus and Benefits Package.  Relocation Negotiable.

 

- Strategic Sourcing Specialist (Professional Services & HR Benefits), Holland Michigan Area.  Base Salary between $95K and $115K USD.  Excellent Bonus and Benefits Package.  Relocation Negotiable.

 

- Government Contracts Manager (Project Position, 9 to 12 Months), Near Portland Oregon.  Annualized Compensation between $115 and $140K USD. 

 

- Procurement Operations Manager, Princeton, New Jersey Area.  Experience Implementing Procurement Technology Solution Required.  Experience Managing Contracts Management Activities Also Needed.  Strong Experience Expanding P2P Impact and Operations Desired.  Base Salary Between $95K and $120K.  Excellent Bonus and Benefits Package.  Relocation Negotiable.   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This electronic journal is now distributed bi-monthly to nearly 13,000 Supply Management Professionals around the globe. Note that our educational articles are in depth, unlike most online publications.  We hope you enjoy this edition. Feel free to forward to your SCM colleagues!  And keep SPS in mind when your organization needs top quality Supply Management Consulting, Employee Skills Testing & Training, P2P Efficiency Reviews, Cost Reduction Support or SCM Staff Augmentation/ Recruiting Services.

 

 

"Beyond Strategic Sourcing" - by Mark Trowbridge - Principal, CPSM, C.P.M., MCIPS 

The concept which we know as "Strategic Sourcing" has now existed for more than 20 years. The general process was formalized by several consulting firms (PriceWaterhouse Coopers™, KPMG™, AT Kearney™, and Booz Allen Hamilton™) which each created their own versions of a multi-stage acquisition process during cost reduction initiatives for Blue Chip firms in the early 1990's. Around that time, an article appeared in Fortune magazine titled, "Purchasing - The CFO's Secret Weapon", and the wave took off. Many of us have been riding that wave ever since...

 

The multi-stage strategic sourcing process is a very powerful tool for optimizing the supply chain related to expenditure categories. It has been employed both by private sector companies and governmental entities, with varying degrees of positive results. But strategic sourcing is most-powerful when first applied to a spend category. Each subsequent time a category is "sourced" the incremental benefits taper off significantly.

 

So what happens once we've been doing strategic sourcing for 5 - 10 years? Do we wait for the contracts to expire, and then tell the supply base we're going to do another RFP? Or another auction? Or sit down for more cost-reduction negotiations? Possibly, but...

 

Just repeating the same process again will not deliver different results. As Albert Einstein once said, "The definition of insanity is doing the same thing over and over again, and expecting different results." The groups which have been leading the sourcing wave are beginning to look for benefits in other places.

 

One of those places is in investing resources into pro-active management of supplier performance. This is important for every organization, since they cannot realize the benefits of initial strategic sourcing without making sure they capture those advantages. A 2010 webinar presentation made by the Hackett Group and Ariba (sponsored by the Institute for Supply Management) reported that 10% - 20% of sourced savings are often never captured.

 

Our firm trains client groups that, not only should all sourced savings be captured...but a good Supplier Relationship Management (SRM) process can help to capture an additional 5% - 12% in savings (achieved even after the contract is signed).

 

Collaborative SRM is a systematic approach which addresses the entire supply base in bite-sized steps...

 

First, the Pareto Principle (80/20 Rule) is used to categorize all suppliers into four groupings which will be managed with varying degrees of attributes. Three of the groups are comprised of suppliers with whom we have ongoing relationships. The fourth group is comprised of supplier relationships which are managed for the duration of a key project (typical CapX). Attributes which can be used to initially-separate the groups typically begin with annual expenditure size. Then other attributes can be used to additionally-sort the supplier relationships, such as complexity, criticality, transportability, etc.

 

Second, once the supplier community has been categorized, we can design different degrees of management techniques to be applied to the respective relationships. With a tailored scorecard, supplier performance can be measured for use in providing feedback to the respective firms.

 

Third, feedback mechanisms can be designed for each stratification of suppliers. These mechanisms can include periodic business review meetings, efficiency planning events, financial stability risk assessments, etc. We obviously cannot manage every supplier relationship in a highly-strategic or collaborative manner, but many mechanisms exist to manage the majority of our spending in a strategic manner.

 

Fourth, none of the above steps will work if the procurement staff and key supplier managers throughout the organization aren't trained to embrace key SRM practices in everything they do. As Mark McCormack, the author of What They Don't Teach You at Harvard Business School once wrote, "Today I believe in the importance of training more than the importance of hiring..."

