Have you ever been in a situation where a supplier “forgot” to bill you and—out of the blue—you get an invoice from that supplier for goods or services that were provided months and months ago?  It’s particularly painful to get an old invoice from a supplier when you’re already in a new budget year and you haven’t accrued anything for the old invoice.  Surprise!

Arguably, you should have decent enough financial controls to keep this from happening—like reports that show old purchase orders that haven’t been yet matched with an invoice.  That’s a sign that you may not have gotten an invoice from a supplier and you need to pester the supplier to send you one.  But, even with the best financial controls, “old” invoices still have a way of coming back to haunt folks.

So, in the situation described above, what do you do?

Your initial reaction might be, “There’s no way in hell I’m going to pay an invoice from over a year ago!  The supplier can eat it. It’s their fault!”

Well, you’re right, it may be the supplier’s fault but that doesn’t mean that you’re entitled to not pay the invoice.  Generally speaking, a supplier is entitled to recover the value of the goods or services provided, even if an invoice is submitted substantially late.  So, if in fact you really did receive the goods or services, your state law likely requires you to pay up or else.  For example—and without going into the legalese—in Virginia, a supplier can submit an invoice associated with a written contract up to 5 years late and still have a legal right to get paid.

So, as outraged as you might be, here are some suggestions you might want to consider:

Escalate.  It’s probably the supplier’s accounts receivables department that’s coming after you and they’re likely the ones that boned up in the first place.  Don’t waste your time arguing your case with them.  Instead, contact your supplier's sales representative, tell him or her you’re unhappy and that you want to make sure the supplier’s management is aware of this screw-up.  Escalating the issue helps to set you up for most of the following recommendations.

Prove it.  Ask the supplier to prove that the goods or services were actually provided.  If you honestly can’t remember getting anything from the supplier, and the supplier can’t prove that you did get anything, it’s less likely that the supplier will come after you if you refuse to pay.

Push back.  If the supplier can prove that you did receive the goods or services, make a “good business sense” appeal to the supplier that you shouldn’t have to pay the invoice because it was submitted so late.

Negotiate a lower amount.  If the supplier refuses to forgive the invoice in its entirety, ask the supplier to reduce the amount of the invoice on the basis that it wasn’t budgeted for.

Push the payment out.  If the supplier is adamant that they be paid the full amount of the invoice, ask the supplier if payment can be pushed into your next budget year since you don’t have the amount of the invoice budgeted this year.

Threaten.  Yep, threaten.  But be reasonable first.  If the supplier provided the goods and services, you’re generally happy with the supplier, and paying the old invoice doesn’t constitute undue business hardship, then just grit your teeth and pay the invoice.  However, if you need to threaten that you’ll never, ever do business with the supplier again unless they make the old invoice go away, do it.  It may work.

Refuse to pay.  Even if the supplier is technically entitled to receive payment doesn’t mean—barring court order—that you will pay.  You can always tell the supplier that you refuse to pay and that they can come after you.  If the amount is small enough, they’ll likely write it off instead of spending money to sue you for it.

Circumvent state laws (legally).  As a preventative measure, you can contract around your state laws by including something similar to the following in your contracts with suppliers:

“Supplier acknowledges that it must submit invoices on a timely basis to Customer so as to avoid any unnecessary business hardship on Customer.  Notwithstanding the laws of the state of [insert state here] and Supplier’s rights to collect on debts, Supplier hereby agrees that Customer shall not be required to pay any invoices submitted by Supplier that are submitted by Supplier more than twelve (12) months following the date that the goods or services, as the case may be, were provided by Supplier.”

        

Here's a short white paper on vendor-managed inventory implementations I recently drafted and that I'm finally getting around to posting.  Happy reading!

Vendor-Managed Inventory Implementation Considerations.  It's Not a Panacea...

A vendor-managed inventory (VMI) is an inventory replenishment arrangement whereby the vendor monitors and manages the retailer's inventory—the vendor receives demand information electronically and then replenishes inventory based on, among other things, mutually agreed upon objectives for inventory levels, fill rates, and transaction costs.  The goal of VMI is to streamline supply chain operations for both vendor and retailer, as well as to reduce costs, time, and working capital, by moving the responsibility of inventory servicing and related decision-making further up the supply chain, i.e., to the vendor.

The benefits of VMI are clearly significant, as illustrated in a recent two-year study of VMI implementations conducted by Datalliance which included 65 location relationships spread across 12 distributors representing over 20,000 stock keeping units.  Over the two years, the study found that sales improved 47%, inventory turns increased by 38%, and stock-outs were reduced by 45%.

