Best Practices in Supply Management Journal

72nd Edition, September/October 2015

Articles In This Issue

"Supply Management Staff Skill Assessments - Three Types"

"Waiver of Subrogation Rights - Interesting Insurance Language"

Visit the Strategic Procurement Solutions Web Site

Founder Appearances and Articles for Our Readers:

Published in the October edition of Inside Supply Management Magazine, an article by Mark Trowbridge titled, Lies, Darn Lies, & Statistics. The article can be viewed only by ISM members by clicking Article Link

October 8th & 9th, Mark Trowbridge will present The Negotiator Challenge (Advanced Procurement Negotiations) workshop in Northern California at the Golden State University campus in San Francisco. This workshop is sponsored by ISM Northern California. For information click Northern California Workshop

October 14th & 15th, Mark Trowbridge will present The Negotiator Challenge (Advanced Procurement Negotiations) workshop in Southern California at the Burbank Holiday Inn Hotel. This workshop is sponsored by ISM San Fernando Valley. Mark will also be the featured speaker for this group's dinner meeting on October 8th. For information click Southern California Workshop

October 29th, 8:00 a.m. Pacific Time, Mark Trowbridge will present a one hour webinar titled Navigating Through Mergers & Reorganizations. This webinar is sponsored by the national ISM Services/Indirect group. Click here for more information Reorg Techniques Webinar Registration

November 2nd to 6th, Mark Trowbridge will present two workshops back-to-back in Kuala Lampur Malaysia (Expert Strategic Sourcing and Advanced Procurement Negotiations). Click here for more information Asia Conferences

November 12th, 1:00 - 2:30 p.m. Pacific Time, Mark Trowbridge will present a 90 minute webinar on Innovative Trends in Technology Contracting. This webinar is hosted by the California Association of Public Purchasing Officers (CAPPO). Click here for registration information Tech Webinar

November 2nd to December 11th, Mark Trowbridge will teach and moderate two six-week long online training forums on the topics of Technology Contracting - Innovative Practices and

Expert Strategic Sourcing. Weekly web videos and online class discussions will be a part of these forums. Click here for registration at either Tech Contracting Info or Sourcing Info

November 16th to 18th, Mark Trowbridge will present our Strategic Procurement Management workshop (3 days) at the Renaissance Hotel in Kuala Lampur Malaysia. Click here for more information Malaysia Conference

This electronic journal is distributed bi-monthly to
nearly 14,000 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!

"Supply Management Staff Skill Assessments - Three Types" - by Mark Trowbridge, Principal, CPSM, C.P.M., MCIPS

"Talent Management" continues to be a key challenge for procurement and supply chain groups. Like in a game of poker, nearly every procurement leader has been dealt a "hand" of employees with which they must play the game. Usually the hand cannot be altered by trading out cards. So...sophisticated managers are seeking to improve the capabilities of their employee groups.

But how can procurement leaders properly determine the competency levels of their team members (and their own skills too)? Skill assessments are a proven method to benchmark personnel capabilities, developmental opportunities, and training needs.

This article will discuss Three Types of Skill Assessments in use today:

Type 1 - Self Assessment Survey: This method of assessment is the most widely-used, and also the least accurate. In a self-assessment survey, a procurement or materials management employee is asked to rank their perceived expertise on each competency on some type of scale (1 to 10, etc.). For anyone who took Statistics 101 in college, the deficiency of this method is obvious...it is highly-subjective and lacks statistical viability.

Prior to hiring Strategic Procurement Solutions to build a professional development strategy and train their 120+ supply chain employees, a large company paid one of the largest Global SCM Consultancies to run a skills assessment evaluation for their organization. $35,000 (USD) later, the report was delivered and the company's management was furious. The consulting firm had merely sent an Excel spreadsheet to each employee which listed 32 "competencies" and asked the persons to rate their skill on a "1 to 6" scale with 1 being "Inexperienced", 3 being "Average", and 6 being "Highly Experienced". Of course, accompanying the consulting firm's report results were all sorts of bar charts and proposals for additional consulting services. But the company's CPO delayed payment for the analysis, and told the consultancy to provide something with "more than one data point". The consulting firm's answer? They sent a blank spreadsheet to each employee's direct manager and asked them to complete the survey. The final report thus contained two subjective data points for each employee's results...something which would be unacceptable to our professor in Statistics 101...

