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# Table of Contents

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Chapter 10

Chapter 11

Chapter 12

Chapter 13
Table of Contents

Chapter 1: Procurement Workflows & Bids

Chapter 2: Maximizing Your Savings

Chapter 3: Managing the Procurement Process

Chapter 4: Vendors vs Suppliers vs Partnerships

Chapter 5: Inventory Management

Chapter 6: GPO – Group Purchasing Organizations

Chapter 7: Cap Ex - Capital Expenditures

Chapter 8: Supply Chains

Chapter 9: Outsourcing of Procurement

Chapter 10: Balancing Relationships

Chapter 11: Onboarding New Team Members

Chapter 12: Glossary of Procurement Terms

Chapter 13: Closing

## Preface

##

Workplace mentoring programs are designed to help employees learn best practices through exposure to senior employees who know how to do the "right things" and make sound business decisions. This exposure is intended to help employees perform their roles more effectively while also increasing a feeling of job satisfaction. The benefits to those employees are obvious, but what are the benefits to the organization? What about the employees not receiving that senior level access? How does the absence of those experiences impact operations?

That last question led to my sitting down and speaking with a few friends about the topic. In my experience, I have found you can find solutions faster if you speak directly with others and leave yourself open to feedback or advice. It is not uncommon, from a procurement standpoint, to engage in conversations with co-workers who present a variety of scenarios or developmental questions.

With those experiences in mind, I set out to create a procurement reference guidebook to bridge information gaps and provide resources when they are not readily available. The structure of the following pages is a combination between formal process overviews, working examples and bullet pointed data. Those pages will include solid information but may not uncover every pebble. As much as we all strive towards perfect environments, at some point you are just going to have to sit in an office, after hours, and figure some things out by yourself. It is a disappointing fact to eventually learn there is no substitute for those frustrating and painful experiences. That's just how life works. Hopefully, this guidebook will help to minimize those difficult experiences while instead providing solutions and quick answers to the random questions that wander into each of our days.

Before beginning, let's discuss the differences between _purchasing_ and _procurement functions_.

Many people use the terms _purchasing_ and _procurement_ interchangeably, but despite their similarities, they do have different meanings. Let's clarify any confusion on the differences between the two different roles.

**Procurement** deals with the sourcing activities, negotiation and strategic selection of goods and services that are usually of importance to an organization. Procurement is, essentially, the umbrella term within which purchasing can be found.

**Purchasing** is the process of how goods and services are ordered. Purchasing can usually be described as the transactional function of procurement for goods or services.

Within your environment, try emphasizing procurement's need to remain focused on maximizing financial results associated with supplying and use of goods & services. You will find it is procurement at the heart of many impactful results on P&L reports. Unfortunately, in the business world, the practice of using similar terminology in either conversation or printed materials is routine. Those examples often discount the transactional nature of buying and, as a result, often lead to role confusion and therefore should be avoided. Thank you in advance for your time! Now let's get started...

DM

# Chapter 1

## Procurement Workflows & Bids

For the most part, procurement is "absolutely about following a series of systems and processes"

to identify, source and manage contracts, said Matthew Sparkes, head of financial services at the Crown Commercial Service (CCS), who describes himself as "not a procurement person by trade".

A purchasing workflow includes the steps taken to order and pay for products – keep it simple.

The purchasing workflow will determine the volume, quality specs and frequency products are purchased from a given supplier.

Below you will find the steps for a standard procurement workflow followed by the quoting workflow.

Steps of the Purchasing Workflow

Identifying the Specific Need

You will need to identify any additions or changes to your existing inventory

Spec the Forecasted Volumes

How much and often will you want products or services delivered **Requisition or Order**

Document the purchase requisition or order

Financial Approvals

Purchases will require an approval authority before taking any action

Research Suppliers

Reoccurring orders typically have designated suppliers. No reoccurring orders should be sent for bids or flowed through a reliable supplier

Choose Suppliers

The supplier for a specified service has been selected

Establish the Price and Terms

In larger companies, suppliers will be contracted with a master agreement where prices and terms are set for a defined period. A master agreement will always have the option for a Schedule A to make amendments or agreed-upon changes. If a master agreement does not exist, it is best practice to shop for value, quality, and service from competitive suppliers.

Place the Purchase Order

At this stage, an order to the supplier is placed and becomes a contracted agreement between the requesting business and supplier. Using purchase orders is critical, regardless of the size of your organization. Try to avoid simply using credits card(s) and balancing the receipts. Those shortcuts may potentially miss the accounting period or result in a loss of reimbursable payments.

Orders are Received and Inspected at Receipt

The products ordered are delivered as agreed, received at a dock, verified, recorded as a direct or inventory receipt. Shortages and breakages are reported to the supplier for the appropriate credits to be supplied.

Approvals and Payments

The invoices will be paid according to the terms of the "net" agreement schedule

Updating of the Records

The purchasing ledger and inventory records are updated Although this list is extensive, the nature of your specific business will determine the extent of the procurement workflow you use. For example, if your business is a large corporation you may undergo a more involved bid review phase. On the other hand, if you work in a small firm, that stage may be quick and simple. Understand the scope of your business and tailor your workflows as best suited. 

# Chapter 2

## Maximizing Your Savings

So, what is expected by the executive team to enable procurement to have the maximum impact possible on financial results?

It is the lack of flexibility, visibility and control that is often been the thorn of procurement's efforts in aligning with finance. To demonstrate this point, a recent study by the consulting firm Protiviti shed some light on this very dilemma. Among the key findings from Protiviti's 2017 Procurement Survey found that close to half of finance leaders believed that 20% or less of procurement's savings drop to the bottom line. In addition, most procurement and finance leaders rate the sourcing process as less than "very effective."

Moreover, the primary causes of savings not dropping to the bottom line were budgets not being enforced and "savings" were being spent in other areas, demonstrating an inability to adjust for changes in needs or specifications. Without proper flexibility, visibility and controls, adjustments to budgets cannot be made, increasing the risk of saving being diminished. So, what can be done other than kick and scream about the obstacles? These are the times to refocus your objectives.

Below you will find a series of steps to increase your due diligence towards eliminating the losses on savings.

Remove the Noise

The first and most important step is to move procurement away from being a transactional based function being focused purely on moving purchase transactions though the organization.

Value will never be realized if procurement continues to function as an order processing role. Simply taking the traditional approach to automate procurement is not always the best solution. Introducing technology that is focused on automating what the procurement function does is not the way forward. It is a very short-sighted view of what is required to move procurement away from a transactional environment.

Do Not Focus on Automation

The focus should be placed on automating the buying process from a user / departmental perspective. The user needs to focus on the specific details of any purchase: if procurement is involved, in a direct line of the process, this will become a very inefficient purchase process.

This automation can be achieved with either the right investment in procurement technology (platforms enable users to buy goods and services without involving procurement staff.) It will ultimately be achieved through outsourcing a significant proportion of the indirect spend activity to an outsourcing company.

The key, whether insourcing or outsourcing, is to ensure you are enabling end users to get exactly what is needed quickly, easily, while remaining compliant with procurement policy. The benefit will be found in their not having to understand the intricacies of procurement related policies.

Procurement staff should not be concerned with the buying and receiving transactions. These need to be automated and the primary concern of the departments falling to their need for the products or services.

It should be noted that, excluding strategic spend, over 60% of purchase transactions made are repeated, either with the same specification or with minor changes to specification. Knowing that information, why would or should procurement be involved in these transactions? The procurement team only needs to be able to monitor and report as needed on the flow of purchasing transactions. Ensuring that policies are adhered to and there is the appropriate supplier selection (strategic suppliers, approved suppliers, and competitive bids for example.)

Address Procurement Strategy

This step follows the initial step, to remove the noise, since it is impossible to strategize if daily procurement transactions are interrupting this process.

Having removed the noise, it is now possible to place the procurement role's emphasis on strategic activities. This opportunity removes the buyer from being tied to lesser productive activities such as transactional or compliance-focused tasks. Placing the emphasis on procurement initiatives that correlate with the strategic goals of the organization should become the new norm. After making this part of your daily routine, you will begin noticing an overall improvement in benefits across the organization in terms of financial performance.

Where is the Focus

The focus on strategy means the procurement team is now operating in a command and control role, as opposed to service role. The areas of focus will depend on the nature of your business, however there are often common areas of strategic opportunities and development of plans:

\- Analyzing and quantifying value chains

\- Supply chain optimization

\- Securing competitive suppliers for Indirect Spend categories

\- Risk management and governance

\- Building strategic relationships

\- Innovation, encouraging suppliers to put forward their own innovations

\- Optimizing organizational processes and driving improvements

\- Managing money well. E.g. payments or organizational efficiencies

\- Defining best practice across the entirety of the supply chain

\- Addressing ethical business and supply chain practices

What do not they focus on?

Getting the Work Done

It is not about the procurement function. It is about the wider organization, within which they are a key player. Yes, procurement's work will get done, however this will be in context of the wider organizational benefit and P&L impact.

**Supplier Optimization**

The key is focusing on how to optimize the supply value chain. Engaging with suppliers to propose ways this can be achieved is an important step. Let them do their share of work to be a more effective supplier and better business partner.

What can they do to impact?

\- Lead times

\- Costs (or make you more profitable)

\- Social responsibility factors

\- Returns

\- Risk

\- Cashflow

In addition, of course, the procurement function is to ensure the ongoing supplier relationship remains strong. Being mindful of policies being followed and each supplier having been appropriately selected should never be far from your focus.

However, individuals in the procurement function cannot be experts on all aspects of operations.

They can, though, be the expert on how the organization is affected by supply in their specific operational category. Having a true understanding of the end-to-end impact on their category of products or services within the organization (the value chain.)

Do Not lose Focus on Costs

It is important, when shifting the focus of procurement from transactional behavior, that the core delivery on cost savings and focus on P&L is not lost.

Procurement has always held a significant and important role in managing costs across the organization. Any procurement initiative should reduce the cost of doing business compared to the previous financial year and impact directly on the P&L. Avoiding inflationary direct costs for each category, as well as any associated increase in costs across the business, is a key objective.

Payment terms, inventory and capital spend are also key areas for focus. There is again an overall impact on business and risk analysis is essential: for example, if reduction of inventory results in sporadic out of inventory events then the cost associated with this may far outweigh any benefit.

Procurement Needs to Deliver on Savings

This is wider than the purchase value of the product and service. For example, it may be that changing the way goods are supplied or packaged has a significant impact on overall organizational expenses.

It is also not enough to include contract terms or pricing schedules. It is essential to ensure the business benefits from these areas: what is the point of agreeing to price breaks if these are never actually implemented because the organization is unaware, they have exceeded an established volume threshold?

The point is that within every sourcing decision there are several relevant factors, of which price is just one.

The focus on P&L across the organization is key to any purchase. If paying a higher price for an item results in reduced overall costs, then this is a good purchase decision. The procurement function should not be penalized for an increased cost if this results in an overall positive impact on P&L. Taking account of all factors, across the organization, is key when quantifying them in terms of cost impact or revenue generation essential.

Quantifying Change

All things can be quantified in terms of their impact on the bottom line of an organization.

Procurement's responsibility is to ensure this is consistently done. Additionally, ensuring the savings are realized and applied immediately while being recorded is equally important to accurately building a P&L.

Whatever a stakeholder, in your supply chain or organization, brings to the table you must ensure it is reflected in monetary terms. You can quantify risks, innovations, and supplier preferences.

The procurement team should be held to account by showing numerical impacts as well as influences on the quality.

Do not allow softer factors to be used as a reason for change, unless those impacts on your bottom line have been quantified. Procurement reviews have historically only measured realized cost savings. In today's business world, there is a need to quantify and track many other aspects associated with the value chain of purchased products and services.

Spend Coverage

One of the reasons cited for poor performance in procurement's control of costs is spend coverage.

"Leading procurement organizations have up to 67 percent more reach and influence over their organization's spend than average performers". Simply put, it is the cost of supplying resources that largely determines an operation's fiscal performance. According to the AEP factors such as research, negotiations and results should be actively tracked to identify best approaches and develop ongoing strategies across all categories of spend. It is essential to gain insight and visibility into the detailed spending information to identify opportunities for improvement.

Procurement's involvement needs to extend to all domains of spend, ensuring competitive supply arrangements and get the best value from products and services.

Procurement will also need to develop strategies for strategic purchases, commodity items and one-off purchases. Whatever the spend domain a strategy to achieve best results needs to be developed and maintained.

For example, even salaries can be included: with the increasing use of temporary resources, consultancies and a contract workforce, Procurement's role can significantly impact on value derived from the workforce. Whether this is in terms of direct cost to the business or effectiveness of these resources, procurement has a role to play.

Stay Current

Do not underestimate how important training is within the procurement industry and a constant review of the entire team's skills are necessary. This industry of procurement is a dynamically changing environment that must be kept up to date, from a knowledge standpoint, if you are going to positively impact the P&L.

Whether it is legal, environmental, or technological change it will impact on the bottom line of the business. Procurement is in a unique position to ensure change has the maximum financial impact. It is therefore obvious they need to be aware of both internal / external changes and planning in order to be effective.

Internal change

For example, looking at an internal change let's take a simple decision made by a marketing department to begin using only electronic distribution of brochures. Prior knowledge would enable procurement staff to manage the current paper-based suppliers, as volumes dramatically fall ensuring that costs do not significantly rise. Plus, it would enable procurement to engage with potential suppliers of the electronic systems software to ensure the most beneficial supply arrangement is achieved.

External change

An external factor example could be the changing landscape associated with social responsibility legislation and how this might impact on supply chains. As the emphasis is increasingly placed on organizations to know more about the origins of the products and services they are purchasing, it might be more beneficial to source only from certain regions or countries. Or, if purchasing from regions of higher risk of non-compliance, there may be additional costs to factor into the business decision associated with effective monitoring and risk mitigation associated with suppliers in these regions / countries.

The key point is the organizational changes and change within the operational environment of the organization each have an impact on procured goods and services. Procurement is a key resource for assessing the impact of change and managing the impact on P&L associated with supply of goods and services.

The key steps to remember in this process are:

\- Remove the noise

\- Address Procurement strategy

\- Focus Procurement on supplier optimisation

\- Do not lose Procurement's focus on costs

\- Keep Procurement up to date

Impacting on all five of these areas will ensure your procurement is more effective and viewing the P&L impact from investments in procurement as a function.

If your procurement workflow remains as a transactional resource, then you are potentially missing significant and sustainable impact on the P&L. 

# Chapter 3

## Managing the Procurement Process

The goal of procurement savings can be developed in several ways within a business. These savings are built around reduction of costs, improvements to supplier terms and decreasing product pricing.

Effective workflow management is crucial to building business profit. And if you want to consistently ensure your bottom line is always on the plus side, that means procurement savings need to be a priority. Procurement costs should be kept as minimal as possible to ensure profits are as high as possible and maximized to their limits.

Ways to accomplish these savings are listed below:

Reviewing Supplier Terms

Ensure that a Master Agreement exists for all the suppliers. Discuss your supplier's options for procurement savings created by altering your purchasing patterns. This may be as simple as a slight increase in purchases automatically triggering higher discount rates.

Consolidating Suppliers and/or Delivery Cycles

Create savings in delivery charges and costs of accepting those deliveries. Processing the purchasing documentation and invoice processing timelines will also impact labor expense efficiencies.

Consolidating Purchase Order Requests

This step reduces delivery costs and purchasing documentation.

Reviewing Purchasing Requirements

This ensures only necessary purchases are processed. Reducing excess costs and storage expenses is a good way to ensure a company attains procurement savings.

