The Vendor Management Office

VENDOR: Sorry, But Here's an Invoice From Last Year We Forgot to Send. YOU: Wwwwhat?!

2010-07-21T17:09:00Z

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.”

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

2010-07-21T13:02:00Z

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.

Complete This Crossword Puzzle and Win a Free, Signed Book!

2010-06-14T14:49:00Z

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

Test Your Procurement Skills: Reps and Warranties and Disclaimers, Oh My!

2010-06-04T15:42:00Z

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.

NRECA and Theresa Polzin, C.P.M. Receive Prestigious ISM Affiliate Awards

2010-05-19T13:22:00Z

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."

Super Secret Study Tips for the Certified Professional in Supply Management (CPSM) Bridge Exam

2010-05-18T16:43:00Z

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.

Jobs: Hot, Hot, Hot! Two Procurement Positions Open at NRECA. Apply Now!

2010-05-18T16:15:00Z

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.

Stephen Guth Sworn-in Before Supreme Court of Virginia

2010-05-18T12:21:00Z

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.

Day 4: From the Floor of the 2010 ISM Annual Conference

2010-04-28T20:31:00Z

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.

After the first session, the San Diego Convention Center hallways were noticeably less busy as attendees began heading to the airport. My next session was "Scorecards: The Key to Accountability" which focused on accountability to drive staff performance. I was tempted to attend the "Earned Value Project Management" session--I wish ISM had more repeat sessions, but I understand that conferences have revenue / cost issues to contend with.

I'd also like to see more presentations by practitioners and less by consultants, and I'd like to see more of an emphasis on practical "take backs." I'd also like to see more "facilitated" networking, where ISM brings members together to get to know each other (such as roundtables and Q&A forums).

The closing keynote speaker at brunch was Dave Barry, who was absolutely hysterical. At the beginning of the brunch, there were more attendees than tables, so the convention center staff had to bring out more tables and food. Dave started by thanking ISM for having him speak at the conference, and he went on to explain his understanding of supply management. He commented to the attendees that he knew we were all supply management experts--people who, for example, would most certainly know how many people would be coming to an event (like a brunch) and who would most certainly ensure that there were enough tables and enough food. A basic supply / demand management issue. And that Dave, as a mere "civilian," certainly wouldn't be smart enough to do that. The audience roared--and continued to roar as Dave took us through one funny situation after another.

All in all, a good conference, worth the time and expense. Of course, getting continuing ed credits for for certification purposes was also a nice byproduct of attending. San Diego was a great location for the conference, but the weather was a little disappointing. The Hilton Bayfront was an ideal place to stay (I highly recommend it) and the new section of the convention center was perfect.

Day 3: From the Floor of the 2010 ISM Annual Conference

2010-04-27T23:43:00Z

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.

Day 2: From the Floor of the 2010 ISM Annual Conference

2010-04-26T22:40:00Z

Weather-wise, Day 2 (Monday) of the 2010 ISM Annual Conference started very much like the day prior—overcast and foggy. But that didn’t stop attendees from packing the exhibitor hall in the morning… It was more than the typical grabfest, with attendees spending some talking with exhibitors before loading themselves down with goodies. The exhibitors seemed to be pretty happy with the action on the floor and getting quality time with prospective customers. My company has a booth here as well—but instead of the usual products or services, we’re looking to “sell” our company as the employer-of-choice for a couple of top-notch procurement pros. Interestingly enough, Goldman Sachs had a booth right next door with the same idea—they’re looking for procurement talent as well (but they’re in Jersey City and we’re in DC).

The first session I attended was “World-Class Procurement: An Evolution of Value and Capability,” presented by the Hackett Group. The presenter, Chris Sawchuk, explained that procurement has become more “deliberate” since the economic downturn—focusing on “cost, cash, and risk.” I liked the description: “deliberate” implies “thoughtful,” and I agree that companies have become much more “thoughtful” in spending their hard-fought revenue on goods and services that they need. I also agree with the characterization of focusing on cash—companies are worried about reducing costs AND freeing up working capital.