Type 2 - Behavioral Assessment: Relatively new in the field of skills assessments is a different type of questionnaire which asks employees about their workplace behavior in order to try and identify developmental needs. This type of survey has been used for decades in production management, but during the last half-decade is being modified by some training firms to try and measure workforce competency. The results are debatable.

An actual example from an online assessment tool fostered by a popular trade association asked participants, "In the last 12 months, how many times have you led a reverse auction valued at more than $100,000?" Possible answers were "None", "1 to 3", "5 to 8", and ">9".

The problem with any behavioral assessment is that it MUST be highly-customized to each position description which is being tested. It is also notoriously unreliable. Consider the sample question above being asked of a procurement employee who once had been the leader in a strategic sourcing role, but a year ago was asked to lead a project running all of a global company's materials management operations. Even though the person might be an expert at running reverse auctions, the wording of the question would make it look like they have little or no expertise in that competency area.

Perhaps not by accident, a properly-administered behavioral assessment must be customized at significant expense to the organization. Otherwise (probably also not accidentally), the resulting reports will indicate employee training needs which may not be real. Hmmm...might make one think the testing organization was trying to sell their own training services...

Type 3 - Knowledge Based Skills Diagnostic: The most-scientific type of assessment is one which actually measures a supply management professional's understanding of key competencies. This style of assessment does not utilize subjective inputs, but rather tests the understanding an employee has of "best practice" techniques related to certain competencies.

This style of assessment is a Knowledge-Based Skills Diagnostic. Similar in style to the questions in a professional certification exam, this measures how much the person actually knows....not what they think they know.

More than a decade ago, this assessment approach is the one Strategic Procurement Solutions chose to emulate in our Online Supply Management Skills Diagnostic™. Building upon methodology used by several leading organizational development firms, we developed a list of 24 competencies needed by today's supply chain leaders. These range from core SCM skills like Sourcing Strategy Development, Negotiations, and Supplier Management to soft skills like Customer Service, Relationship Management, Time Management, etc.

Our secure online testing tool contains pools of questions related to each competency. About half of each question pool can be answered by a procurement professional having solid understanding of practices associated with the competency. A third of the questions require advanced understanding. And one of the questions requires expert knowledge to answer right. Thus, our tool can accurately measure the knowledge possessed by all levels of SCM employees.

The strength of a knowledge-based assessment is that it can accurately measure how much a supply management professional "knows" about key areas of supply chain performance. From that accurate data, our firm customizes a commentary to the person's actual job description. Thus, we can tell a person who holds a Sourcing job role but scores 72% on Negotiations that additional training will be helpful. But that particular score would negligibly-impact an employee who works in Inventory Management so it would not be identified as a growth opportunity.

The only weakness of this third type of assessment is that it only measures knowledge/understanding. It does not evaluate actual job performance (that is why companies and governmental groups give employees job performance reviews). But a knowledge-based diagnostic can definitely tell us what training opportunities exist for any employee. For example, if the Sourcing professional in the previous paragraph was a good "seat of the pants" negotiator, their lower score on Negotiations indicates that they could be a great negotiator by understanding more leading techniques for planning, staging, and conducting a winning supplier interaction.

Mark McCormack once wrote in his bestselling book, What They Don't Teach You At Harvard Business School, "Today I believe in the importance of training more than the importance of hiring..."

Skills assessments are the first step in assessing a team in order to identify developmental opportunities. Otherwise you may be playing poker without knowing which cards are in your hand...!