Purchasing from Agreed Catalogs

Ensure only one brand or type of product is purchased. Duplication can be expensive and unnecessary. Increased spend from one supplier will lead to improved discounts.

Reviewing Inventory Levels

Inventory left in a warehouse can be viewed as lost capital. It is an expense of money, labor, and square footage to store products. And unfortunately, products can also expire, deteriorate, and/or become obsolete due to standards on technology.

Reviewing Specs

Is it possible to buy a lower spec that will do the same job?

Review Replacement Strategies

Renew items only when necessary and not as a routine replacement process. Factor the cost of waiting for a replacement and build that into your decision. It then becomes necessary to replace an important machinery part regularly, but it is not necessary to replace most lights before they fail. The same premise as preventive maintenance.

Ensuring Correct Management Controls Are in Place

Are the right people ordering the correctly specified products for the job? This should cut down on excess or incorrect purchasing.

Training

Train the staff on cost-effective purchasing and encourage them to save money whenever possible. Computerizing the purchasing process by linking the purchasing system with the inventory and accounting systems is an efficiency gain. This not only saves in staffing costs; it also reduces human errors. Using e technology to be quicker and cut down on communication costs. This also enables purchasers to access supplier catalogs and enhances the choice of products that may lead to purchase savings.

Centralize Warehousing Operations

If managed correctly, can provide ideal savings. Good management of the Purchasing Department is crucial to a profitable company and procurement savings can only be beneficial. There are a considerable number of ways to make procurement savings and all staff should be aware trained in best purchasing practices.

Streamline the Negotiations

The buyer should enter negotiations with a supplier having specific objectives and goals. Never enter a negotiation unprepared and know the outcome you have defined while being fully aware of all possible obstacles. Without those objectives there is a strong likelihood you will concede benefits of price, quality and / or service.

The objective of the negotiations should include more flexibility and less rigidness. Having made that statement, negotiators should ensure they do not deviate from objectives and allow themselves the freedom to negotiate terms related to areas not previously planned as part of the discussion.

\- _Know your position._ Be prepared to speak to your needs and reasons for them.

\- _Know the temperament of the people you are meeting_. This is helpful in adapting negotiation tactics to the situation.

\- _Do your homework._ Gather as much information on the person you are meeting as possible. You want to know what makes them tick. Never let anyone have more details or information about your business than yourself.

\- _There's always value in letting the other person speak more than yourself._ It is a great tool and allows you to learn a lot simply by listening. By observing, you will often learn many of your questions in an informal way which provides you time to consider follow-up topics.

\- _Mirroring._ Not in an overtly obvious way, but in more of a subtle nuanced manner. When used correctly, you build trust quickly and people feel more inclined to share information.

If you are unfamiliar with the term "mirroring", please take the time to research how it can become a skillset.

Work hard and never let your ego get the best of you or the situation when you are having a negotiation or business meeting. In the internal business meetings, you will still be negotiating in different ways. These meetings are different and should always include two themes: Hold your confidence and it will develop trust. Trust is the cornerstone of every negotiation.

Establish the trust through confident eye contact and not letting anyone see your nerves. This does not mean questions should not be asked. Ask away and drill down from a point of authority. That vendor is there to win your confidence and business.

Always be respectful in dealing with others whether formally or informally. This should go without saying. Remember you are there to achieve a specific goal. Do not allow an emotional response to another person stand in the way of meeting a goal. 

# Chapter 4

##

## Vendors vs Suppliers vs Partnerships

Placing all your supply needs into one vendor is rarely a good idea. If a given vendor has a mechanical failing, fire or a strike is declared, you are left in a position of your business suffering as well.

A good rule of thumb is always maintaining backup vendor information and not hesitating to let your vendors know you are prepared. They will appreciate your planning and openness in the event of a potential service disruption. In the same way as other relationships, vendor relationships are built upon trust, respect, and ongoing communication. From the start, vendors should be given pertinent information and clear expectations relating to services and purchase levels. Educating the vendor on your business needs and goals will provide critical insight into your business'

ongoing objectives. These steps build towards developing a strong partnership that allows you to focus on core business competencies – which is the goal. Reliable vendors desperately want to build strong partnerships to merge your needs into their solid business plan. When your supply needs to align with vendor performance, your partnership will be successful. When they do not, you will need to either focus on realigning them or choose a new partner.

During the onboarding process, look for opportunities to include vendors in meetings with yourself and the affected department heads. Internal departments can absorb portions of the workload by assisting vendors with becoming more familiar with the functions of your business. Often those knowledge transfer require reasonable access to all your department heads who will be involved in a vendor's services. Through effective communication, your suppliers can gain a clearer understanding of how your business operates. The "what" can be observed easily; knowledge of the "how" is less apparent and can be obtained only through a vendor's integration with an association staff. Trust a vendor's advice and judgment on what they know best in their business.

If you cannot trust a vendor, find a new vendor.

While it is the vendor's responsibility to become familiar with your needs and goals, your business should make the effort to understand the internal workflows of the vendor. Being familiar with the full range of your vendor's services is extremely beneficial to short-term requests, increases in inventory levels or short-term changes. It pays to know what your vendor has in his or her arsenal.

How often do you speak with your primary vendors? We should stay in regular contact and find a reason to touch base. Open communication between yourself and a vendor will lead to dialogue, which leads to the building of a relationship that enables you to consult with that vendor as a knowledgeable advisor. We all work hard to maximize our internal resources. When was the last time you added staff without major justifications? Vendors can be assets by relying on their experiences to guide your business in making informed decisions. The positive effects of treating vendors with respect for their knowledge and skill will show in the value they bring to your business.

Vendors are no different than any of us; Their motivation for excellence is increased when they feel they are treated with respect, as equals rather than subordinates. Of course, as the cliché goes, trust and respect should be earned. By the time you start working with your vendor, a mutual trust should be well established through preliminary meetings and reviews of the vendor's previous work. The saying "a friend of a friend is a friend of mine" is something to be considered. Vendors who have earned the trust of peers whom you respect are likely deserving of your trust as well. It is always a good idea to first consider colleagues for recommendations of successful vendors.

Your approach to vendors should be part of a strategic plan

\- Do not hesitate to be a demanding customer if you are being reasonable with your requests

\- Clearly outline your timelines, quality needs, and expectations

\- Hold your vendors to their agreements

\- Be certain to remain competitive and let them know you never expect to pay higher prices than other customers

Along the way, continue to let the vendor know of your business growth and/or declining cycles.

Remember they are managing internal par levels to balance your business needs. If you catch them off guard with an unexpected volume, it can harm the vendor. Conversely, there will be times when you will need to replace a supplier because you have outgrown them, and they cannot meet your new expectations. Before the abrupt move to drop them, you might try to help them change to keep up with you. Throughout a partnership, there are significant investments of time, resources and learning curves that need to be considered. If a vendor save is practical, it may be worth your efforts to investigate further.

Developing good relationships with suppliers is not a complicated process. Be communicative, tell them of your needs and standards, treat them fairly, be demanding, be loyal and pay them on time. It is as complicated and easy as that... 

# Chapter 5

##

## Inventory Management

A simple definition of inventory management is a collection of processes and practices intersecting with procurement or supply chain management. An extended explanation is that it is a means of optimizing the inventory of a business or procurement team to facilitate uninterrupted sales, procurement, production, and service without compromising cost. There are four primary components applied to inventory management. The first one is supply chain or procurement management - the other three include:

Inventory Control

The bulk of inventory management involves inventory control. It involves all the coordinating and supervision of the inventory. Each of the items in the inventory need to be maintained until it is time for their usage, so it also includes the storage and record keeping of the inventory. So, if a product requires being kept at a certain temperature in order to maintain its quality, any actions to ensure that that happens would be a part of inventory control in the management process. It may also include purging old inventory, such as items damaged or simply no longer needed. All actions in inventory control, however, need to be accounted for just like the inventory itself.

Demand Forecasting

Demand forecasting basically is estimating the state of the market as it relates to inventory, and procurement based on current information. This is something that procurement teams already use as a resource for negotiating, as supply-and-demand can dictate prices for anything in the economy.

A higher demand often means prices are lower (usually) and businesses will often wait until that happens before purchasing frequently used items. Inventory management identifies exactly what those items are and the frequency in which they are used – telling you how often supplies need to be re-ordered, replenished. When used correctly, demand forecasting can help prevent such supplies from running out by setting up a purchasing cycle that coincides with those points of high demand.

Reverse Logistics

The final component is reverse logistics, which is the flow of unwanted or surplus products back into the supply chain for reuse elsewhere. You should not expect the ability to return customized or fabricated items unless there is a manufacturer's defect. If you are wanting to return an operational purchase, you will incur a "restocking fee" that typically runs anywhere from 20-40%

depending on the supplier. Rather than eating the cost of the excess inventory or wasting it, a business can resell the items to other businesses that typically have similar uses. This could be within the same industry, a competing vendor or recycling centers. It could also include other departments in the same company, depending on what those items are.

Building A Stable Inventory

To build a stable inventory that inventory management can be applied to requires understanding how products are being procured. If an item is only rarely used and/or has a short shelf life, it makes no sense to try and build up a supply of it. Likewise, an item constantly used at rates that are almost too fast to keep up with will not be something that you can regularly carry in your inventory. Just because a product is used does not mean it is something practical to keep around for a while in mass quantities inside your warehouse. The things needed to build a stable basis for inventory should be 1) regularly used, 2) shelf stable, and 3) budget-friendly even in large amounts. Even if there is a little bit of surplus in between orders, it is not enough to be considered wasteful.

Monitoring Existing Inventory

Inventory management requires that whatever inventory you have be monitored. You cannot do much of anything with the inventory if you have no clear idea of what is stocked and the item activity. Taking the time to closely monitoring your inventory helps make it possible to manage and ensure the continued quality of the items. Active monitoring can be extensive and even a bit overwhelming, depending on the size of your inventory. However, there are a few things that can make the process easier. Below you will find strategies to assist with your process review.

Simplify Things

A complicated system is likely to be more of a hassle than it is worth. Simple systems that keep a running total of what has in inventory and where it is located are sometimes all you need. Most inventory monitoring systems are digitally automated, so all you need to do is scan a barcode or press a few buttons and the computer software does much of the work. Installation and product data entry into a system are often the hardest part and / or the most time-consuming aspects to implementation.

Get the Experts Involved

Sometimes, you need to get someone who knows what they are doing. This is like any business hiring managers for their staff. Along those same lines, you can hire managers for your inventory.

These are usually people whose job is to actively monitor and maintain inventory items. They already know how to operate software associated with inventory management, organize products, and interpret information used in demand forecasting. Even if additional staff are not hired just for managing the inventory, current staff who are given the task of handling inventory should still receive the appropriate training

Use the Right Tools

Digital monitoring systems are just one of the many tools used to monitor inventory, although many of them will be based on digital technology. Most of the software used in monitoring and management are integrated with other programs and systems used in procurement, such as a Point of Sale (POS) and automatic ordering program. Confirming you are using the right tools can significantly make things easier and help prevent any problems from arising.

Organization and Storage

Maintaining inventory also involves tactics regarding organization and storage. These actions ensure the other parts of inventory management will work as intended. It can be a difficult challenge to manage something when it is all in one great big mess. Addressing organization and storage largely requires doing two things.

Categorization

Dividing the items in your inventory by category makes it easier to track and locate them in the overall inventory. Categories will group things based on similarities or identifying features, like material type or usage. There can even be further options to categorization within those groups which allow for tighter organization. For large diverse inventories, categorization is a valuable tool that keeps everything straight. However, that does not mean smaller inventories cannot benefit from categorization; it all depends on what is in the inventory.

Record Keeping

Just as documentation serves a purpose in other areas of procurement, so does it in inventory management. Organize record keeping, in any form, allows procurement agents to calculate their inventory levels and effectively monitor information. This can be done with an automated system, like the example discussed earlier, or manual one where data is entered in by hand. Records should include information regarding descriptions, when it was acquired or used, and its quantity. They should also be evaluated regularly to ensure that the data accurately represents what is in the inventory.

A few of the more commonly used inventory management strategies include:

Conventional Manufacturing Strategy

Conventional manufacturing strategy is the tried and true method that has been used with assembly lines and factories for decades. It primarily involves the usage of inventory, with each area working with its own specific inventory and their own segment of the work. Nothing is left to idle--meaning production is continuous--and inventory levels are mostly synchronized throughout the line. The strategy does have a major flaw, as any hiccups in the production line can potentially through the entire system off. Bottlenecks and low inventory levels can quickly bring the entire system to a screeching halt, causing significant delays for the business.

Warehouse Management Systems (WMS)

As the name suggests, WMS is best used with warehouse inventories. These are digital systems that automate the entire inventory process, and simply need staff to complete tasks and enter data. A WMS can be incredibly beneficial for those with large inventories, as they help to reduce inaccuracies that are common with high product quantities. This can in turn reduce waste, operation costs, and extend the procurement cycle rate. There are multiple companies that create WMS software, so there is quite a few options on the market for businesses and procurement teams to choose from.

Just-in-Time (JIT) Method

The JIT method takes conventional practices and tweaks them a bit to create a better consistency.

Rather than keep inventory levels up to meet the demands of production, they are kept up to meet customer demands. Production rates do not always match up with customer demand, which is how instances of surplus develop with the final product a business produces. The JIT method balances things out a bit, reducing product waste, storage and maintenance costs, and profit lost due to out of sync levels. Using this method requires paying close attention to the inventory levels of production materials, the market for the product, and resource availability from suppliers. The entire line can then stall due to inaccurate information and the inability to keep up with demand.

Economic Order Quantity (EOQ)

Another method that considers customer demand, EOQ tries to make that demand constant and synchronizes inventory depletion to it. As the demand drops, so does the inventory; they both reach zero at the same time, leaving no excess or unhappy customers in the process. Just as with the JIT method, EOQ requires careful monitoring of factors to ensure that levels are accurate for the sake of the strategy's success. There is a lot of pressure put on the timing of things so problems like delays or mistakes can be especially detrimental.

Material Requirements Planning (MRP) Method

MRP heavily relies on the usage of software and applications to accurately manage inventory levels. There is an intensely detail and constant analysis of information related to the inventory and procurement that generates plans designed to perpetuate production. For example, determining par levels and when to order new inventory of a product so that the supply never dips below the minimum amount required to keep things operational. The software and maintenance, not to mention the installation, of MRP software can be expensive. The value that they have over time in accurately allocating procurement, inventory, and production timing can justify the cost should it ultimately be a viable option.

Push or Pull Model

Push and Pull models address inventory based on two different approaches to demand. A pull model is dependent on customer demands and is largely another name for the JIT method of inventory management. The push version excludes the current demands of the customer for products and instead uses past data to predict what it _will_ be soon. It is highly dependent on successful demand forecasting and the accuracy of records and data. There is also a significant amount of risk attached to the push model, as miscalculations can lead to expensive write-offs and waste. Some use a hybrid version of the push and pull models to create a system that combines the best features of both into a highly sophisticated system. In those instances, it is referred to as a lean inventory strategy and it allows for adjustment of forecasted data to provide more accuracy

Inventory & Warehousing Mistakes

Warehousing operations have grown more complicated and diversified with the changing needs of business. The technology enhancements of inventory operations, customer expectation increases regarding delivery overall customer service reporting and general business competition place a strain on overall operations. Here are the top 10 warehousing mistakes many organizations make, and how you can avoid them to run a better business.