While VMIs were relatively new in practice during the mid- to late-1990s, many organizations jumped on the VMI band-wagon as a blanket panacea for their inventory management woes.  As time has progressed, inventory management professionals have come to realize that VMIs should be considered as a part of a tailored—and systematic—approach to inventory management.

VMI Implementation Considerations

The first threshold in considering VMI is whether or not VMI is even available as a supply chain strategy.  In many cases, vendors will only consider VMI for its higher-volume retailers.  The rationale is that while costs are reduced as a result of VMI, margins are reduced as well and VMI therefore can only be justified based on high-volume.  Once that threshold is met, subsequent implementation considerations typically center on three fundamental considerations: focus, trust, and patience.

Focus

The first consideration, and perhaps it is almost an admonition, is that a VMI implementation requires and involves significant focus.  Not all commodities are necessarily appropriate for VMI.  For example, if demand for a particular commodity cannot be forecasted with any greater of a degree of accuracy by the vendor than the retailer, the benefits of VMI are diminished.  Another aspect of focus is whether or not the vendor can adequately support a VMI implementation.  Thus, VMI implementations should be confined to those commodities that make sense, such as high-volume / low-variation commodities, and where the vendors of those commodities are sophisticated enough in their own supply chain practices to support VMI.

Trust

Another critical consideration for a successful VMI implementation is trust.  Buyers new to VMI sometimes distrust the effectiveness of VMI programs, and, fearful of stock-outs, become overly involved in monitoring the program—ultimately resulting in the program’s failure.  To this end, mutually-agreed upon contractual commitments are a critical basis for a trusting business relationship.  Generally speaking, such contractual commitments in the context of VMI should include commodities to be managed, locations to be managed, maximum and minimum inventory levels, frequency of replenishment, service level objectives with associated liquidated damages, and procedures for administrative activities such as determining demand forecasts, handling returns, and invoice processing.

Patience

A VMI implementation can be complex, initially fraught with missteps, and require collaboration that is atypical between vendors and retailers: the vendor / retailer relationship must be fostered, trust built, processes and procedures developed, information systems integrated, and myriad other activities accomplished.  All of these activities take time and do not even consider all of the various implementation problems that are likely to occur.  Thus, patience from both vendor and retailer is demanded by the long-term effort that is inherent to VMI implementations.  Even beyond the phase of implementation, patience is required in terms of results expectations.  While articles and white papers describing dramatic VMI successes—predominately from consultants who implement VMI solutions—abound on the Internet, more scholarly and pragmatic articles require somewhat more diligence to research.  In reviewing these more realistic perspectives, it becomes clear that the beneficial results from a VMI implementation take time and effort…and require patience from all involved stakeholders.

Conclusion

While this note is by no means complete in a thorough discussion of VMI—nor was it intended to be—the thrust is that focus, trust, and patience are broad yet critical considerations in terms of a VMI implementation.  Beyond that, the “devil is in the details” for any VMI implementation to be successful.

        

Every now and then, especially when I'm traveling, I like to do a crossword puzzle.  A few years ago, a co-worker's family member made a documentary on crossword puzzles, called Wordplay , that I found to be extremely entertaining and interesting.  Part of the documentary was about how crossword puzzles are created.  So, on a recent vacation to my hometown of St. Petersburg, Florida, I decided to make my own crossword puzzle--using my favorite subject of procurement--while sitting on the beach and further damaging my already sun-damaged skin.

Just to make my exciting crossword puzzle even more exciting, I decided to throw in a little prize: The first person that completes the crossword puzzle correctly by the end of June 2010 will get a FREE, SIGNED copy of my Contract Negotiation Handbook!  Yes, I know it's hard to believe and you're probably on the verge of fainting, but it's true--you will get a FREE, SIGNED copy.  To win, you have to send me a scanned image of the completed (and completely correct) crossword puzzle by the end of June.  I will announce the winner, if any.

If you have any comments on my crossword puzzle, feel free to post them but be nice.

Have fun!


Procurement Crossword Puzzle

        

Here's an actual disclaimer provision added by a supplier, which immediately followed a representation and warranties section containing, e.g., a warranty against infringement.  I felt all warm and fuzzy when I saw the opening clause in the disclaimer ("Other than as expressly provided for herein..."), believing that my express reps and warranties in the prior section weren't disclaimed and were still valid.  So--specifically in reference to my express reps and warranties--should I feel warm and fuzzy or should I feel cold and prickly?