Our knowledge-based Online Supply Management Skills Diagnostic™ can be easily set up by Strategic Procurement Solutions for any organization's personnel. This skills assessment is also a standard part of our 360^o Supply Management Efficiency Review™. Information can be requested at Info@StrategicProcurementSolutions.com

About the Author - Mark Trowbridge, CPSM, C.P.M., MCIPS is one of Strategic Procurement Solutions founders. His 30 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, for 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 15 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, and Asia. 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 is among the top 1% Most-Viewed LinkedIn profiles.

"Waiver of Subrogation Rights - Interesting Insurance Language"... by Robert Dunn, MBA, C.P.M., Principal

"Why should our contracts with suppliers require them to possess and maintain insurance coverage?" That's a question my colleagues and I often ask audiences in the training workshops on contracts management which we conduct around the world. The answer is duo-fold...

The first reason a supplier should carry insurance is to protect their customers (especially our organization) from risk exposure. Thus we often require contracted suppliers to list our firm as "an additional insured" for certain types of policies. When coupled with Limitation of Liability and Indemnification protections every buying organization should require from its suppliers, insurance coverage provides a strong layer of additional security.

The second reason a supplier should carry insurance coverage is to protect the supplier themselves from catastrophic loss which would impair their ability to support us in the future. Every business should carry proper insurance to guarantee the ongoing financial stability of their company. A buying organization should not enter into a contract with any supplier when we cannot be provided confidence of their ongoing business security.

Insurance policy types and required coverage levels must be carefully crafted by a buying organization. Insisting on non-standard coverages for a supplier group can lessen participation by the marketplace in our firm's competitive bid actions. Or it can cause a supplier to increase our prices in order to offset higher costs for mandatory insurance coverage.

During one of Strategic Procurement Solutions recent client P2P efficiency reviews, we discovered that the organization's Risk Management group had insisted in a multi-million dollar contract upon an unusual insurance coverage which is not typically maintained in the supplier's industry. Further research exposed the fact that this requirement had added $75,000 in costs for our client over the three year contract. Recent follow-through with the Risk group recently gained their approval to return to industry-standard coverage for this spend category.

Typical insurance coverages that can be written into supplier agreements will vary by spend category, but often include a selection from the following:

- Commercial General Liability (CGL)

- Employer's Liability

- Worker's Compensation (primarily in the USA)

- Professional Liability (Errors & Omissions)

- Automobile Liability

- Aircraft Liability

- Maritime Liability

- Product Liability

- Data Security

OK, now to the title of this article... "Waiver of Subrogation Rights". Why would we want our supplier's insurance policies to contain this unusual statement?

It is because many standard insurance policies contain language which allows the insurance company to "subrogate" damages to involved third-parties before the insurer will pay out any claim settlement to their customer (our supplier). The ability to "subrogate damages" positions the supplier's insurance coverage as "secondary" rather than "primary". It allows the supplier's insurance company to try to pin damages on other involved parties rather than just paying out the policy coverage amount. And their contracted customer is the buying organization.

So when the supplier's insurance policy allows their carrier to pursue claims against their customer, what results when the supplier's truck swerves in our firm's receiving dock area and severely injures one of our employees. If we properly had required the supplier's insurance policy to include a "Waiver of Subrogation Rights", the carrier would have to pay the full amount of damages to our firm and employee. But without that, the insurance carrier could attempt to take our company (and our insurance company) to court to try to shift liability to us. Very bad...

Strategic Procurement Solutions often helps client companies and governmental groups optimize their procurement contract portfolios. We also train groups in contracting techniques in our Strategic Contracting™ and Innovative Trends in Technology Contracting™ onsite workshops (2 days each). Our instructors also teach online eLearning courses (6 weeks) on these topics. Contact us for more information at Info@StrategicProcurementSolutions.com

About the Author: Robert Dunn, MBA, C.P.M. is one of Strategic Procurement Solutions' founders. His 40 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 articles published in publications like eSide Supply Management and Strategic Procurement Solutions' own Best Practices in Supply Management Journal (the latter of which is now distributed to over 13,000 readers).