1. Lack of Inventory Accuracy

The most important responsibility of warehouse management is the accuracy of your inventory. Without using a warehouse management system or inventory management system, you will face serious challenges in your supply chain. Managing your inventory levels and ensuring accuracy between all your locations will not be possible without proper planning and software.

2. Failure to Optimize Picking Paths

Another common mistake organization make is poor optimization of order picking paths in the warehouse. The most variable aspect in your warehouse is the cost of labor, and it can impact your profitability. You need to be sure that your warehouse workers are operating as efficiently as possible. To make the best use of their time and energy, you should carefully study the location of your items in relation to their pick speed. You should place products that are often picked together in close vicinity to each other as much as possible. Achieving this type of analysis can be overly complicated, but with the right software packages you can resolve this challenge.

3. _Holding Excess Inventory_

A good practice when managing your warehouse is to reduce your inventory on a regular basis. When you hold excess inventory, you increase the chances that you have money stuck in inventory. Items that sit at the back of your warehouse can become obsolete and forgotten, preventing you from making profits off those items. Reduce the levels of inventory as much as you can to gain a leaner supply chain. You can do this by receiving large orders in smaller batches.

4. Lack of Safety Policies

If your employees are constantly getting injured, they will need to spend more time off work or will work slowly to prevent their injuries from getting worse. If you try to cut corners or look the other way when there are workplace safety issues, you are making a grave mistake. Worker compensation claims can cost you a lot of money. Instead of waiting to apologize after an event like this, get proactive by optimizing your safety practices. Do your best to ensure that your workers are in a safe environment when they walk into work and take the time to keep them up to speed on current safety procedures.

5. Poor Housekeeping

Messy warehouses are not just hazardous, but they also obstruct the flow of goods and people, reducing productivity. Establish a housekeeping routine by regularly tidying up and cleaning after every shift. This will allow the next shift to be more productive as they begin working in an organized and clean environment.

6. Neglecting Goods-in-Process

It can seem overwhelming to dispatch customer orders on time, but this pressure should not cause you to neglect the goods-in-process aspect of your supply chain. To avoid neglecting this process, assign dedicated staff to ensure that it is effectively maintained.

Make sure that you have enough people responsible for receiving the goods.

7. Failing to Measure the Right Things

It is difficult not to be heavily engaged in the managing of your warehouse. That is the exact reason many organizations forget to measure less obvious functions properly by overlooking important performance indicators. One of these operations often forgotten is the goods receiving process. Good warehouse management means paying close attention to your entire environment, all the people involved, and every process associated with the operation.

8. Sticking to the Paper Process

With the modern world of resources, there is not a strong argument for using paper to document your workflow. There are too many technological options available to optimize your documentation. Embrace the technology available by installing effective software to manage data and inventory. It will also help gain increased visibility, so you know exactly where your products are always located, how much are on-hand in inventory and when you will need to re-inventory or burnout out an obsolete item.

9. Lack of Proper Staff Development and Training

Another substantial challenge in warehousing, among other industries, is the employee turnover and retention. When a worker leaves a business there is a significant cost associated with that loss. Employees leave employment for a variety of reasons, but one common reason is due to a lack of belief they are receiving the right amount of training and development opportunities to exceed expectations and grow. Employees not receiving training and development opportunities will also impact management. Without proper training, employees are more error prone. With that in mind, reducing quality and increasing inefficiency in the supply chain becomes management's issue. You should ensure detailed training plans, for each position, have been created and every employee has a career development plan or ladder specific to their goals.

10. Failing to be Ready for the Future

You will set yourself up for failure if you fail to plan. If your company is not constantly growing and evolving, it will eventually fall flat on its face. Although growth rates are different, depending on the industry and company you manage, you should still consider personal future growth plans. Ask yourself questions such as, how can we expand our current processes, what new technologies are available to help me be more efficient, and does our current infrastructure support growth?

Tips to Implement Your WMS

It is easy to get excited at the prospect of improving your warehouse organization and management with a new Warehouse Management System (WMS), but there are a few important things to consider ensuring you are using this software as effectively as possible. Here are some tips from the experts to help you get the most out of your WMS, and how a third-party logistics provider (3PL) can offer this and much more.

Evaluate and Choose the Right WMS

The first step is choosing the right WMS for your needs. Unsure of where to begin? Here are some questions to ask yourself to help you narrow down your options:

\- What problems have you been facing in your warehouse?

\- What opportunities for improvement have you yet to take hold of?

\- Do you need to access data from multiple sources to gather an accurate inventory count?

\- Has your inventory grown to the point where you have difficulty locating items in your warehouse?

\- Are you struggling to create efficient and time-saving paths for your employees to retrieve and store items?

\- Which processes of your warehouse need improvement?

There are three deployment models to choose from with WMS. Here is what you need to know about each of them to help you choose the best option.

**On-Premise WMS**

In this model, the WMS is installed directly onto your company's system and you are responsible for sourcing and running the program. These roles include network infrastructure, power supply, servers, etc. You may also need to pay for updates in the future.

Hosted WMS

A hosted WMS is an onsite model with infrastructure requirements being leased as needed from your provider or a third-party. Although your WMS is remotely hosted, your business will still own the system's software.

Cloud-Based WMS

If you are familiar with Software as a Service systems (SaaS), cloud-based WMS is quite similar.

You can access the data from the software using your personal login, regardless of what computer you use. You own this software and can access it if the program has been installed on other devices.

Many WMS providers today offer cloud solutions as they are a safer and more efficient way to store information so managers can always have real-time updates without paying extra.

Build an Implementation Team

Once you have chosen the best WMS model for you, it is time to get the system in place and build your implementation team. Here are the people involved in the process:

Project Sponsor

This is the high-level decision-maker who requested the WMS and determines the scope of the project, budget, etc.

Project Manager

The project manager is responsible for daily activities related to implementing the WMS. They are the primary contact between the vendor and the company and will delegate tasks, create schedules, and monitor deadlines to make the WMS as seamless as possible for IT and operations teams.

System/Data Administrator

The person responsible for the technical aspects of the WMS will be the system administrator.

That individual will ensure the WMS integrates with the company's existing Enterprise Resource Planning (ERP) and the data is safely migrated from the current system to the new one.

Business Unit Leaders

These people are employees you assign from your operations team, IT, and warehouse staff, who will be part of the implementation process. They should attend meetings and daily activities and stay informed to train other workers later.

Provide Training Sessions for Employees

The provider of your WMS should effectively train your employees involved to ensure they are familiar with the system and receive hands-on support. These employees will become the internal experts to train and assist other members of your organization. Proper training is vital to ensure you are getting the most out of your WMS and streamlining warehouse processes.

Create a Communication Plan

Since implementing WMS can mean a lot of changes for each of your departments, schedule a company-wide meeting to explain this change. Without clear communication of how to use and access the WMS data, you will have confused or disengaged employees that do not know how to adapt. At worst, implementing without communicating could lead to an increase in worker turnover and slow you down, defying the whole purpose of your goals. Here are some tips:

\- Appoint spokespeople who provide updates to your teams

\- Market the project internally, explaining why this implementation is beneficial to everyone

\- Communicate in-person as much as possible

\- Create a dialogue and let your team weight in on their thoughts, questions, or concerns about the new system

\- Use multiple communication channels

Review Your WMS

Once you have implemented the WMS and a month has passed, it is time to evaluate. Have there been any issues with the WMS so far? Has it been helping you plan and budget better? How have the forecasting features and data collection helped you stay organized and improve customer service? Try scheduling a team meeting to review how everyone is doing and plan follow ups until everyone is on the same page.

WMS or ERP? Which is Best for You?

Choosing the right software solution to manage and streamline your warehouse processes is essential to productivity and efficiency. Without a proper management system in place, your warehouse cannot function in a way that works for your team and your customers. The two main options for warehouse management include the traditional warehouse management system (WMS) and enterprise resource planning (ERP). Although they have some similarities, these two systems are distinctly different and have their own benefits.

Here is what you need to know about each of them, and how to find out which is the best option for you.

What Is WMS?

As mentioned previously, WMS stands for warehouse management system. This system is used to manage the storage, order processing, and movement of inventory in your warehouse. It helps you track the progress of each item at each stage: receiving, picking, packing, and shipping. With this real-time data, you can optimize based on historical trends and information. You can make better decisions during peak times and slower times. With WMS, you can reduce shipping errors, which account for 54% of returns. It also establishes a seamless link from order processing and logistics to the physical movement of the product out of the warehouse. The better WMS systems will allow for seamless connection of e-commerce platforms, marketplaces, accounting platforms, shipping carriers, and more.

Pros of WMS:

\- Adaptable to the needs of each business

\- Focuses on real-time operations—changes and grows with your inventory

\- Makes your warehouse efficient and productive with multi-functional components

\- Reports help you predict your inventory needs, even during high peak events

\- Cost-savings

\- Lower risk investment

Cons of WMS:

You will need to set aside time to update and set up your warehouse locations with the WMS.

Keep in mind the WMS only covers your order fulfillment, inventory, and warehouse management.

What Is ERP?

The second option for your warehouse management is an enterprise resource plan. Both small and large businesses can use this to stay competitive and efficient with the way they store and access information. ERP seeks to achieve this by streamlining all processes and information into one solution. WMS focuses on the warehouse inventory alone, while ERP automates every department in your organization including inventory, service, sales, human resources, purchasing, customer relationship management (CRM), material requirements planning (MRP), financials, and products.

ERP contains some of the same effectiveness as WMS, but they do consistently lack the thoroughness. With ERP you can track inventory trends and receive information about items status' from picked, packaged, and shipped. The focuses of the ERP are to create a streamlined flow of information between all areas of business.

Pros of ERP:

\- Streamlines all platforms

\- Makes the warehouse functions seem like a "free bonus" since it includes all processes

\- Ability to automate different aspects of your business—increases productivity and efficiency

Cons of ERP:

\- May cost more in implementation and in the long-term

\- May not be as flexible in terms of sharing data with vendors

\- Lacks an in-depth look at inventory and reporting to maximize warehouse space

\- Rigid and transactional because they operate across multiple departments

Which Management System Is Right for You?

The benefit of having two options is that you can choose the right system for your goals, challenges, and budgets. A few aspects to keep in mind before you choose the right system for you include the following.

Long-Term Goals

Consider the long-term goals of your business. What is required to get you there? Define the measurable outcomes to achieve and the functional requirements your business needs to get there.

Technical Requirements

You should also consider the technical requirements for storing and moving your products. What equipment do you need to integrate? This assessment will help you avoid problems related to your storage and delivery processes.

Return on Investment

Finally, you should calculate the return on investment (ROI) of each system by matching the costs of your long-term goals and needs to the implementation and integration costs. Consider how the increase in productivity will affect your bottom line. Each operations area of your business will be affected by your software, so it is important to carefully assess the pros and cons to make the best decision.

Internal Inventory Controls

Fence and Lock the Warehouse

The single most important inventory control is simply locking down the warehouse. This means a physical fence around the inventory, lock the gate, and only allow authorized personnel into the warehouse area.

Organize the Inventory

It may not seem like control to simply organize the inventory within the warehouse, but if you cannot find it, you cannot control it. A fundamental basis for inventory internal control is numbering all physical locations, identifying each inventory item, and tracking those items by assigned locations.

Count all Received Inventory

Do not take the vendor's word of the delivered quantity stated as being correct; Count the inventory before recording it has received. This keeps an error from being introduced into the inventory while reminding your vendor of quality matters.

Inspect Incoming Inventory

Verify all incoming inventory is undamaged and correct. All items failing inspection should be immediately returned and accounts payable notified of returned items being ineligible for invoicing.

Tag All Inventory

Every item of inventory should be identified with a tag, item number, description, unit of measure and quantity. Without those steps, the inventory items can be miss-identified and ordered incorrectly.

Standardize Record-Keeping for Inventory Picking

When an item is picked from a shelf in the warehouse, for use either in a production area or direct sale to customers, have a standard procedure for recording those transactions as soon as they leave the warehouse (which is easier if there is a warehouse fence, and inventory can only pass through a single controlled gate).

Sign for All Inventory Removed from the Warehouse

If inventory items are being removed from the warehouse for reasons outside of the normal picking process, have the person removing the inventory sign for the removal, so that there is a record of who is responsible.

Identify Excessive Requisitions and Item Returns

Review those items for clarity and understanding of why the activity has been skewed. Is the product quality insufficient? Has the production schedule changed?

Conduct a Periodic Obsolete Inventory Review

The warehouse can eventually become inventoried with obsolete inventory which is no longer used. Those items cannot be used which requires high storage costs and interferes with valuations of your storage areas. Partner with other departments to periodically review the inventory records to determine which items should be sold off or eliminated.

Conduct Cycle Counts

Have the warehouse staff conduct frequent counts of areas within the inventory and investigate any errors they find. This gradually improves inventory record accuracy.

Investigate negative-balance inventory records. If the inventory records show a negative inventory on hand, there is a transactional flaw that creating a negative balance. This example should be used as a flag to initiate a product audit.

Record Waste

Do not simply discard waste or expired products when identified. If you do, the inventory tracking process still identifies those items as being in inventory, resulting in an incorrect inventory.

Instead, create a document to track wasted items regularly.

Inventory Management Best Practices

Here are a few best practices to help you manage inventory effectively.

Use the FIFO Approach

The FIFO approach stands for "First In, First Out". You should sell your goods in the same chronological order as they were purchased or created. This is extremely important if you are selling perishable products like food, makeup, and flowers. The best way to apply FIFO in a warehouse or storeroom is to add new items from the back so older products are the first items to be selected.

Fine Tune Your Forecasting

Accurate forecasting is vital to ensuring you make the right decisions about the inventory and are always prepared if there is an issue. You should base projected sales calculations on factors such as historical sales figures, marketing trends, predicted growth, the economy, promotions, marketing efforts and more.

Identify Low-Turn Inventory

If you have inventory taking up space in your warehouse because it has not been sold in the last six to 12 months, it is best for you to stop inventorying that item. Instead, consider different strategies to clear the space of that inventory. You can offer it at a special discount or promotion.

Excess inventory wastes your space and capital, so it is best to get those items moving as quickly as possible through creating burnout lists for prioritized rotations.

Use Inventory Management Software

Inventory management software can help track products in real time and provide accurate counts for your customer's record of current information. It also helps provide information on items located in the warehouse which allows you to make the best decisions for organizing and route planning.

When choosing a good inventory management software, you can expect to reap the following benefits:

\- Reduce costs, improve cash flow, and boost your bottom line

\- Track inventory in real time

\- Forecast customer demand

\- Prevent product and production shortages

\- Prevent excess inventory and raw materials

\- Easy inventory analysis on any device

\- Accessible from your point-of-sale (POS) system

\- Optimize warehouse organization and employee time

\- Quick and efficient barcode scanning to speed up intake

\- Multi-location management (tracking inventory across several locations or warehouses)

Audit Your Inventory

Even with the best inventory management software and strategy it is still important for you to periodically counter inventory to ensure inventory matches what your records reflect. There are different techniques for auditing your inventory including an annual year-end physical check when every single item is counted. You can also do an ongoing spot check which can be useful for products that are fast moving or have inventorying issues.

Hire an Inventory Controller

If you have a lot of inventory it may be in your best interest to hire one person and make them responsible for managing it. An inventory controller will process all purchase orders, receive deliveries, and ensure that everything that enters your warehouse matches what was ordered.