In a recent survey, the Hackett Group determined that the economic downturn has been a boon of sorts for procurement pros—73% of the respondents reported that they were now involved in NEW spending areas where they had traditionally never been involved before, such as HR (sourcing benefits), Legal (hiring outside counsel), and IT. Chris cautioned that 2010 is the “Year of Agility” for companies and that procurement functions need to be onboard with corporate initiatives associated with preparing for lower growth, moving to global (not just multi-national) operations, and moving fixed costs to variable costs (meaning more outsourcing and contingent labor).

According to the Hackett Group, procurement functions are changing their priorities as well. In past surveys, the objective of cost saving was at the top of the list. Now, cost savings has dropped to third, being ousted by a focus on strategic sourcing (73% of respondents rated strategic sourcing activities such as supplier rationalization as numero uno) and upgrading procurement staff and skills (hallelujah, 63% respondents rated staff as the number two priority). Surprisingly, “going green”—greatly hyped in the media—was at distant number 13 on the list.

Fun Fact: The Hackett Group reported that world-class procurement organizations, on average, reported a 7% cost savings (which includes cost avoidance) in 2009. So, on average, if you’re saving more than 7% overall on your deals, you’re doing pretty good.

I was up next, giving my presentation entitled “Implementing Best Practices: The Procurement Maturity Model” to a packed audience of about 300 attendees. There’s only so much you can get across to a large group in around an hour’s time, but one of my goals whenever I give a presentation or conduct training is to offer some real-world job aids or at least tangible, useful advice. Based on feedback afterward, I think I did a good job of letting folks know how to use the Procurement Maturity Model in their day-to-day jobs to implement best practices.

After a yummy lunch of convention center chicken and what I thought was really bland fried fish (but what I later learned was a fried risotto) sponsored by Oracle, I was off to the next session. It was a tough choice in the afternoon, with “Critical Elements of Supplier Negotiation” barely beating out “Five Universal Best Practices That Help in Trying Economic Times” and what seemed to be some other very interesting sessions. The “Critical Elements” session was presented by Ernest Gabbard, Senior Director of Corporate Strategic Sourcing at Allegheny Technologies. Ernest has quite an impressive set of academic and professional credentials, including a law degree and a CPSM.

As a part of his presentation, Ernest provided a “Negotiating Plan Checklist” (which should be available on ISM’s website), with the stages of Preparation, Execution, Documentation, and Follow-up. I was happy to see that, of the one page handout, one side was dedicated to Preparation and the other side was dedicated to the rest. I agree with that philosophy 100%--successful negotiations are mostly a direct result of preparing.

Ernest first talked about what he considered the “most frequent negotiating mistakes” and they bear repeating here:

Inadequate preparation
Inappropriate strategy
Focusing on a single deal element (e.g., price)
Misunderstanding or misuse of power

So, how do you avoid those mistakes and ensure a greater likelihood of negotiation success?

Knowledge / Information
People and communication skills
Reasonable negotiation objectives / goals (not too low and not too high)
Planning and preparation
Appropriate strategy
Power / Leverage
Tactics and counter-tactics (to ploys)
Time and timing

Another interesting topic that Ernest touched on was what he calls “relational negotiation,” which is intended to assess the impact of negotiating elements on a vendor relationship. For example, the impact of employing ploys and tactics—do they build or destroy trust? Another example is the impact of the negotiation process—is it conducive to building trust? The point is to be aware of the impact of a negotiation on the more extended delivery process. Did you achieve a great negotiation result with the unintended side effect being that you better be looking over your shoulder because the supplier is, some how, some way, going to make it up when delivery the negotiated product or service? So, a word of caution—just because your vendors may have gigged you when the economy was going gangbuster, don’t try to “get back” at those vendors during this down economy because things (i.e., the economy) will change again.

Day 1: From the Floor of the 2010 ISM Annual Conference

2010-04-26T01:56:00Z

The day in San Diego started off overcast and a bit chilly, with folks slowly making their way from the new Hilton to the San Diego Convention Center. Oh, since I love good deals--just a quick word on the Hilton San Diego Bayfront. What a fabulous hotel (at great rates)! This waterfront hotel is brand-spanking new, combining casual luxury with the usual best-in-class Hilton service. If you plan on going to a convention in San Diego or if you're booking a convention in San Diego, the Hilton San Diego Bayfront is the place to be.