15. Disclaimer of Warranty.  OTHER THAN AS EXPRESSLY PROVIDED FOR HEREIN, SUPPLIER AND ITS LICENSORS MAKE NO REPRESENTATION, WARRANTY, OR GUARANTY AS TO THE RELIABILITY, TIMELINESS, QUALITY, SUITABILITY, TRUTH, AVAILABILITY, ACCURACY OR COMPLETENESS OF THE SOFTWARE. SUPPLIER AND ITS LICENSORS DO NOT REPRESENT OR WARRANT THAT (A) THE USE OF THE SOFTWARE WILL BE SECURE, UNINTERRUPTED OR ERROR FREE, OR (B) THE SOFTWARE OR THE SERVERS THAT MAKE THE SERVICES AVAILABLE ARE FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS. ALL CONDITIONS, REPRESENTATIONS, AND WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW BY SUPPLIER AND ITS LICENSORS. THE SOFTWARE HEREUNDER IS BEING DELIVERED OVER THE INTERNET, AND ACCORDINGLY, IS SUBJECT TO LIMITATIONS, DELAYS, AND OTHER PROBLEMS INHERENT IN THE USE OF THE INTERNET AND ELECTRONIC COMMUNICATIONS. SUPPLIER IS NOT RESPONSIBLE FOR ANY DELAYS, DELIVERY FAILURES, VIRUSES, HACKER INTRUSIONS OR OTHER DAMAGE RESULTING FROM SUCH PROBLEMS.

        

On May 18th, NRECA 's Vendor Management Office and Theresa Polzin, C.P.M., a distinguished NRECA employee, received a number of prestigious awards from NAPM-NCA , the greater D.C. area Institute for Supply Management affiliate.  NAPM-NCA is one of the oldest ISM affiliates, having been first established in 1942.

NRECA received an appreciation award for its service to the supply management profession and Ms. Polzin received an appreciation award for her contributions to the affiliate.  She also received the D.A. Cook Award, one of NAPM-NCA's highest honors, for her commitment to the affiliate and for her continuing work in advancement of the supply management profession.   In addition to receiving these awards, Ms. Polzin was appointed as the Director of Education, NAPM-NCA board.  In response, Ms. Polzin commented, "I'm extremely honored by these awards and my appointment.  I am proud to be recognized as a contributor to the supply management profession and I look forward to further enhancing educational opportunities for my peers and the next generation entering the profession."

        

Some of you asked if I had any specific study tips for the CPSM Bridge Exam beyond my general admonition to put in plenty of study time.  Yes, I do have some "super secret" tips and here they are...

First, remember that the Bridge Exam tests you on the entire supply chain and not just purchasing / procurement.  The C.P.M. exams were mainly purchasing-oriented (the "P" part of C.P.M.) and the Bridge Exam is now testing you to see if you understand supply management beyond just procurement.  So don't expect a bunch of purchasing-type of questions on the Bridge Exam.  You also need to throw your personal experience and opinions to the side and forget what you know (or at least what conflicts with an opposing ISM view).  So what if you don't agree with what ISM states about a particular topic in one of their Study Guides?  You're trying to pass an exam, not have a debate, so memorize the ISM view and forget your view for purposes of the Bridge Exam.

The three CPSM Study Guides (the spiral bound books, not the hardcover ones) are critical--I predict you will fail without studying these as your primary reference.  For purposes of organizing your study focus, you should refer to the following two sections that are contained in the preamble to each of the Study Guides:  "Distribution of Questions Within the CPSM Bridge Exam" and "Overview of CPSM Bridge Examination".  It doesn't matter which Study Guide you look at for these sections because they're the same in all three books.  ISM provides you with critical information and input in these sections.

In the "Distributions..." section, ISM impliedly (but not expressly)provides a weighting of what are the most important topics (what ISM calls a "Component Area") to study.  For example, the "Sourcing" Component Area found in Study Guide 1 has two exam questions associated with it.  In contrast, the "Leadership" Component Area found in Study Guide 3 has thirty questions exam questions associated with it.  With this information and knowing that there are a total of 180 questions on the Bridge Exam, you would come to the correct conclusion that most of your study time relating to these two components should be devoted to the "Leadership" Component Area.  If you have limited time to devote to studying, I would recommend studying for the following heavily-weighted Component Areas to the exclusion of the others.  [Brackets contain the total number of questions, and these Component Areas represent over 150 of the 180 questions on the Bridge Exam.]