Remember Quality Control

No matter what industry you work within, you must ensure all products are in great condition and work properly. Quality control is a vital part of inventory management because you do not want to be sending your customers defective items. Ensuring quality control can be as simple as having your employees quickly examine the items during inventory audits. They should follow a checklist for signs of damage and correct product labelling to make sure everything is in order.

**Get Inventory Management Help from Lean Supply Solutions** Proper inventory management requires the right processes and tools. Simply tracking everything with pen and paper will consume your time and produce serious errors. Setting up a quality inventory management system will save the hassle, money, ensure accuracy, assist prepare for potential issues, and improve the way your warehouse operates. When you partner with a third-party logistics provider (3PL), you will have incredible cloud-based inventory management solutions and the manpower to run your warehouse for better optimization.

An Inventory Overview for Non-Inventory People

Sometimes we benefit from taking a step back for a larger view of the scenery and business landscape. Not having enough inventory means running the risk of lost sales, while having too much inventory is costly on several levels. Those reasons are why an efficient inventory control system is critically important. Inventory control is not only about managing "boxes" going in and out of your business; it is also about managing your working capital.

Understanding Your Inventory Levels

It is a reality of business you will experience a shortage of products or an out-of-inventory situation. Reacting with an over-order that exceeds planned usage undermines business profits. Yes, over inventoried items will create its own set of problems. The longer an item sits unsold in inventory, the greater the chance it will never sell, meaning you will have to write it off or discount it deeply. It is an unfortunate fact of business that products go out of style or become obsolete while perishable items spoil. Items lingering in storage could also become damaged or even stolen. Additionally, excessive inventory must be stored, counted, and handled, which adds ongoing costs to your operation.

When considering those over inventory issues, it is also important to keep in mind the best business practice of viewing your supplier as a business partner. Uneven ordering cycles place strain on both your business workflow as well as your supplier attempts to plan for your orders (THEIR working capital). Be a good business operator and partner – establish viable minimum and maximum par levels tied to consistent ordering cycles.

Accuracy in Tracking

Start with educated projections of how much supply you will need and when you will need it. The best gauge is your ordering history. If you have sold 100 items per month for the past 12 months, chances are you will need 100 this month. Does your industry experience a "peak season"? Have those peak periods been identified with isolated inventory activities? Have any slow seasons also been addressed? After establishing a baseline for usage, you have now become ready to build out a physical inventory.

Opportunities will always be available for miscounts during receiving, ordering or theft. In the F&B and manufacturing industries, you will also account for yield and/or waste during production. Invest as much time as needed to avoid the dreaded pendulum of ordering cycles.

Pareto Rule and Priorities

Large inventories may present challenges to track each item regularly. Prioritize the most expensive and / or the most active of your inventoried products. Reflect on the Pareto Rule of 80% demand being generated by 20% of your items. Within inventories, there is a modified version addressing strong, moderate, and slow product activity. Spend most of your efforts on the 20% of strong selling items by forecasting usage, reviewing on hand levels, and reordering more frequently. The moderate selling 30% of items, will typically generate 15-20% of sales. The slowest-selling items account for half the items you inventory but may only generate 10% of your sales.

One of the worst things you can do in business is to turn away customers — people who are ready to give you their money — because you have run out of the item they want. Out-of-inventory items not only cost you money from missed sales, but they may also contribute to losing customers, as people decide to take their business somewhere that can satisfy their needs.

Location Specific Assignments

Proper inventory management depends on knowing the best place to put inventory and being able to easily locate it. Too often businesses store their inventory in places that are not labeled or lack clear means of identification. This is especially unfortunate since labeling inventory locations can be done easily with a little planning while only investing in inexpensive labels.

Backup Planning

An efficient inventory control system tracks how much product you have in inventory and forecasts how long your supplies will be based on sales activity. This allows you to place orders with enough lead time to prevent out-of-inventory situations. Purchasing and/or inventory control SOPs do not include "Tom" or "Kathy" as part of the workflow. The adage "the best defense is a good offense," applies in this case. One employee should never be the sole holder of essential operational knowledge. Effectively cross-train multiple employees to minimize the effects of a single employee's departure. 

# Chapter 6

## GPO - Group Purchasing Organizations

Group purchasing organizations (GPOs) primarily exist for one simple, yet compelling reason: to help businesses interested in buying similar products gain leverage through combined purchasing power.

A GPO is a business created to leverage the purchasing power of a group of businesses towards obtaining discounts from common suppliers based on their collective buying power. For companies using Group Purchasing Organization services or GPO agreements (i.e., GPO

members), that leverage generates preferable prices and contract terms, saves time, and frees up internal procurement resources.

GPOs also exist to benefit suppliers, or the network of companies offering goods and services to member companies. For suppliers, GPO advantages come from having an expanded market share, increased access to industry insights and data and better buyer relationships.

**Group Purchasing Organizations Are Mainly Found Within These Industries** GPOs are found within multiple industries to maximize niche opportunities. Those industries include hospitality, healthcare, engineering and maintenance, foodservice nonprofit, and industrial manufacturing as examples.

These specializations are due to the sheer number of small- and mid-market companies occupying those specific sectors. GPOs allow the spend of these companies to combine for purchasing leverage, which increases their buying power.

**The Main Categories of Group Purchasing Organizations** There are three main types of group purchasing organizations: _Vertical Market:_ A vertical market GPO is focused on one industry or vertical market. For example, in healthcare markets, there are small- and mid-sized hospitals and medical centers joining forces to increase their purchasing volumes and reduce their costs.

_Horizontal Market:_ Horizontal market GPO members exist in many different industries, but typically purchase many of the same goods, services, and products to operate their companies.

_Master Buyer:_ A MB is defined by a single purchasing organization with established, substantial contracts for vendors and allowing additional companies to buy off those contracts. The automotive industry is an example of the master buyer model due to high level suppliers having access to the pricing contracts of large automotive manufacturers.

Organization Works

A GPO will develop, create, and manage contracts for services and goods. The GPO will also act as a representative of the buyers to handle any concerns, questions and/or requests to the suppliers.

How these GPO services work can be outlined in three steps.

_Step 1: Membership, Leverage and Savings Grow_

These GPOs create a membership base of companies targeting accessing to a GPO's existing agreements. The combined spend of these companies – and the acquisition of multiple customers at once – creates leverage. That leverage is what motivates suppliers to offer their best pricing and service levels to the GPO.

Companies have historically used GPOs to gain quick access to cost savings. Although still true, this traditional view of GPOs does not fully recognize the sustainable value that a modern GPO

provides. Savings diminish over time leaving a GPO constantly looks for ways to enhance value through their agreements and supplier performance.

_Step 2: Better Pricing and Contract Terms Are Produced_ With a pipeline of spending, GPOs are now able to source agreements with the best available suppliers – or those in a position to provide better pricing and agreement terms than existing GPO

members can negotiate on their own. Suppliers will often accept reduced margin opportunities because GPO membership reduces costs associated with acquiring new business.

The leverage of combined spend impacts the purchase of office products, safety supplies and other commodities. More robust and diversified GPOs can also increase procurement's spend influence in areas like HR services and IT. This spend is often referred to as an indirect spend. Indirect spend describes any company expenditures that are required for running a business – such as office supplies, temporary labor, and industrial supplies – but are not related to a company's products or services.

_Step 3: Continuous Improvement Further Mitigates Risk_ As members continue to use GPO agreements, contracts are constantly managed by the GPO. As more members join and more spend flows through the agreements, these GPOs can negotiate even deeper discounts and/or improved terms and conditions with suppliers. By this point, the GPO can further mitigate risk and create a path toward continuous improvement by engaging with multiple people at multiple levels throughout supplier organizations.

How Is a Group Purchasing Organization Funded?

GPOs are funded through different fees such as membership, administrative or an agreed upon combining of those primary fees. A membership fee is often structured as a single payment paid at the point of joining a GPO. The fee for membership can also be structured as an annual payment for access to their programs. It is not uncommon for GPOs to waive annual membership fees when members have reached pre-defined spend thresholds.

When comparing the benefits to the GPOs, it is understandable to learn suppliers always pay GPOs administrative fees. That funding, regardless of whether fees are flat rates or based on the amount of spend passing through the agreement, will be carried by the suppliers.

**Understanding the Value of Group Purchasing Organizations** Historically, group purchasing organizations (GPOs) have been primarily utilized within the government, healthcare, and higher education sectors. As one example, according to the Healthcare Supply Chain Association, 96-98% of hospitals in the U.S. belong to at least one GPO.

GPOs in the healthcare, hospitality and foodservice industries have grown substantially and GPOs are now looking to other industries for potential growth. Regulations are also changing the landscape of the potential use for GPOs, including the new Uniform Guidance procurement standards that went into effect in January 2017. Those standards promote the use of 'intergovernmental and interagency agreements' which may include the use of group purchasing contracts by the more than 30,000 non-Federal entities who receive grants.

Below are GPO guidelines along with aspects to consider while evaluating the benefits of leveraging them for your organization.

Q. What is a Group Purchasing Organization?

Group Purchasing Organizations (GPOs) are created to leverage the collective purchasing strength of their members in order to acquire goods and services at lower prices. GPO's are not resellers, but rather contract negotiators. Members of the GPO are entitled to purchase through these negotiated contracts.

Q. What are the benefits of participating in a GPO?

The primary benefit of a GPO is members obtaining better pricing on goods and services through increased buying power or leverage. However, lower prices are not the only benefit.

GPOs provide valuable "soft cost" savings by helping organizations standardize and streamline purchasing practices. Many are also a resource for procurement related consulting and advice.

Q. Are GPOs open to everyone?

Yes and no. Some GPOs accept all types of organizations, while others choose to focus on the needs of specific industries.

Q. What types of products and services are typically offered through a GPO?

This varies, but there are typically two common models.

_Category-Focused GPOs_ typically offer dozens of categories with varying levels of discounts.

These GPOs are built to be everything to everyone. They can include anything from office supplies, to hotel and car rentals, to software discounts. They are built to have as broad appeal as possible and are really designed for organizations that do little or no price negotiations on their own.

Compare to _Industry-Focused GPOs_ , which typically offer fewer and more targeted expense categories. These GPOs are built to address the most common purchasing needs of an industry; they offer much deeper discounts and usually have a much higher adoption rate. They are viewed by members as a strategic part of purchasing rather than just another 'discount program.'

Q. What is the membership cost and obligation?

These areas differ depending on GPOs. Some GPOs require an annual membership fee to participate, as well as an annual commitment for spend. Others charge no fee and require no obligation.

Q. How can I be sure a GPO will save my organization money?

That part is tricky.

Most Category-Focused GPOs simply offer a certain percentage off list price. For example, "15% off of shipping with FedEx." Calculating your savings here is simple; compare your current discount level with what is being offered through the GPO and see what is better.

Industry-Focused GPOs, on the other hand, provide savings in a variety of ways. This can include deeper discounts off list price, access to a targeted portfolio of highly discounted products and services, and special promotions to members based on meeting a collective purchasing volume. Some of these GPOs provide one-on-one consulting with members to help them analyze their current pricing and calculate, with real data, the level of savings they can realize. The best way to assess your savings with these GPOs is to work directly with one of their representatives to assess your own, unique situation and get a personalized analysis.

Q. Should I consider a GPO as part of our organization's overall purchasing strategy?

Finding the right GPO to participate can be a challenging component of your overall procurement strategy. You can provide thousands of dollars in savings to your bottom line and smooth out procurement processes and perhaps even address some unique regulatory requirements. Keep in mind all GPOs are not created equal. Be certain to complete a full review of available vendors as confirmation they are the correct alignment with your business needs, pricing, and delivery schedules.

Contract Analysis

Managing vendors can be a challenging task with procurement professionals are faced with a large quantity of contracts to manage on a regular basis. As a result, organizing the categories of vendor relationships can prove complex and time consuming. It is expected procurement professionals work across departments with a combination of one-time, short-term, and long-term contracts.

Contract Analysis for Vendor Management

Although many procurement professionals utilize a contract management tool, the manual analysis of the terms within these contracts tend to be complicated. The terms of contracts will cover length and duration, financial obligation commitment and other service required benchmarks. As a result, traditional contract management tools may not be robust enough to provide the insight required for procurement professionals.

**Contract Analysis for Compliance**

It is important to maintain clear records of terms within third-party vendor contracts. Any misses or oversights can place a business at risk for substantial fines. As a result, procurement professionals must consistently analyze the privacy terms within each contract, so that when regulations like these go into effect, they are aware of which contracts need to be amended.

For example, if a vendor agreement allows for the use of consumer data for marketing purposes, it may be in violation if consent has not been provided in writing.

Contract Statistics for Procurement Professionals

During an audit, conducted by either inhouse management or an external business unit, the ability to quickly produce vendor statistics is vital. Some of the more frequently requested contract types are: Purchase Orders, Fixed Price and Cost Reimbursable contracts. It will be important to have access to the contract agreements and terms of your key vendors during these audits.

The most common contract you will experience will be purchase orders. Since this type of contract acts as an agreement between a buyer and a seller for an exchange of goods or services, the agreed-upon payment terms must be reflected in reporting. These contracts also protect the seller which ensures payments are remitted in the correct timelines.

The buyer and vendor agree to a total project cost based on a scope of work. This is an example of a fixed price contract. In this agreement the contract provides protection of both parties, as the defined work must be completed to trigger payment. Should the buyer add a request outside of the original scope of work the seller can update the terms and charge accordingly. With a cost reimbursable contract, the buyer agrees to reimburse the cost of the materials required for the project after completion. These usually take place if the total cost of the project is unknown or difficult to estimate.

Without proper contract statistics, departments within a large organization may be affected by unexpected payments or mismanaged cashflow. For procurement professionals, utilizing a contract analysis tool that automates the categorization of vendor contracts is an efficient way to simplify the process and track service payments. 

# Chapter 7

## Cap Ex - Capital Expenditures

The right approach to cap ex procurement should be aligned with a company's project strategy.

There are several project models which can be applied: solid owner leadership, designated management by a contracted company and / or execution based on a turnkey agreement.

Owner-Managed Projects

If a business has the resources to operate on its own assets to develop an engineering solution and manage a capital project, an owner-managed approach to project engineering and management is an option. Under these conditions, procurement teams serves as a partner for the project management team, assisting with the assessment and management of project-related risks, outsource specialized tasks, and establish a project-related sourcing strategy that aims to leverage spending volumes as well as procurement activities beyond the particular project's scope.

**Projects Managed with the Support of an Engineering, Procurement, and Construction** **Management (EPCM) Contractor**

These projects typically involve an engineering firm and suppliers for the equipment, often playing important roles in supporting the project owner. This appears in the form of managing the project, defining major parts of design, and providing access to necessary supply networks regardless of the project location. With these projects, the EPCM will steer the engineering solutions and execution of the project; however, the project owner remains as the final project risk owner. A norm of the EPCM project world will include heavy incentives based on timeline targets, as well as quality and budget targets tied to the final project delivery and close.

When an EPCM partnering plan is implemented, the procurement team focus' on building relationships with key suppliers which include primary engineering companies and equipment suppliers. In these instances, communicating to partners with guidance on sourcing strategies while evaluating expenses and related project risks are strategic procurement roles.

Projects Managed Using a Lump-Sum Turnkey Agreement

In this scenario, a contracted partner will deliver the finalized project on a specific date for a negotiated final cost. This can be an acceptable project model when internal resources are limited, and project-related risks are elevated. The agreed upon pricing for project delivery, at minimal risk, will depend on the nature of the project. In heavily competitive markets, premiums can be high. When considering large projects, the contracted side of project partnership may be hesitant to assume all the risk if those risks are high enough that no risk premium would compensate for the potential of significant losses resulting from unexpected obstacles from the project.