The ISM Conference really gets into full gear on Monday, but there were a number of "kick-off" events for folks arriving on Sunday. There seems to be a large number of attendees already here, but the ISM folks and their volunteers made registration a breeze. The conference is in the new part of the San Diego Convention Center, with plenty of signage to get people headed to where they need to be.

I attended a particularly good session today conducted by Bob Engel of Resources Global Professionals who talked about 10 Best Practices for Supply Management Organizations. Bob focused not just on procurement, but the entire supply chain. His second recommended best practice is "Align and Staff the Supply Management Organization," where he cautioned attendees to have the "right mentality" by ensuring they're aligning themselves with the goals of the organization. He also mentioned that he is seeing an emerging trend that contract management responsibilities are more and more being taken out of the business units and being placed into supply management functions.

My Experience with ISM's Certified Professional in Supply Management Bridge Exam

2010-04-20T22:15:00Z

I hesitated momentarily before I clicked that final "next" button on the screen in front of me at the Pearson VUE testing center in Washington, D.C. I was just about ready to submit my final responses to the ISM Certified Professional in Supply Management (CPSM) bridge exam. Once I clicked that button, I knew I wouldn't be able to review any of the questions or change any of my answers. I was worried--I had sweated and toiled on almost every exam question over the past couple of hours. I knew I would have to wait another 30-days before I could re-take the exam if I failed it. I took a deep breath, steeled myself, and clicked the mouse. I turned my head away as the screen blinked before me.

When I first walked into the exam, I felt a little uneasy because I had been sick for the two days preceding the exam and hadn't been able to do much final cramming. I tried to find a little solace in the fact that I had studied for the exam pretty thoroughly and even took the diagnostic exams to learn where my weak areas were. About 20 minutes into my three hour time limit, I became even more uneasy as I quickly realized that ISM wasn't making the Bridge Exam a rubber stamp hurdle to achieve the CPSM designation. Not only did I have to reach deeply into my memory of what I had studied, I found myself using every one of my tried-and-true test-taking tactics to best the exam. I was reading and re-reading questions to clarify the problem stem. I was breaking down each of the answers, using the power of deduction to get to the best response. I was flagging questions for review and re-review. It was painfully obvious to me that ISM clearly took the exam seriously and intended to really challenge test-takers on their knowledge--broad and deep--of supply management expertise. It was also obvious that just memorizing all of the exam study materials likely wouldn't be enough to pass the exam--practical experience in supply management is an absolute must.

When I looked back at the screen, my fate was instantaneously sealed. Whew! I was relieved that I passed and I was glad it was over. Now on to the more mundane task of preparing the paper work for my CPSM application.

My message to ISM: Your exam study materials were spot-on and good for you that you came up with an exam that really tests the skills and knowledge of CPSM candidates.

Guth Appointed as Chief Corporate Counsel of NRECA

2010-03-17T18:46:00Z

Stephen R. Guth was appointed as Chief Corporate Counsel and Vice President, Vendor and Legal Services of the National Rural Electric Cooperative Association, a large trade association located in the Washington, DC metro area that represents over 900 rural electric cooperative utilities and over 42 million consumers. Guth is responsible for all of NRECA's corporate legal and procurement activities. His third book,Project Procurement Management: A Guide to Structured Procurements, was recently published and is available on Amazon.com and through Barnes & Noble.

IRS Issues Request for Quotation--for Shotguns! Pow! Pow!

2010-02-03T13:34:00Z

If you've ever wondered what an RFQ for shotguns might look like, wonder no more! The IRS has issued an RFQ for shotguns, specifically:

"Sixty Remington Model 870 Police RAMAC #24587 12 gauge pump-action shotguns...with fourteen inch barrel, modified choke, Wilson Combat Ghost Ring rear sight and XS4 Contour Bead front sight, Knoxx Reduced Recoil Adjustable Stock, and Speedfeed ribbed black forend."

Moral of the RFQ? You better pay your taxes--or else!