• Cost and Finance [12Q]
• International [8Q]
• Logistics [12Q]
• Materials and Inventory Management [12Q]
• Organizational/Department Assessment [10Q]
• Planning [9Q]
• Project Management [8Q]
• Leadership [30Q]
• Risk and Compliance [15Q]
• Strategic Sourcing [35Q]

In the "Overview..." section, ISM has essentially provided you with the beginnings of a study outline should you decide to create one.  I did decide to create one because that's what works well for me as a study method.  You can find an incomplete version of the study outline I created here (incomplete because you learn the most when you're completing the study outline not just studying from it).  Use my study outline as a basis for yours at your own risk!  Review the Study Guides and populate your study outline based on what you think you'll most likely see on the exam.

ISM also made studying easy for those taking the Bridge Exam by indicating the material in the Study Guides that is directly relevant.  Within each Component Area's Task, ISM has put the Bridge Exam material the Study Guides in brackets.  There's no way to miss it.  If you study material outside of the brackets, that might be interesting for you but it's a total waste of your time for exam studying purposes.

ISM's CPSM Diagnostic Kit (i.e., the practice exams) is critical for studying.  I used the hardcopy version only (you'll understand why a few sentences from now).  Take the exam(s) first to find your weak areas, study those weak areas, and then re-test.  I recommend taking the practice exams at least three times because the actual exam questions are very similar (not exactly the same, of course).  The problem with the CPSM Diagnostic Kit is that it prepares you for all three exams--there is no CPSM Bridge Exam Diagnostic Kit.  So, if you take each of the three practice exams, you'll be testing yourself on Component Areas that you don't need to study for (i.e., you're wasting time).  However, you can create your own practice Bridge Exam using the CPSM Diagnostic Kit and study only what's relevant.  At the end of each practice exam is a section entitled "Answer Key and Scoring Table".  It contains the number of each exam question using a tabular format and ties each question to a Task Area (enumerated as N-X-N) that comprises each Component Area.  Using the "Distribution..." section  that I mentioned earlier (contained in the Study Guides), I determined which Component Areas that I would not be tested on.  Then, in the CPSM Diagnostic Kit "Answer Key..." section, I put a slash through the table of each Component Area that I would not be tested on.  That way, I knew exactly which questions weren't relevant to the Bridge Exam.  Then, I went through each exam and crossed through each question I knew I wouldn't be tested on--that left me with all of the questions I would be tested on as a part of the Bridge Exam.  This is why I used the hardcopy of the CPSM Diagnostic Kit versus the online version.  It sounds a lot more involved here than it really is.  It took me under ten minutes to do the cross-referencing / crossing-out and saved me from testing myself on questions that just didn't matter.

CORRECTION:  One of my readers pointed out that ISM just came out with a hardcopy diagnostic kit specifically for the Bridge Exam.  ISM will have a softcopy available in late 2010.  My opinion, even without having seen it, is to buy it.

ISM uses scaled scores (and ISM explains why in the CPSM Diagnostic Kit) which makes it a little difficult to determine whether you're doing well on the practice exams when you remove all of the non-Bridge Exam questions.  Roughly speaking, and based on my calculations, 55% correct is passing for the CPSM Bridge Exam, but you really want to be shooting for around a 70% average on your practice exams.

Best of luck and I hope you found these tips helpful!

P.S.  I did not take an ISM-led Bridge Exam review course because that's not one of the best ways that I learn, but I've heard that they're good.  I also don't do study groups.  For me, it's grinding through the materials, building a study outline, and doing practice questions over and over and over.  ISM has given you the ammo you need to pass, you just need to put in the time and study smart.

        

I have two procurement positions that are open.  One is a Senior Procurement Professional (individual contributor) and the other, newly-created, position is Director, Vendor Management Office (people manager) for my Vendor Management Office at NRECA in beautiful Arlington, Virginia. 

Both positions require significant indirect commercial spend experience, degrees, and C.P.M., CPSM, or CCCM certification (or the ability to obtain such certification within one year of employment).  Good relo package.  I'm looking for the best of the best, so, if that's you, please apply.

NRECA offers competitive wages and a world-class portfolio of employee benefits (including a pension plan!) that includes a variety of options that allows our employees to customize their coverage to meet their individual needs.

Qualified candidates, please e-mail your resume to me by clicking "Stephen R. Guth" under "Contact E-mail" in the sidebar on this page (look to your left).