Once the procurement strategy is finalized and project contractors or partners are selected, opportunities to influence the project's cost structure will likely become extremely limited. The procurement opportunities must be taken advantage of early to assess all the potential contracting and incentive options to assist with the selection of contractors, opposed to supporting sourcing activities after the project has begun.

The appropriate model depends on several factors related to critical activities involved in procurement and how they are managed in the process. A business portfolio that includes numerous projects will more-than-likely include multiple approaches.

Given the variety of possible delivery models, it is critical the procurement team's role (including how and where it can best create value) is clearly defined within the role of the project model chosen. To that end, leaders of the company's procurement operation must make clear to all project-management teams and internal customers when support will be necessary and what form that support will represent. The procurement organization will also determine how to manage relations between partners, by assessing past project performance and the best strategic procurement practices across key spending categories.

Supply Market Experts

The repetitive nature of demand for project related equipment and services requires updated knowledge of key supplier markets. Project owners must provide substantial efforts to review market supply trends from a cross-project perspective, with a multiyear horizon, in order to appropriately support strategic procurement decisions.

Companies have the resources to anticipate changes in needed, specific supply markets or regions and how they can affect any sourcing strategies. The transition from a seller's market for supplies, where the focus should be on the active management of price increases and delivery risks, to a buyer's market, where long term contracts would be actively reviewed allowing the buyer to benefit from declining price levels, can often happen in very short windows of time - within months.

Early Assessments of Procurement Risks

Every project management team needs to assess procurement related risks and tradeoffs, beyond the defined technical aspects and feasibility assessment of a project, as early as possible in the planning stages as part of the project justification. These might include the impact of sourcing strategies on related supply risks or the need to adhere to local regulations. The goal of this forward assessment is to identify optimum solutions regarding project delivery dates, structural resources, and project risk.

_Project Delivery._ Companies will most often apply one of these 3 methods of project delivery, as described earlier: owner managed, partnerships via contracted partners such as EPCM contractors or simple turnkey solutions. The procurement team should actively support the early pre-assessment as the best approach to designing and completing projects. This assessment involves consideration of the company's own resources and capability, the project's risk structure and the willingness of key partners to assume risks of the project under acceptable conditions. As a result, the process requires a realistic look at supply options for critical components, skills, and services, such as the availability of skilled engineering services in the specified region or market.

_Project Structure and Scope._ In most instances, you will find a project owner's partners and key suppliers offer multiple options for combining packages of services related to larger projects. You will need to be mindful of different approaches to project structure do have a significant impact on procurement costs, project complexity and other important areas such as regulations. A detailed analysis of each project's supply and sourcing strategies will be beneficial to project owners making the appropriate decisions and leveraging their bargaining power in discussions with the key project partners.

_Reviewing Project Risk._ The earliest reviews of a project's supply related risks are typically part of the overall risk assessment. The procurement team can additionally increase value by assessing the project's scope, based on a specific forecasts of inbound supply chains and logistical requirements. For projects involving complex, long distance deliveries, the procurement organization must consider key assumptions regarding the project's major crossroads, such as project demand and infrastructure investments.

Sourcing Across Multiple Projects

Capital expenditure activities of businesses that focus solely on independent projects will miss the opportunities of leveraging buying power, regardless of those independent projects being accurately managed. If working with multiple or cross project plans are to succeed, certain criteria needs to be established:

_Transparency_ is critical, specifically as it relates to project cash flow, realistic savings targets and value created to impact all projects.

_A baseline approach to the development of category procurement_ must be aligned with project specific objectives through a dedicated cross functioning group of category teams. For companies with multiple projects, this requires an effective process for developing a reliable supplier base to ensure qualifications of new suppliers prior to the beginning of new projects.

_The combination of project specific procurement services and category specific strategic sourcing_ can be attained based on the understanding of each project's timeline and lead-times required for strategic sourcing and negotiations.

_A defined negotiation and partnering strategy_ aimed at capturing benefits of the reoccurring use of standardized designs for key equipment, construction packages and related services should also include an establishment of standardized contract models which cover requirements for equipment installation and service.

TCO Based Approach (Total Cost of Ownership)

When a company applies an early project investment decision into a solid growth environment, they often focus on completing the project on a specified time, without paying adequate attention to relative operating costs.

A TCO-based investment decision plan helps maintain a focus on subsequent life-cycle expenses during supplier selection and negotiation. Appropriate TCO models should be based on recent company data, which will establish a uniquely customized perspective. As such, a TCO plan can serve as an efficient support model in negotiations through its focus on both the initial capex and the overall operating costs. You should also consider key performance dimensions, such as the impact of equipment selection on product quality. These TCO models also provide a clearer perspective of difference in the cost assumptions and operating conditions of different regions or markets.

Incentivizing Contracts

Developing an appropriate incentive structure which benefits each project partner is important to finalizing the project successfully and spreading the risks evenly. The willingness of partners to assume a portion of project risk will inevitably be tied to the options each supplier may have for redeploying its resources elsewhere. The key factors of any potential agreement must be reviewed then optimized, and any opportunities to capture additional benefits from repetitive partnerships, such as increased know-how, scale effects, and the reuse of components, must be actively assessed and pursued for potential application across the entire project portfolio.

Consistent Structures and Clear Processes

Cross functional processes and open collaboration rules are critical if the procurement teams are to be successfully integrated into each project. The commodity purchasing staff and the project procurement teams should work together closely to clearly define all procurement milestones and deliverables. A dedicated project procurement manager will typically function as a link between the procurement teams and each project manager throughout a given project's life cycle.

It is essential that every project plan includes definitions and timetabled targets for all major milestones, including completion of the final sourcing plan, definition of the scope's tenders and work packages, and scheduled reviews of all cross-project sourcing opportunities. The performance of the procurement function itself should be assessed on regular basis with external partners being included in the assessment process.

Cross-Functional, High-Performing Teams

In practice, the role of project procurement will vary depending on the nature of each project. So, the project procurement function must possess the flexibility and expertise to operate smoothly and efficiently under every circumstance. Projects managed entirely in-house need to be led by a strong project manager with strong relationships, a solid understanding of a clear sourcing strategy and the early involvement of procurement. For projects delivered through an EPCM or turnkey agreement, the procurement function's role is primarily to negotiate contract terms, incentives, and agreements with the primary contractor, whether it be an engineering services team or a turnkey partner.

Key Success Factors

Given the criteria needed for a successful capital-procurement function, how best should companies go about establishing an effective operating model for the function? In the case of larger procurement organizations, these changes require a coordinated cross-functional approach, involving both the engineering and project-management functions. Building the model itself will

require working in stages, first assessing in detail the procurement function's current model, and then developing a multiyear plan for moving to the new model.

Developing Concepts and Piloting Projects

The process of generating new ideas for capex procurement can often be accomplished with smaller teams, however the application of new approaches to a broader perspective is a roadblock common to transformational efforts. It then becomes critical to establish an early focus on the sensible applications of new ideas by applying them selectively into pilot projects. The pilot project areas will enable the team to work on the implementation process in a narrow, controlled environment and it will establish a more well-rounded concept for the larger rollout.

Changing the Culture of Cap Ex Processes

As challenging as the rollout stages are to the establishment of new standardized workflows and programs, managing the transition from initiative to "business as usual" across the entire project pipeline can be even more difficult. In preparing for the initial transition, it is essential to plan the establishment of the necessary resources with the procurement team. This includes both the resources / tools, systems needed and a project-demand-planning tool, as well as the overall organization structural plan. Companies should clearly identify the critical roles needing to be filled in the new organization's look, such as the category managers and project procurement managers and investment in the right people to place into those roles.

Once the new programs are ready to be rolled out, companies must establish and follow, a consistent plan for change. They must identify the important sourcing events (such as bid awards and upcoming contract negotiations) across the entire project landscape while actively monitoring procurement performance throughout the business.

Finally, reliable metrics will need to be established for tracking the timing and impact of the transition's achieved benefits, including improvements in overall cost savings and the minimization of project-related risk.

These success factors can help guide companies toward best practices in capital procurement, but they will deliver their full value only if they are accompanied by the active management of key stakeholder relationships and an effective process for working across functions. Many companies have demonstrated that procurement is not just another administrative process; it is a driver of value. The positive results that these companies have achieved have set a high bar for others to follow if they wish to reap the full benefits of a best-practice capital-procurement function

Do(s) and Do not(s) of Capital Procurement – High Level View

In practice many companies often continue to struggle to establish a consistent approach to capital procurement, and they suffer various consequences:

\- Experience poor capital-procurement performance and significant deviations from established budgets and schedules, as well as from benchmark cost levels.

\- Do not identify and manage supply-related risks early enough, and thus they suffer from increased capital expenditures and operational costs relative to initial plans—as well as frequent extensions of lead-time for critical equipment.

\- Lack a cross-project perspective, which keeps them from sharing best-practice designs, leveraging aggregate demand, and establishing partnerships with key suppliers on a global level.

\- Lack the tools needed to manage decisions effectively, track the impact of decisions across the project life cycle, and monitor the performance of procurement activities or suppliers in individual projects.

There are four accepted industry established building blocks of a successful capital-procurement operating model that can be applied by companies across many industries:

\- Dedicated capital-procurement strategy that considers the specifics of the supply market, the capabilities of the company, and the requirements for the successful delivery of capital projects

\- An integrated approach to value delivery and risk management in the procurement of project-related goods and services

\- Consistent organization structure as well as a clear definition of processes

\- The development and enablement of high-performing cross-functional teams

This model, when aligned properly with both internal and external stakeholders and consistently applied, can sustainably improve the performance of a company's capital-procurement function.

Companies using this model can save as much as 15 percent of a capital project's net present value while reducing risk and ensuring that budgets and timelines are met. These building blocks are critical to establishing competitive price points across key spending areas while ensuring project-related supply risks are appropriately managed.

The Do(s) and Do not(s) of Capital Procurement – Detailed View

Companies with successful capital-procurement programs ensure that ten elements are in place and avoid ten common stumbling blocks.

Successful companies do the following:

\- Establish the transparency of category spending across the project portfolio

\- Ensure the involvement of the procurement function as early as the concept phase of every project

\- Streamline project approval processes to ensure that procurement has enough lead-time to secure the best possible proposals from suppliers

\- Develop a clear profile of accountabilities and required skills for project procurement managers, especially in the case of large projects

\- Build a dedicated team of procurement experts focused on both overall and project-specific procurement

\- Clearly define cross-functional procurement processes as part of a project handbook

\- Establish a total-cost-of-ownership perspective regarding key equipment and investment decisions

\- Track project and partner performance based on KPIs that address project performance and progress, as well as procurement effectiveness and supplier cost performance

\- Systematically evaluate alternative contracting models and incentive schemes based on project complexity and size.

\- Actively monitor compliance with procurement processes, including subcontractors that assume procurement tasks

Successful companies _do not_ do the following:

\- Make unrealistic assumptions regarding addressable spending volumes. Instead, they clarify the share of committed spending volumes for every project.

\- Allow ambiguity on cross-project demand; Instead, they use standard project and equipment structures to define work packages.

\- Avoid regular interaction with key stakeholders. They interact with stakeholders using a consistent platform for the procurement and project management functions.

\- Lock in suppliers too early. Successful companies do not let engineers and design personnel make commitments with potential suppliers prematurely, because doing so limits supply options and precludes competitive contracting.

\- Take an unfocused, overly broad approach to optimizing categories. Rather, they prioritize spending areas with short-term impact and strategic importance and ensure that sourcing strategies are fully developed and implemented systematically.

\- Put insufficient focus on the procurement performance of third parties. Successful companies ensure that procurement-related incentives are agreed upon as part of their arrangements with major project partners and contractors.

\- Overlook project-specific dynamics. Instead, they consider project timelines and constraints in cross-project approaches, such as bundling.

\- Fail to define procurement career paths and roles. Successful companies attract procurement talent by clearly defining career paths.

\- Fail to clearly calculate savings. It is better to provide clear guidelines on how value is defined and how potential savings should be specified.

\- Focus too restrictively on project delivery. Instead, successful companies review procurement strategies and timelines considering changing project business cases (in an economic downturn, for example)

An Integrated Approach to Value Delivery

The goal of a best-practice capital-procurement organization should be to seek opportunities to deliver additional value, beyond the scope of the strategic sourcing tasks required for each individual project. Succeeding in this task requires a deep knowledge of the supply market and a perspective that considers the entire life cycle of each project across the entire project portfolio.

Taking a broad view of procurement opportunities that goes beyond each individual project can reveal numerous ways to boost value across the procurement spectrum:

_Supplier Management._ Repeated collaborations with strategic supply partners can minimize inherent project risks for both sides and allow for improved contract terms across projects.

_Bundling._ Project owners can leverage their purchasing power and scale opportunities by bundling demand across multiple projects or combining ongoing spending volumes.

_Process Optimization._ Repeated partnerships with key project contractors, and the establishing joint project-management standards, can allow for reduced costs and increase efficiency of service delivery.

_Sourcing in Best-Cost Countries and Localization._ A clear view of the project pipeline within a region allows companies to identify and develop qualified local suppliers in those countries in a specific region that offer the lowest costs, with the objective of providing services, products, and components across a range of projects.

_Demand Management._ Companies can increase the value of projects by efficiently managing their orders for equipment and forecasting demand for resources in key categories across projects.

_Standardization and Redesign._ Owners can gain efficiency by reusing and optimizing important design elements and equipment across projects.

_Optimized Make-or-Buy Decisions._ The effective assessment of the best mix of internal and external services needed for each project, based on a full understanding of all partners' capabilities, can optimize value.

_Supply Risk Management._ The understanding of project risk can be managed with reoccurring partnerships of selected suppliers; that pattern can result in reduced risk premiums for products and services of suppliers and contractors.

Companies that consistently capture the most value from their capital projects typically excel at five critical procurement capabilities:

\- Superior supply-market expertise

\- Early assessment of project-related procurement risks

\- Cross-project sourcing strategies

\- A rigorous procurement approach based on the total cost of ownership (TCO)

\- The use of incentives and contracts designed to optimize partners' performance 

# Chapter 8

##

## Supply Chains

At its core, procurement logistics is the sourcing of materials needed to create products. In other words, this part of the supply chain focuses on purchasing raw materials, replacement parts, auxiliary supplies, operating supplies, and other items needed for the operations process to work.

Procurement logistics does not just deal with the purchasing of materials. It also handles storing, organizing, and shipping these materials to and from the warehouse. The procurement logistics team is also responsible for product sourcing and selection policies, terms and conditions, communication and purchasing strategies to help keep the cost of acquisition as low as possible.

What Is Procurement Management?

Procurement management is the umbrella encompassing all the processes involved in managing the incoming materials needed for operations. Some of these processes include obtaining bids from, and negotiating and creating contracts with, third-party logistics providers.

How Do Procurement and Logistics Management Work Together?

The flow of procurement logistics needs to remain open and uncongested because if the purchasing process becomes inhibited, it could interrupt production efficiency in operational centers and affect product storage in warehouses. The resulting delays can cause potential problems for both distributors and customers alike.

Operationally it is essential for procurement and logistics management to coexist and work together seamlessly to ensure operational costs do not exceed a company's budget expectations.

This is not necessarily easy because some companies lack the personnel needed to run these individual processes. Many small companies choose to work with a third-party logistics provider to help manage all the resources necessary to create a smooth-running and successful supply chain.