 

In a few short weeks, Strategic Procurement Solutions can perform a formal assessment of your organization's Strategic Sourcing, SRM, and/or P2P processes. We also present training in Supplier Performance Management (2 day onsite workshop) to leading private and public sector groups. If you would like more information, please contact us at Info@StrategicProcurementSolutions.com  

 

About the Author - Mark Trowbridge, CPSM, C.P.M., MCIPS is one of Strategic Procurement Solutions founders. His 28 years in procurement leadership began in the Manufacturing, Airline, and Financial Services sectors...culminating in a role leading three-quarters of the strategic sourcing activities, and all of the contracts management responsibilities, of Bank of America (then, the USA's third most-profitable company). During his final two years with Bank of America, Mark's areas of responsibility delivered a Quarter Billion Dollars in cost reductions. During the last dozen years, Mr. Trowbridge has worked in the consulting field with many leading corporate and governmental clients. His business travels have taken him throughout North America, Europe, the Middle East, Asia, and Malaysia. He is a frequent author on supply management topics, with articles appearing in publications like Supply Chain Management Review, Inside Supply Management, IFPSM's eZine, eSide Supply Management, and Strategic Procurement Solutions' own Best Practices in Supply Management Journal.  Mark's  LinkedIn profile is among the top 1% most-viewed (out of 250 Million members).

 

 

"Indemnification - A Key Legal Concept to Understand"- by Robert Dunn, MBA, C.P.M., Principal

A very important legal concept found in a procurement group's contracts is that of Indemnification. Although often associated with "holding harmless" and "limitations of liability", the topic of indemnification is a very different legal concept which every supply management professional should understand.

 

The verb "Indemnify" conceptually means to step into another party's shoes. The indemnifying party takes the place of the indemnified entity, with respect to losses, claims, or damages that may impact them. The noun "Indemnification" is the act of indemnifying another party.

 

An example of indemnification language is as follows (note - please check with your own legal counsel prior to using this language):

 

"Supplier and Company each hereby indemnifies the other from any claim or damages due to the injury or death of any individual, or the loss or damage to real or tangible personal property, resulting from the willful misconduct or negligent acts or omissions of the indemnifying party or its agents."

 

So why is indemnification important? Here are three reasons:

 

One - Limitation of Liability language only protects an entity from damages that result from their being a party to a contract. It does not protect them from costs or damages imposed upon them due to a third-party claim or governmental edict.

 

Two - Hold Harmless language only protects one contractual party from being legally pursued by the other party. Again, it does not protect them from claims made by a separate third-party.

 

Three - Even though the supplier interacts with third-parties, our contract with them may not protect us from actions by those third-parties. Only an indemnification clause can provide that type of protection, by forcing the supplier to 'step into our shoes' regarding third-party actions.

 

An additional type of indemnification clause which should appear in most procurement agreements is that of "Third Party Infringement Indemnification". This clause relates to patents, copyrights, and other Intellectual Property (IP) rights that a third party may possess which affect the product or service we acquire from a supplier. This type of clause requires the supplier to defend the buying organization from claims by a third-party.  It also requires the supplier to take action to ensure the buying organization can continue to use the procured product or service.

 

Two decades ago, I directed all procurement operations for one of the largest global financial services firms. At the time, "LAN" and "WAN" were the technological buzzwords throughout our entity. And our firm happened to be the largest corporate customer of a leading provider of networking hardware.

 

It turned out the supplier had used a subcontractor during the development of their networking product's firmware. That person had written software code which became a central part of their core products. After that individual's relationship with the supplier had ceased, they contacted an attorney to represent them in claiming they owned IP rights in the product.   The attorney filed suit...against our firm! They didn't even bother to file suit against the networking hardware company, but rather chose to file a lawsuit against the supplier's largest customer (rightly figuring that would bring the greatest amount of possible attention to the matter).

 

Our procurement team was immediately asked by our general counsel's office to provide copies of our contracts and purchase orders with the supplier. They were pleased to see that all of our documentation included Third Party Infringement Indemnity language. Our firm's counsel contacted the general counsel for the supplier, and informed them that they were going to be stepping into our shoes to defend our firm. The supplier eventually settled out of court with their past software developer, without further involvement by our company.

 

Indemnification is a powerful concept, when used correctly.  If you would like an example of Third Party Infringement Indemnification language, please write us at the address below.

 

Also, Strategic Procurement Solutions has helped many companies develop powerful contract templates and language. We also assess company's contracting tools to make them work better in a strategic sourcing mode. Our firm also provides training related to concepts like those in this article, Strategic Contracting™ (2 days) or Innovative Trends in Technology Contracting™ (2 days). For more information, just contact Info@StrategicProcurementSolutions.com

 

 

About the Author:  Robert Dunn, MBA, C.P.M. is one of Strategic Procurement Solutions' founders.  His 37 years in procurement leadership covered management positions in the Government, Technology and Financial Services sectors; culminating in a role directing all of BankAmerica Corporation's procurement operations.  He has served as President of two ISM/NAPM affiliates, and taught supply chain management at the post-graduate level for California State University - Hayward and St. Mary's College - San Francisco.  He has also worked with major corporate and governmental clients in the consulting industry for the past 18 years, and was one of the founders of Strategic Procurement Solutions.   Robert has worked on major procurement initiatives in North America, Latin America, Europe, and Asia.  He is a noted author, with recent articles in eSide Supply Management and Strategic Procurement Solutions' own Best Practices in Supply Management Journal (the latter of which is now distributed to nearly 13,000 readers).

Copyright 2013
Strategic Procurement Solutions, LLC - All Rights Reserved