NRECA is an equal opportunity employer. All applicants are considered without regard to race, color, religion, sex, age, national origin, veteran status, disability or any status that is protected by law.

        

On May 17th, 2010, Chief Justice Leroy Rountree Hassell, Sr. of the Supreme Court of Virginia admitted Stephen R. Guth, Esq. as a part of a swearing-in ceremony sponsored by the Virginia State Bar Corporate Counsel section.  Ronald Kuykendall, Esq. was Mr. Guth's sponsor and moved the court for Mr. Guth's admission.  The motion was granted by Chief Justice Hassell and Mr. Guth was admitted after being sworn-in by the Chief Deputy Clerk.

In 2009, Mr. Guth was admitted to practice before the District of Columbia Court of Appeals.

        

Not only did Day 4 of the 2010 ISM Annual Conference start off overcast, it was actually raining.  So much for my week in paradise (although it did brighten up later in the day).  The agenda started early so that departing attendees could get in at least one last session before they left.  "Services Procurement: Improving Statements of Work, Supplier Selection and the Contracting Process", presented by Merle Roberts, CPSM, C.P.M., was my choice of the morning.  Merle included some great SOW preparation guidelines.  One guideline is to NOT include background information in the SOW--that cuts both ways in my opinion and I sometimes include relevant background.  You decide.

        

The 2010 ISM Annual Conference was in full swing today, with just around 2,000 attendees rushing to one session or another.  The day started off cloudy (again) but brightened up to what you would expect from San Diego weather later in the day.

The first session I attended was "Measuring Strategic Sourcing and Procurement Maturity" presented by Dr. Marika Lindstrom, VP of Indirect Procurement at Unilever (see actual preso here ).  At the last minute I had decided to opt-out of where I was originally headed--a session entitled "CPOs Speak: Earn--and Keep--a Seat at the Table."  I already have a seat at the table and someone would likely die trying to move me away from the table, so I went on to Marika's presentation instead.  What a great choice.  I was in awe--Marika clearly is a procurement machine.  Be sure to download her presentation while it's still available.  With around 400 procurement professionals sourcing indirect procurement spend of about 12 billion Euros annually, Marika has honed the art and science of managing and upgrading procurement talent.  Her presentation focused primarily on the right key performance indicators or metrics for managing procurement.  Some interesting points that she made:

• Striving for 100% customer satisfaction doesn't make sense because there's a natural (and good) tension between buyers and their customers--achieving 100% may mean that you're just doing what the customer wants you to do (versus what your employer wants you to do, e.g., save money and mitigate risk).
• Rogue spending is particularly an issue in indirect procurement and not so much for direct (I guess I knew this but I had never put the thought together in my head).
• Procurement researchers say that, very generally, there is a 10% - 18% savings achieved by a procurement professional if procurement is involved prior to supplier selection and 0% - 5% savings if brought in after supplier selection.  That's a nice little statistic to through around to your internal customers.
• Competitive bids typically result in a 10% - 20% savings due to competitive pressures on vendors whereas the same effect using e-auctions is around 70% (and she's having success using reverse auctions for services--which is an atypical category for auctions).
• Shoot for a procurement function ROI of >10 (where ROI = Total Savings / Total Cost of Procurement Function [including salaries, fringe, training, occupancy, etc.])
• Sustainability will continue to be a focus, so begin thinking about related KPIs for procurement staff (such as diversity supplier spend as a percentage of total spend).

Marika also described the skill levels of her staff as: foundation, practitioner, expert, and thought leader.  These are formal skill levels and there are deliberate efforts she undertakes to move staff up the levels to thought leader.

After that highly enlightening session (I need to reread her presentation, her conference proceeding, and my notes to really absorb it well and do something actionable with the information), I spent a little time in the ISM Career Center.  I have my HR recruiter at the conference with me since I have two key procurement positions open, and we were canvassing all of the fine talent at the conference.  Lots of very qualified prospects...

Following that, I attended "Contract Writing as a Critical Element of Supplier Risk Management."  It was a very good presentation, but I quickly realized that I wasn't going to learn anything new.  One interesting item was that the presenter referred to boilerplate as the "Invisible Provisions."  I found myself nodding in agreement--once you draft those boilerplate provisions, they become invisible to you (and that's not a good thing for all of the obvious reasons).

I popped into a niche category session, "Optimizing Meetings Spend."  That's a significant category for my procurement folks (we book over 60,000 hotel room nights per year).  There wasn't much attendance in this session, but the folks that were there were obviously very deep into the category based on some of the questions and answers.