Procurement must never be an afterthought in any business. Operators need to have the right raw materials and supplies available as needed. Supply chain entities need to know vendors will be held accountable and adhere to the terms within vendor-supply chain partner service level agreements.

Supply chain professionals must also know how they will be shipping freight words, shippers need to know how they will be getting enough trucks to fulfill their orders. The answers to these questions lie in understanding a few of the top industrial procurement trends to expect.

Supply Chain Management vs. Procurement

There are a lot of terms involved in the supply chain. Terms like kitting and product fulfillment services, reverse logistics services, and procurement process, are commonly used in this industry.

But what do these terms refer to? What is supply chain management and what is the procurement process? Here are some important things to know about these two terms and what their major differences.

**How Is Procurement Different from a Supply Chain?**

Every agent involved in getting your product into the hands of a customer or end user, is known as part of a supply chain. This process involves raw material suppliers or gatherers, suppliers, transportation companies, wholesale warehouses, in-house staff, inventory room workers, and cashiers. To make the supply chain run smoothly, functions such as quality control, marketing, procurement, and sourcing must be involved. The supply chain is the entire process, while procurement is a part of it.

Procurement is defined as the process of getting the products and/or services your company needs to fulfill its business model. The procurement process involves several tasks including developing standards of quality, negotiating prices, financing purchases, buying goods, inventory control, and the disposal of waste products. Once your company has possession of the goods, procurement stops. For companies to profit from this process, the cost of procuring products must be less than the amount the products can be sold for, minus the processing and selling costs.

Supply Chain and Procurement: How Do They Work?

The supply chain refers to all the moving parts from the time a product leaves the supplier to when it arrives on a customer's doorstep. Supply chain management activities are all efforts made to improve efficiency and effectiveness across all stages along the way. It covers matters such as when products are distributed, material sourcing, operations quantity, quality testing, product storage, and so much more. Outsourcing your supply chain services allows you to avoid many errors in the system, because you are leaving all the nitty-gritty duties to the professionals. These outsourced companies provide effective supply chain management by making sure orders are filled quickly while limiting errors along the way; tracking, maintaining, and organizing data to make the process works smoother each time; and getting the product into the customer's hands faster.

Procurement is just one of the many roles involved in a good supply chain. It should be considered a core component of a company's corporate strategy. Proper procurement management is vital because an organization can end up spending over half of its revenue on purchasing goods and services. Procurement makes a huge difference between the success and failure of a business.

As previously discussed, the procurement process includes the following steps:

\- Identifying requirements

\- Approving the request for purchase

\- Finding suppliers

\- Making inquiries and receiving quotations

\- Negotiating the terms

\- Making a final selection of the vendor

\- Creating a purchase order and goods receipt

\- Shipping management

\- Receiving invoices and making payments

Tips for Better Shipping Services

Every industry of businesses should pay close attention to the quality of their shipping services.

Shipping services provide an opportunity to impress your customers with clean, well-packaged items that arrive to their address on a timely basis. However, guaranteeing this service every time can be complicated and costly as you try to avoid shipping mistakes.

1. _Choose the Right Packaging Size_

Packaging is especially important as it protects your products during shipping. It also builds your brand's image and identity, and depending on the size and weight, it determined how much carriers will charge to ship the product. Packaging and size are important aspects to consider with any item you plan to ship. If you try to save money and ship your product in a box that is too small or does not have enough stuffing and bubble wrap, you could risk damaging the product. A good rule of thumb for packaging size is to choose a box that has two inches of cushioning room.

2. Do Not Overpay for Shipping

You can save yourself from wasting money by taking the time to research your shipping costs. Some shipping carriers have a network that allows them to offer faster delivery, weekend delivery, discounts on fuel charges, and more. You may need to pay for these extra services, which is why it is important to understand them in advance. Only choose a package or carrier that brings features that are valuable to you and your customers. Do not waste money on services you do not need.

3. _Be Prepared for Changes_

The prices and policies for shipping change every year, and although they tend to change at the beginning of the year, they can still happen mid-year. Always be prepared for changes from your shipping carriers. For instance, USPS recently decreased their prices for electronic postage, while UPS and FedEx are now charging by DIM (dimensional) weight.

4. _Confirm the Address Is Correct_

A common shipping mistakes is sending an order to the wrong customer. Its important shippers take the time to ensure the correct destination address on the bill / invoice is listed on the packaging. Even the wrong ZIP code can result in a lengthy process of tracking down the shipment and sending it to the correct customer.

5. _Take Note of Customer Reviews_

You should always pay attention to what your customers are saying about your products and service. Their feedback can help improve your services and indicate where you need to plan. For example, if your customers are dissatisfied with delivery times, you can consider providing a better shipping option. If your customers are always praising you for quick delivery times, it is a good sign that the services you are offering are meeting and exceeding their expectations.

6. _Track Your Shipping Supplies_

Managing product inventory is a must for maximizing a warehouse operation, but what about your shipping supplies? These shipping supplies are necessary for processing customer orders. If you do not manage the inventory of supplies, you will run the risk of delaying customer orders as you wait for more shipping supplies. When you track your shipping supplies, you can create re-order points to keep more supplies coming in as you need them.

7. _Audit Your Shipments_

There have been studies showing up to 10% of packages arrive late, but shippers only receive requests for refunds on a small portion of these service failures. By completing regular audits of your shipments, you can be better prepared to request reimbursement any carrier shipper errors including late deliveries, incorrect charges for Saturday delivery, duplicate charges, and / or issues with incorrect address deliveries. Verifying each shipment can become time consuming, which is why it is beneficial to partner with a third-party logistics provider and have this process automated.

8. _Automate Your Shipping_

If you have quite a bit of product inventory and / or customer orders, you will not consistently have time to create shipping labels by hand. Automating this process can save you valuable time. With e-commerce shipping software, most of the manual tasks involved can be automated. You can also create customized invoices and packing slips to make your packaging and products look more professional. Automation allows you to save hours and makes shipping processes run smoother and more accurately for you and your customers.

**How a Third-Party Logistics Company Can Help You Improve Your Shipping Processes** Choosing the right shipping carrier is a big decision. They will have the capabilities for their services to exceed your customer expectations, maintain tracking information of your inventory, prepare, and forecast for future changes, etc. A 3PL can also help you thrive in challenging situations and predict avoidable errors. Be careful of your mode of product transportation and do not fall victim to strictly being price-point driven. 

# Chapter 9

## Why Outsource Purchasing?

Outsourcing procurement is often considered by larger companies interested in saving money.

Procurement functions require dedicated focus on cost-savings, profit maximizations and compliance reviews. It is an accepted belief that strong procurement strategies can be the difference between profitable companies and failed businesses. A procurement outsourcer can leverage economies of scale by leveraging their experiences that cut costs and enhance efficiencies.

Smaller companies, having previously experienced growth spurts and have limited internal purchasing resources, are also outsourcing procurement to maximize external structures and expertise.

Some of the benefits gained from outsourcing:

\- Cost reduction from headcount, training, office space and computerization

\- Market leverage allowing for better discounts

\- Transaction cost per purchase is lowered by economies of scale

\- Marketing knowledge of which suppliers are best for each product to be purchased

\- Highly skilled staff that specialize in purchasing

\- Improved communication between purchasing experts and the company staff

\- Better management information and purchasing analysis are available for people who understand the purchasing environment

\- Globalization means that the same products are often required in different countries

\- Negotiation by an expert in the field is often more effective and profitable Ultimately companies choose to purchase strategies that promote their procurement best practices of minimizing costs, maximizing quality, and ensuring quality products are delivered according to their internal targets.

Reasons to Partner with Purchasing Consultants

Consultants Bring Additional Top Management Support

When a company hires a consultant 2 major changes to occur. That company admits there is a better solution than what they are doing and need help getting there. This means the company leadership at least is open to new ideas. Senior Management always wants to be part of that form of transformational change because it likely draws them to their position, and they want to make sure it does not negatively impact them.

Regardless of the executive's motivation, their involvement raises the profile of the program, increases the incentive for stakeholders to participate and increases the chance the program will be successful.

**Consultants Bring Fresh Ideas**

The most popular "reason" for hiring a consultant relates to their knowing best practices and an ability to infuse new ideas.

Best practices in procurement are typically process changes requiring the implementation to make them valuable. Since procurement is inherently project-based the practices need to be used on each project to have an on-going effect. If they are not learned by the in-house team the consultant's effect will be short-lived and provide limited value.

While the same goes for category management or cost savings ideas that a consultant brings from other organizations, they can be a quick shot in the arm to jump-start an organizational change.

Consultants Are in the Market More Frequently

Even if you received senior leadership support and learned all the best practices you will find consultants still hold several advantages that you will struggle to replicate.

The bottom-line exception being for commodity buyers in select raw material categories for exceptionally large companies, procurement professionals in the industry can't be as specialized as a consultant.

For many categories such as perishables, paper products, office supplies, internal procurement teams source every 3 years or so. A consultant with 30 customers could source it as frequently as every month!

This increased velocity provides additional market knowledge and decreases the information asymmetry between the parties, but more importantly if lends familiarity with the negotiators on the other side of the table. The on-going relationship ensures both parties are negotiating in good faith while also speeding up the negotiation a lot. Suppliers are no longer incentivized to respond with a high initial RFP bid to provide negotiation baselines because it could hurt the relationship and would only lengthen the negotiation.

**Consultants Can Flex Extra Resources to Drive Results** In addition to having more engaged stakeholders and senior leadership support, the option to bring in qualified resources at a moment's notice for sourcing waves that develop a buzz and feeling of change or to take advantage of preferential timing can be a huge advantage. Internal teams need to hire and train resources and cannot "Staff Up" for a short-term demand.

Consultants do not have unlimited resources and projects have budgets as well, but they can pool the demand for the desired impact.

Consultants Do Not Have to Work Within the System

This one is hard to understate! The primary way most companies implement best practices is to create systems and gates to control processes. The problem? There is not a system flexible enough to account for all the variations found in sourcing projects or category management needs. This means applications and systems can force procurement professionals to use a system that is too complicated and time-consuming on small projects, too restrictive for completed projects or limit there go to market strategies. Additionally, many of the systems are set-up to allow for easy reporting but continue to make analysis exceedingly difficult.

Furthermore, consultants typically enter an assignment with no concept of what needs to be done, whose toes they will step on if they take on a project or what sacred cow they may be targeting. This is typically how consultants have the freedom to look at everything while generating a plan based on opportunity and no one feels they are being personally attacked by any suggestion due to history.

Hiring a procurement consultant can increase company margins by 1-3% of revenue, it can jump-start an organizational change and it can reduce information asymmetry with some suppliers, but... If you do not try to learn from the consultants, it can be a short-lived gain (at best) or a long-term staff augmentation (at worst) if you lose the ability to perform the function internally.

Procurement Outsourcing

Trends arise all the time in the business world, and one buzzword is procurement outsourcing. The basic idea is that a company large enough to deal with a bulky and complex inventory may need professional assistance to do the job. It is possible to use in-house employees to do the packaging and paperwork, and this is often the most viable strategy. On the other hand, internal staff might not be as efficient as professional procurement services. The job might require specialized knowledge or experienced handling. A new business might need to train its staff and, as a result, must resort to procurement outsourcing in the short-term.

The clear advantage is that a firm that specializes in the types of inventory, such as perishable goods for a restaurant chain or keeping packages secure for an electronics firm, might do an excellent job. If a company is not too big, then it might not be able to afford or need its own warehouse. A third-party vendor might sell space rehouse and do all the services. An economy of scale might just beat the middleman's fee. If a business finds it advantageous to avoid having too many employees, then procurement services might be the solution.

If procurement outsourcing can be such a positive thing, then what is holding companies back from utilizing them on a larger scale? The answer lies both with corporate culture and the needs of companies. Exceptionally large businesses can afford to have their own warehouses. Some chain stores have their own truck drivers. Middlemen do charge a fee, and when an enterprise has the resources to organize a professional system, they save cash.

Smaller companies will continue to operate warehouses, despite the expense, largely because it gives comfort and reassurance to inventory holders. Even small business owners like to have direct control over their inventory. Goods managed by a procurement service might become lost or neglected, identified only by a name tag. Third party warehouses are often very professional outfits, but defensive merchants often want their own closet space. If an inventory is large enough to fit within the same building, then there is no need for full-time employees to manage it. Or the resources of an in-house department might become swamped if an especially large order is needed, and third-party procurement services could handle the extra workload. Many companies - from the long-established to the rapidly growing - face common challenges around strategy, people, process, and technology that can prevent a step-change in procurement effectiveness. All this said, outsourcing for procurement and inventory is strictly another business strategy. There will always be instances where the consulting resources fit better than others. As you are already away, there is no one-stop shop for the procurement industry.

A Master Production/Planning Schedule (MPS) provides support options in the following areas:

_Resource Capacity Expertise_ : Enabling you to match resources and capabilities to peaks and troughs in procurement activity. These can be caused by factors such as major contract renewals, projects, or changes in the marketplace.

_Speed and Impact_ : Increasing capability by providing early access to benchmarks and best practices that can drive forward bottom-line improvement.

_Tools and Software_ : Giving access to specialist software solutions and procurement tools that would otherwise be too expensive or may only be needed rarely. We also ensure solutions are properly utilized, and maintenance and updates do not overstretch in-house IT resources.

_Implementation_ : One of the elephants in the room for this stage will involve 'cultural' changes which require a longer-term approach - procurement practices and helps to ensure benefits are sustained.

The combination of challenges varies over time – individual skills are gained or lost; major projects may require different expertise; mergers, acquisitions, new products, and new markets have their own requirements. An MPS approach allows you to address wider elements of spend, over a longer period, to deliver greater and more permanent benefits.

An MPS is unique in that it is applicable not just to the commonly outsourced indirect spend categories, but also to direct, core and project spend. Indeed, MPS is not fundamentally an outsourcing of activity: it is an insourcing of capability – an extension of the team, not a replacement. 

# Chapter 10

##

## Balancing Relationships

By this time, you have recognized the challenges associated with a form of process ownership without the actual operational ownership. It can be a challenge.

I had a co-worker in Memphis we all knew as "Change". I am not certain any of us never really knew him by any other name. He earned the nickname "Change" due to the frequency of his conversations including a grand finale explanation of how his hometown changed the world.

Memphis changed the world's music, American civil rights, global overnight package delivery, material use of cotton, on and on! Now step back and consider a few of the negative perceptions people may have about Memphis – as they might any mid-sized, industrial city; Step further back for an even bigger picture to find the city's own distinctly rich value in change. When you change the focus of how you view a picture, new details become more visible.

Effective constructive criticism can change what people think and do; thus, positive criticism can be the birthplace of change. That motivation can counter-act emotions which keep people from implementing new ideas that may unlock opportunities. Consciously avoiding those personal attacks and the old "blame game", we find effective criticism can be liberating and a wonderful tool for growth.

The objective of constructive criticism is to improve the behavior of a person while avoiding personal attacks and blaming of any kind. This criticism should be carefully framed in language that is acceptable to the individual. Insults and/or hostile language is to be avoided along with phrases such as "I feel," or "it is my understanding that". We should make every effort to consider what things would look like from the other person's vantage point. Good constructive critics work hard to stand in the shoes of the individual being criticized.

So, what does good look like?

\- Focus on the positive; be motivating you not only send messages about how you are receiving the other's message but about how you feel about that person and your relationship.

\- Be specific; allow the individual to know exactly what behavior is being considered and what is expected.

\- Be active when being objective; If your criticism is objective without bias, it is harder to discount or resist.

\- Avoid evaluative types of language; Your goal is to remove defensiveness and adjust behaviors. By doing so any form of "blame" must be ended to ensure proper engagement.

Your Name Builds Credibility

Credibility is all about being taken seriously and deemed a trustworthy source. A friend was recently asking for feedback on their reputation among peers and vendors. The conversation was an honest review touching on the areas below. What would your conversation include?

Always Give Earned Credit

When a project or idea has been successfully rolled out and you have not benefited in any way, give credit. Give the specific credit to those deserving and move on to other things. Becoming territorial, judgmental, and holding back future ideas will only leave you feeling unsatisfied. Learn and apply your future relationship lessons as future tools to surround yourself with strong networks.

Be an Introduction

Every day think of people you could potentially introduce. Those introductions would be intended as a way of providing each of them another resource to better themselves. You do not have to be in the middle of the discussions or even the relationship. Let them benefit from their own mutual experiences and/or skill sets. You will receive benefits at a future time further down the road.

Be Worthy

When you bring honesty to work, you gain credibility. Workplace credibility is not as common as we may assume. Rightly or wrongly, people make promises they just do not or cannot support. If you work honesty into your value system, you will quickly experience how credibility will soar.

Say what you mean and mean what you say and see how people begin to respect your frankness.

All the payroll in the world cannot buy a respectable person's belief, or disbelief, if your credibility.

Control Your Anger

In many global philosophies you will find anger is considered a form of dishonesty. Perfection is not a fair expectation of ourselves and neither is applying it to those around us. The next time you lose control of your anger make a note of it. Take notice of how it negatively impacts your environment and how relationship rebuilding becomes a newly added heavy burden to carry. Deal with the issues honestly and fairly. That is where your relationships will blossom.

Do Not Lead a Double Life

If you want co-workers and associates to trust you then be consistent. The only opportunity you will have to share substantive information is when mutual trust and respect are earned within a relationship. Invest and enjoy the rewards.

Knock Off the Gossip

Speak as if the subject will always hear what you are saying. Do not lead a double life and get stuck in the mud with explanations about conversations and rumors.

Make Other People Look Good

Acknowledge even the smallest of accomplishments. Do not be the person who refuses to give credit to others. We all know everyone wants acknowledgment for doing a good job and practicing strong effort. Trust that your efforts will be noticed by those around without throwing your shoulder out of the socket patting yourself on the back. Your co-workers will appreciate it and you will sleep better at night.

Say It, Mean It

It is an honorable goal to be the person that always keeps their word. Those small acts of respect will quickly set you apart from other people. If a timeline or commitment is missed, own it. Explain the scheduling error and focus on tightening your schedule to eliminate future occurrences.

Stop Using Excuses

It is best to learn from our failures and use those experiences as foundations for success. Excuses can be easy lies to explain failures. Remember you are not perfect, systems/processes may fail and/or your human links may be just that – "human" at times. Openness about the issues is often the quickest solution in both the short and long terms.

Take the Blame

It is often easy to avoid the experience of difficult conversations after you have made a mistake.

That avoidance seems justified, right? Just a little? In truth, it undermines the trust of relationships.

Building your reputation on trust is one of the most difficult, and time-consuming, projects of your career. If you make a mistake, own it.

The Emotional Toll

To create a smooth, inter-departmental, work environment it is essential to acknowledge and develop emotional intelligence. According to a LinkedIn study, the soft skills most in demand include communication, collaboration, and leadership. How do you avoid the pitfalls that may accompany working in the dynamic and diversified world of procurement? An important step is identifying and defining those pitfalls which are most likely to occur during the day.

Some of the most common negative emotions experienced in the workplace are as follows: Aggravation

Anxiety

Disappointment

Dislikes

Aggravation

Aggravation usually occurs when you feel stuck, trapped, or unable to move forward in one way or another. It may be caused by a stalled favorite project, a boss who does not attend meetings on time or simply being on hold on the phone for a long time.

Whatever the reason, it is important to deal with feelings of aggravation, because they can easily lead to negative emotions, such as anger.

Here are some suggestions for dealing with frustration:

_Stop and evaluate –_ One of the best things is to stop yourself and assess the situation. Why do you feel frustrated? Write it down and be specific. Then think of one positive thing about your current situation. It will help you to refocus your energies, relax and understand the big picture.

_Find something positive about the situation –_ Thinking about positive aspects of your situation often helps to consider things differently. This small change in your thinking may improve your mood. Do not assume anyone is deliberately attempting to annoy you. And if it is a quirk that is bothering, it is certainly not personal! Do not get mad, just move on from to your next task.

_Remember the last time you felt frustrated_ – The last time you were frustrated the situation probably worked itself out, right? Your feelings of aggravation or irritation probably did not do much to solve the problem then, which means they are not doing anything for you right now.

Anxiety

There are always cases of fear and anxiety with increasing instances of layoffs. It is understandable why many people worry about their jobs. This type of worry can easily get out of control if you allow it. This type of job insecurity can impact not only your mental health but also your productivity and willingness to take risks at work.

Try these tips to deal with worrying:

_Do not surround yourself with worry and anxiety_ – Avoid meeting places where co-workers gossip and talk about job cuts or reassignments. Worrying tends to lead to more worrying and that is never good.

_Try deep-breathing exercises –_ This helps slow breathing and your heart rate. Breathe in slowly for five seconds then breathe out slowly for five seconds. Focus on your breathing and nothing else. Do this at least five times, but no more than 10.

_Focus on how to improve the situation –_ Sitting in fear of being laid off probably will not help you keep your job. Instead, try brainstorm techniques to bring in new business and show your value to the company.

When you are worried and nervous about something, it can dent your self-confidence. Do not let your worries get in the way of being appropriately assertive in the workplace.

Disappointment

Dealing with disappointment or unhappiness at work can be difficult. Of all the emotions you experience at work, these are the most likely to impact your productivity. If you have just suffered a major disappointment, your energy may be low, you might be afraid to take another risk and all of that may hold you back from achieving.

Here are some proactive steps you can take to cope with disappointment and unhappiness:

_Look at your mindset –_ Take a moment to realize setbacks will not always go your way. If they did, life would not be filled with unexpected situations and learning opportunities, right? And it is the hills and valleys that often make life so interesting.

_Adjust your goal –_ If you are disappointed you did not reach a goal it does not mean the goal is out of reach. Make a small change even if it is only a deadline.

_The Source –_ Is it a co-worker? Is it your job? Workload? Once you identify the problem, start discovering ways to solve it or work around it. Remember the power to change your situation is in your hands.

_Smile and dress professional –_ Strange as it may sound, forcing a smiling face can often make you feel happier. And who does not feel better about themselves when they look good?

_Make your bed –_ before you leave for work make your bad. Start your day by completing a task that helps you relax at bedtime.

Dislikes

We've probably all had to work with someone that is not exactly a favorite personality. We also always need to understand it is important to be professional, no matter what. Take a deep breath before sending that frustrated email or having that emotionally tinged conversation.

Here are some ideas for working with people you dislike:

_Show Respect –_ If you must work with someone you do not get along with, then it is time to set aside your pride and ego. Treat the person with courtesy and respect, as you would treat anyone else. Just because this person behaves in an unprofessional manner, that does not mean you should as well.

_Respectfully Assertive –_ If the other person is rude and/or unprofessional, then firmly explain you refuse to be treated that way and calmly leave the situation.

Before you finish that glass of orange juice this morning... is it half empty or half full?

Being Conflicted Over Conflict Is Unnecessary

The key to handling confrontation productively and successfully handling the most important factor correctly. Exactly what is that factor? It is you! Your preparation, demeanor, prioritization, and topic-specific guidelines will determine your meeting outcome. As you view these conflict resolution meetings, it is important to remember conflict with a staff member is quite different from a management disagreement. The two must not be confused although many of the steps are transferable when working towards a resolution.

Leadership conflict in business meetings tend to fall into two primary categories:

Real Professional Differences

Conflict can arise from very real differences in professional opinions. In many cases, these differences are handled appropriately and do not develop into open conflict. The potential of conflict does change when stakes of the outcome are raised by group ownership or irreversible investment of resources. These types of differences need to be addressed quickly and not left unattended. If not addressed, these situations tend to muddy relationships and negatively impact surrounding staff until openly discussed.

Personality Difference and Power Struggles

Conflict can appear when individuals or groups dislike each other or feel their positions are being threatened. This form of conflict tends to be more about personalities and individual goals than business decisions.

What are the primary staff conflict points in the workplace?

1. _Pick and choose your battles –_ What topic is the most important to you AND has substance for the overall project? Be patient and do not get locked into the concept of "being right"

rather than moving the process along with fruitful discussions. Your stress level and doctor will thank you later!

2. _Research –_ Do you know the person you will be speaking to about conflict? Do you know of any prior decisions that have formed their current opinions? Are there any associated issues that may sidetrack the discussion or change the root cause?

3. _Time, place, and audience –_ Never stage an audience to make an example of someone.

Your employees will see through those selfish acts of power and question your motives in the future. Confront individuals privately after you have had time to think-thru the discussion in a calm rational way. If you genuinely want a substantive discussion, then find a time best suited for the other person and request the meeting.

4. _Keep the conversation limited to the specific topic –_ Be certain not to let your discussion drift into other areas that may muddy the waters. You are much more likely to find positive resolution by sticking to one issue at a time.

5. _Rehearse –_ Make a list of your priorities and the expectations resulting from the discussion.

You should also be aware of the time needed to fully close the meeting.

6. _Separation of the topic and you –_ It is important to understand a verbal attack is not directed at you, but rather towards what you are representing. It is always easier to take a step back and acknowledge your group's mistakes that may be involved in the meeting. This is not necessarily an easy approach, however, your openness about the group's shortcomings might help your audience become more receptive to your ideas.

7. _Body language may say as much as your words –_ Being attentive to your unspoken body language is important to consistently communicate a clear message. Make every effort not to accept anyone's assumptions about the subject or your beliefs; if you do, you transfer your power and leverage.

8. _Redirect any incorrect statements –_ Rephrase your audience's statements in such a way to force ownership allowing you to step out of the loop: "If I understand correctly, you're saying you believe... and you wonder if I share your feelings." This rephrasing helps maintain control of the discussion's direction and avoid being manipulated. With this approach, you will openly bring to light assumptions and possible absurdities in your audience's position. You also make the confronter responsible for the content of their question while at the same time demonstrating you have taken the question seriously. And finally, you improve your chances of gaining a better root understanding and perhaps discover a productive line of response in the process.

9. _Ending and follow-up –_ Effective counseling or conflict management does not begin the day of the meeting; rather, it starts the day the co-worker/learner is hired. Appropriately setting expectations and reinforcing an open-door policy are the best gateways to the fewest

"conflict" meetings. Before ending the meeting, ask the employee to define the process/policy. This moment of clarification ties the knot and confirms you both understand the issue and how it will be defined. Be certain to close the meeting by thanking the employee for their time.

If you are uncomfortable with the meeting a Human Resources Department representative should be consulted for guidance. That interaction with HR provides a frame of reference for the specific employee, a review of company policies and an opportunity to further build trust with your co-workers. Your employee relations partner can your biggest asset during these situations... tap into their experiences and confidently schedule that meeting!

Managing Your Day's Outlook

"The world we have created is a product of our thinking; it cannot be changed without changing our thinking." – Albert Einstein

It is a common notion your approach to each morning will set the tone for the day ahead. If you get off to a bad start, often the rest of your day follows suit.

Your early morning efforts can make positive changes that determine happiness and/or how others view your attitude. Make a point of setting aside a few minutes to focus your thoughts and goals for the day. Whether it is a formal meditation or a quiet review of your day ahead, those minutes are critical. That pre-planning for your day reduces opportunities for stress and enhances the positive possibilities within your environment. And what about your daily arrival at the worksite or a morning meet-up? It is as simple as continually working to surround yourself with uplifting people.

Start your day by reviewing these types of interpersonal goals. Invest in yourself and that investment will be quickly seen in others.

Managing Your Attitude in Challenging Times

Over the past several months, I have recently given quite a bit of thought to a project involving upcoming layoffs and the need for management to maintain measurable results. What is the variable for management to sustain a positive workplace cultures and targets? The solution became easily identifiable. role-modeled behavior that was positive and upbeat.

I used to work with a woman who encountered workplace roadblocks regularly. In hindsight, the frequency of those roadblocks bordered on being ridiculous. At times, the obstacles were justified and within other instances, projects just were not given the necessary consideration. Throughout those days, peers and managers would discuss empathy and openly question why she continued efforts to help departments while demonstrating non-territorial behaviors. Consistently and regardless of the outcome, she never showed outward hints of personal frustration and a helping hand was routinely extended at the next opportunity.

We have all been involved in one of "those" situations. When your pet project is re-prioritized; when a customer or co-worker snaps at you unfairly; when a co-worker is laid off; or your boss assigns additional work when you are already overloaded. In your personal life, a reaction to stressful situations might be raising your voice or shutting down to feel sorry for yourself. At work, those behaviors will seriously harm your professional reputation, as well as your primary reason for holding your position – productivity.

Stressful situations are realities in a workplace when facing budget cuts, staff layoffs or departmental changes. In those types of scenarios, it may become difficult to manage your emotions while balancing workplace responsibilities. There is no middle ground – you must manage those emotions. Above all else remember these are the times' emotional management is most important. After all, if senior management is forced into making additional layoffs, they may choose to keep those who can handle their emotions and work well under pressure. Does the question then become how do you better handle your emotions and choose your reactions within bad situations? In short, those best practices are grounded in your focusing on the "big picture".

So why all the focus on negative emotions? Well, most people do not need strategies for managing their positive emotions. After all, feelings of happiness, excitement, compassion, or optimism typically do not affect others in negative ways. If you share positive emotions constructively and professionally, they are great to have in the workplace! 

# Chapter 11

##

## Onboarding New Team Members

When onboarding a new employee, it is critical to remember expectations are being set from the initial discussion. We teach people how we as individuals, and in this instance, our business, is to be treated. Hiring the right person is an opportunity to advance your skills in several ways including delegation, supervision, forecasting future procurement strategies and overall develop.

The value in retention may be the best asset in your portfolio.

Listed below are suggestions to help ensure new employees are welcomed appropriately:

\- Send an e-mail to everyone at your location and include all offsite personnel. Attention to detail is key when planning the proper online introductions.

\- Have the new employee's security badge, ID, parking pass, keys, and any other access tools available before their first day begins. Take the extra step of confirming that all access badges are working properly.

\- Provide personalized business cards and place them on the new employee's desk as an office welcoming gift. This step emphasizes professionalism while communicating your interest in developing an immediate relationship.

\- Confirm all systems network sites and related computer accesses are functioning properly before the employee arrives.

\- Configure the new employee's e-mail accounts while also adding essential distribution lists.

\- Provide learning guides for any software being used in the office.

\- Confirm the office phone system is updated with instructions for using and updating voicemail.

Listed below are questions to proactively discuss before the new employee feels a need to ask:

\- What will an employee need to bring on their first day?

\- In most situations new hire paperwork is necessary on day one; I would suggest two forms of ID.

\- Where is employee parking located and will garage passes be available? If parking is offered presented passes to the employee during the morning of their first day.

**Where is the best meeting location?**

The new employee's immediate supervisor should be available as a greeter. Select the primary entrance to your facility and follow-up with explaining employee entrance and exit locations. If available, provide a floor map. If a floor map is not available, create one.

Where are the restrooms?

Refer to your "new" floor map.

Where is the copy machine? Are passwords needed?

If passwords are needed, have those prepared via email and sent to the employee as a reference point.

Where is the employee dining area and what are the hours?

Schedule a day one lunch with the employee and follow-up by individually integrating the staff with a week-long lunch shadowing program.

Who should the employee speak with regarding future questions?

A time-tested policy of assigning a co-worker as an onboarding mentor is solid. As time passes it is important to have that mentor check-in with the new hire to ensure onboarding is a positive experience. As you demonstrate the open-door policy a new hire will find communication reinforced in the workplace.

It is also extremely important to remember a new employee's immediate supervisor should always be present on their first day. The worst impression is having new hires arrive when their immediate supervisor is not available for proper introductions and onboarding. Relationship building, engagement, comfort levels, etc. etc.

And remember that new employee arriving may be you one day! 

# Chapter 12

##

## Glossary of Procurement Terms

**80-20 Rule** See the Pareto Principle

**Acknowledgement** A communication indicating that something has been received or understood. In purchasing it usually refers to a form that is received from a supplier that accepts or sometimes modifies the purchase order.

**Amortization** A method used to lower the cost value of a product incrementally through scheduled charges to income or amortization is also the paying off debt with a fixed repayment schedule in regular installments over time.

**Approvals and Payments** The invoices will be paid according to the terms of the "net"

agreement schedule

**APS** Abbreviation for the American Purchasing Society, a professional organization of buyers and purchasing managers for business.

**ASAP** Abbreviation for "as soon as possible."

**Asset Items of Value** , what an organization owns.

**Bartering** A type of transaction involving no money or cash where one party provides one type of goods in exchange for another type of goods. Bartering can be carried out domestically or globally.

**BEO (Banquet Event Order)** Used in the hospitality industry. A record of products needed for one-time purchases involving an upcoming client group. ****

**Bid** A written submission by a supplier to offer products or services at a given price, quality, and timeline

**Bill of Lading** A written receipt given by a carrier for goods accepted for transportation.

**Bill of Material** A list of items used in the manufacturer of a product. The list may show which items are required to make sub-assemblies and which sub-assemblies are required for the complete product being produced. The list may also indicate which components are manufactured and which are purchased from outside sources of supply.

**Blanket Order** An agreement to purchase or a purchase order for a given quantity of specific goods over a period, often one year.

**Burnout Lists** A record of slow moving or near expiration products needing removed from an inventory.

**Capital Equipment Assets** listed on an organization's accounting records that have value and are durable.

**COD** A payment term meaning cash is paid upon delivery.

**Contract** An agreement between individuals or organizations. For a contract to be legally enforceable, the parties must be capable in a legal sense, there must be an offer, there must be an acceptance, and there must be consideration (something given in return for something else, such as goods or services).

**Contract Award** The contract is formally awarded to the chosen supplier via a written notification.

**CPI (Consumer Price Index)** A numerical figure published by the Bureau of Labor Statistics that represents the prices of selected products and compares them with prices at a different base time.

**CPM (Critical Path Method)** A management tool that is used to determine the shortest way to accomplish a task or project.

**Cross-Docking Costs** are reduced by the process of receiving a product and shipping it out immediately without putting it into storage. The process is referred to as cross-docking.

**Direct Purchasing** The purchase of material to be used in manufacturing or for resale as opposed to indirect purchasing.

**EBITDA** Earnings before interest, taxes, depreciation, and amortization, a measure of a company's operating performance.

**ERP** enterprise resource planning

**Establish the Price and Terms** In larger companies, suppliers will be contracted with a master agreement where prices and terms are set for a defined period. A master agreement will always have the option for a Schedule A to make amendments or agreed-upon changes. If a master agreement does not exist, it is best practice to shop for value, quality, and service from competitive suppliers.

**Evaluation** All the bids are evaluated against established requirements before a supplier is awarded the business.

**Exchange Rate** How much it takes of one country's currency to equate to or to buy another country's currency. For example, Japanese Yen to U.S. Dollars, British Pounds to U.S. Dollars.

**FIFO** An abbreviation for "First-in, First-out." An accounting method of valuing inventory based on the ending inventory cost of the most recent material received and the cost of goods sold as the cost of the oldest purchases including beginning inventory. Compare with LIFO.

**FOB** An abbreviation for "Free on Board" and indicating the place where the title or ownership passes from the seller to the buyer.

**Forecasted Volumes** How much and often will you want products or services delivered.

**Indirect Spend** A purchase of material services used internally by the business, such as MRO

products for maintenance, repair, or operating supplies.

**Inventory Turnover** Number of times the average inventory has been sold during the year.

Calculated by dividing the cost of goods sold by the average value of inventory.

**Invite Tender Bids** This should always be completed formally, typically by posting the request on appropriate web sites. Government projects are typically posted on government web sites with non-governmental web site postings being non-required.

**IT** Information Technology usually refers to the department that handles computer operations.

**JIT** An abbreviation for "Just In Time," and referring to a scheduling system that minimizes inventory by having material arrive just as it is about to be put in use.

**Lean Processes** A method used to reduce unnecessary steps or activities in manufacturing or services and thereby improve efficiency and reduce error.

**Letter of Credit A** form of payment, used especially in international trade, that transfers funds from the buyer's bank account to the seller's bank account. An Irrevocable Letter of Credit cannot be cancelled or revoked by the buyer if all documents are proper and approved by the bank and the goods have been delivered to the specified place for shipment to the buyer.

**Leverage** Where an investor or a company uses debt to finance its operations rather than using equity.

**Liability** In accounting, it is what a company owes. In law, it is an obligation to do or refrain from doing something; a duty which eventually must be performed; an obligation to pay money.

**LIFO** An abbreviation for "Last-in, First-out." An accounting method of valuing inventory based on the assumption that the last items purchased are the first sold. Compare with FIFO.

**LTL** Less truckload. Often refers to a freight rate that is generally higher than for a full truckload.

**Manage Contract** This is the operating period of the purchasing cycle when goods are both ordered and delivered.

**Materials Management** The management function of an organization that may include all or a portion of the responsibility for purchasing, inventory control, traffic, shipping, receiving, and warehousing.

**Mean** The arithmetic average

**Median** The mid-point in a list of numbers or occurrences.

**Mode** The type of average that indicates the most frequent instance of a number or happening.

**MOQ** Minimum Order Quantity - The amount required to place an order.

**MRO** Abbreviation for "maintenance, repair, and operating supplies." Often assigned to one or more buyers in a purchasing organizational structure.

**Negotiation** The details of the terms and conditions are negotiated with the chosen supplier.

**Net Lease** A commercial lease that requires the lessee to pay some of the property expenses in addition to the rent, such as, for electricity or heating costs.

**Orders are Received and Inspected at Receipt** The products ordered are delivered as agreed, received at a dock, verified, and recorded as a direct or inventory receipt. Shortages and breakages are reported to the supplier for the appropriate credits to be supplied.

**Pack Size** The number of units per case

**Pareto Principle** A management tool based on writings of Vilfredo Pareto, an Italian economist.

The principle is that most of the occurrences of any happening are caused by a small percentage of the population. Applied to purchasing management it means that the largest percentage of cost reductions can be obtained from a small percentage of the items purchased or from a small percentage of the number of suppliers used. Erroneously sometimes referred to as the 80-20 rule.

Placement of Purchase Order

At this stage, an order to the supplier is placed and becomes a contracted agreement between the requesting business and supplier

**PPI (Producer Price Index)** A numerical figure representing a certain producer price compared with a base index at an earlier time.

**Prepaid GL Expenses** A financial adjustment to move an expense to the following month(s).

This is typically done for bulk purchases or a lead time issues resulting in the product not being used during the month it was received.

Price Index **** Usually refers to any of various numbers representing prices at a specific time for a product or category of products as reported to the Department of Labor, Bureau of Labor Statistics of the U.S. Government. Average price movements can be measured up or down from the monthly reports issued. ****

**PQQ (Pre-Qualification Questionnaire)** A Pre-Qualification Questionnaire (PQQ) is sent to potential suppliers as a way of developing a shortlist of possible suppliers.

**Public Company** A corporation that issues stock that may be purchased by anyone and as listed on one of the stock exchanges and is controlled by the SEC as compared with private company where stock is only available to certain individuals.

**Purchase Order** The form that documents the purchase agreement or contract.

**Purchase Requisition** A form used by users of goods or services that documents their requirements and is sent to the purchasing department to make the purchase.

**Purchasing Agent** The person authorized to make purchase agreements for the organization.

Qualifying **Meetings** Are held to clarify all questions suppliers may have regarding services needed.

**Quotes and Bids** The quotes are pricing and service proposals from qualified suppliers.

**Quid Pro Quo** Do one thing in return for another.

**Reciprocity** The act of buying from or selling to another business in return for sales or purchases from the first organization. Illegal under the antitrust provisions of the Sherman Act.

**Replevin** An action for the recovery of property. For example, suppose a supplier is in possession of the buying organization's property, such as tools or inventory and that it is unobtainable because of a strike or other reason. The buyer can obtain a writ of replevin issued by a judge to allow the buyer accompanied by an officer of the jurisdiction to enter the facilities and physically repossess the property.

**Restocking Fees** An expense applied by a supplier for the return of non-defective goods

**RFP (Request for Proposal)** A justification is written in the form of a Request for Proposal (RFP)

**RFID** An abbreviation standing for Radio Frequency Identification, a system of marking products electronically so they can be located anywhere from a distant point **RFP** Abbreviation for Request for Proposal. Another name for an RFQ.

**RFQ** Abbreviation for Request for Quotation. A form used to obtain bids from suppliers.

**ROI** return on investment, usually expressed as a percentage.

**SCM** supply chain management

**SEO** An abbreviation for "Search Engine Optimization".

**Sign Off with Approval** At the end of the contracted work and deliveries, the contract is signed off and documented. At this point, all relationships with the supplier have been fulfilled.

**Six Sigma** A method of using data to eliminate defects or errors in any process by eliminating variation in a process. The term refers to the statistical measurement of standard deviations from the mean of a set of values.

**Sole Sourcing** A sole source indicates that there are no alternative suppliers that produce the same product with the same specifications. There is often only one source for patented items.

**Split Sourcing** Where more than one supplier is used to buy the same item.

**Supply Chain Management** The organizational structure and management function that includes all facets of the acquisition and delivery of material from the supplier to the final customer. The purpose of the structure is to eliminate inefficiencies, facilitate rapid communication, to minimize inventory and to minimize delivery time throughout the structure.

**Surety Bonds** An instrument of financial guarantee provided by a surety (insurance company or bank) that payments accruing due to liabilities under the contract shall be retired by the contractor or the surety will do so. There are three types of surety bonds, bid bonds, performance bonds, and payment bonds.

**Tare Weight** The weight of the packaging material used to wrap or protect the actual required material being shipped.

**TCO** The total cost of ownership

**UCC** An abbreviation for Uniform Commercial Code. The UCC is an act passed with slight modifications by each state in the United States that establishes legal guidelines for commercial transactions.

**Units of Measure** The system that determines how measurements will be conducted. It determines how quantity, weight, volume, price is computed.

**Updating of the Records** The purchasing ledger and inventory records are updated

**Value Analysis** A method of looking at incremental cost of a product or service with the objective of reducing the cost by substituting material or changing design, while accomplishing the same function or purpose. Sometimes referred to as Value Engineering.

**Vendor** Same as supplier or seller.

**Vetting Suppliers** The supplier for a specified service has been selected

**Win-Win** A method of negotiating where each party to the negotiation obtains something he wants and gives the other party something he wants. Everybody wins. ****

# Chapter 13

##

## Closing

Believe it or not, web users do not jump on their phones for the sole purpose of buying my or your stuff. They tend to search for information through articles, blogs, or books. As mentioned previously, my intentions for this guidebook were never grounded in wanting to make a dollar. A pattern of behavior that is much more prevalent than one might think, is the willingness to share learned experiences to assist others. Do this long enough, and you will develop a reputation as being a person containing valued sources of information and sound judgement. Even if those person's you're assisting are not currently in a position to help you personally, your value will be a trusted resource in their minds, and they would be more likely to share their opinions with others who are currently in a position to influence your current environment.

When you reach the point of realizing you know a thing or two, and someone out there wants to hear all about it, is a great feeling. But other than the benefit of passing down your experiences, what's in it for your career plans? Yes, you are drawing on experiences to share insight with your mentee—but you are not doing any of it simply because you are working towards a promotion or attempting to impress your supervisor. You are doing it because, fundamentally, you want to help someone else. Hopefully, helping them in the same way someone has helped you.

Books, such as this, cannot be substitutes for real world mentoring relationships. The importance of relationships, communication styles and sometimes hearing the unexpected views are best experienced in a personal setting. The purpose of a mentorship is to tap into the existing knowledge, skills, experience of high performing employees and transfer these skills to newer or less experienced employees to assist with the advancing of their careers. Pretty straightforward, right? The goals and outcomes of mentoring programs will always differ depending on the structure of each relationship. For an organization, mentoring can help mold new hires and instill loyalty in employees and increase the retention rate. For individuals, it can help the mentee develop new skills and a larger network of professional contacts. For the mentor it serves to give back and can also be a learning experience for continued growth.

I hope you have enjoyed reading the previous pages and found them beneficial to your current needs. The goal is and has been to provide information which compliments personal-business relationships. Remember, as your involvement in procurement increases the amount of decisions engaging business cultures and values will grow substantially. Those points of reference can only be gained through interactive relationships and shared experiences. Take the time to not only talk to peers, but to talk about the "right" things involving your business needs.

Good luck,

DM

Appendix 

# Chapter 1

1. Matthew Sparkes, head of financial services at the Crown Commercial Service (CCS), February 2020

https://www.procurexscotland.co.uk/ 

# Chapter 2

1. Protiviti Survey 2017, "close to half of finance leaders believed that 20% or less of procurement's savings drop to the bottom line"

https://www.protiviti.com/sites/default/files/united_states/insights/2017-procurement-survey-

protiviti.pdf

2. Claritum Review, "excluding strategic spend, over 60% of purchase transactions made are repeated"

https://www.claritum.com/purchasing-software/

3. Kearney Study 2019, Assessment of Excellence in Procurement (AEP), "Leading procurement organizations have up to 67 percent more reach and influence over their organization's spend than average performers"

https://www.kearney.com/procurement/the-assessment-of-excellence-in-procurement-study 

# Chapter 6

1. Becker's Hospital Review 2018, "according to the Healthcare Supply Chain Association, 96-98% of hospitals in the U.S. belong to at least one GPO"

https://www.beckershospitalreview.com/hospital-management-administration/50-things-to-know-

about-the-country-s-largest-gpos.html

2. Uniform Guidance procurement standards that went into effect in January 2017

https://www.ecfr.gov/cgi-bin/text-

idx?SID=c941cffb38475e1f8a68ce626bec1edc&mc=true&node=sg2.1.200_1316.sg3&rgn=div7 

# Chapter 10

1. LinkedIn Survey 2018, "the soft skills most in demand include communication, collaboration, and leadership"

https://learning.linkedin.com/resources/workplace-learning-report-2018

2. Jonathan Berent, Amy Lemley, "Work Makes Me Nervous: Overcome Anxiety and Build the Confidence to Succeed", 2010

https://www.social-anxiety.com/

The 2 Hour Mentor

Copyright @ 2020

David M. McGuire

Contact:

dma.mcguire@gmail.com

https://www.linkedin.com/in/thedavidmcguire/

https://www.facebook.com/dma.mcguire 