Rotten Tomatoes: Safeway Foods Purchasing Agent Gets 20 Years

2010-02-01T20:23:00Z

I'm in the process of revising my employer's vendor gifts / entertainment / ethics policies and was doing a little Internet research when I came across a recent article that caught my attention. Apparently, a Safeway Foods purchasing agent is facing 20-years in prison for steering tomato contracts to a specific seller. Ouch! I'm sure there's a good joke in there somewhere, but I'm not creative enough to think of a good one.

Update: For what it's worth, someone sent me a joke... What did the purchasing agent say when he got busted for taking bribes to buy tomatoes? Hey, I was just trying to "ketchup" on my bills!

Semi-Off Topic Post: Gallup Employee Engagement Survey

2010-02-01T17:27:00Z

Actually, it's really on topic since, without engaged staff, procurement departments wouldn't be able to provide much value-add. Some managers find the Gallup Q12 frustrating--in my mind, it's an invaluable tool to build employee engagement. I came across a blog post from an employee engagement expert, David Zinger, who does a great job at getting to some of the controversy of the Gallup Q12 by proposing a tongue-in-cheek Q13. It's a short, enlightening read for any Gallup aficionados out there in my readership.

Debarment and Suspension = I'd Rather Die in a Fire

2010-01-29T18:17:00Z

If you're a commercial buyer but do procurements under a CFR, you've probably run up against debarment and suspension. One of my staff attorneys, Rebecca Mordas, took on the task of explaining the rules in the context of USDA. Here is her analysis.

Understanding 7 CFR 3017 & 7 CFR 3018

Even experienced procurement professionals can become confused when delving into the world of government contracts for the first time. Code of Federal Regulations (CFR), agency specific rules, define the responsibilities of recipients of both federal funding and direct federal contracts. CFRs house rules pertaining to every stage of a contract procurement relating to government contracts. This memo only addresses how and when recipients of federal funding, like RUS borrowers, must comply with the debarment and suspension rules and restrictions on lobbying in their contracts for procurement of goods and services.

Debarment & Suspension Rules

The debarment and suspension rules grew out a response to President Reagan’s 1986 Executive Order 12549 instituting a government-wide initiative to curb fraud, waste and abuse in Federal programs and increase agency accountability, the Department of Agriculture drafted 7 CFR 3017 containing the debarment and suspension rules for non-procurement transactions. Non-procurement is specifically defined in the regulations at 7 CFR 3017.970 as any transaction, excluding direct procurements with the federal government, including but not limited to grants, cooperative agreements, scholarships, fellowships, contracts for assistance, loans, loan guarantees, subsidies, insurances, payments for specified use and donation agreements.

If your company receives any of the above referenced government funding, subsidized treatment or government backed guarantees, then the debarment and suspension rules are directly applicable to your organization. As a recipient of federal funding, your organization owes several duties to the Department of Agriculture.

First, prior to even receiving a non-procurement award, your first obligation to the Department of Agriculture is to certify that your organization or the principal on the prospective project is not currently excluded or disqualified. An excluded person or entity refers to one who has been suspended or debarred by the Department of Agriculture or any other federal agency pursuant to each agency’s applicable regulations, whereas a disqualified person or entity is isolated to those who have been restricted through statutes, executive orders or any other official authorities from participating in federal programs. Disqualification is mandated by an official authority while exclusion is discretionary within each agency. Additionally, you as a prospective participant must disclose to the federal agency from which you are applying for aid or funding whether your organization or your principal have been criminally convicted within the past three (3) years for conduct enumerated in 7 CFR 3017.800 or have had any civil judgments rendered against you for conduct enumerated in the same section, whether your organization or principal is presently indicted or charged, both criminally or civilly, with any of the offenses referenced in 7 CFR 3017.800, and whether your organization or principal have had a federal, state or local contract cancelled with the preceding years for cause or default. Chiefly, the Department of Agriculture is concerned with whether your organization has run afoul of the key standards of good faith and fair dealing in your regular business dealings.

Your obligation to make these disclosures to the Department of Agriculture extends throughout the life of your non-procurement activity. For example, if you have a loan from RUS due in 2020, your disclosure obligation extends until that loan has been repaid. In the event that your organization or principal have a change in circumstances which would alter your initial response to any of the disclosure inquiries referenced above necessitating a new disclosure, you must provide the Department of Agriculture written notice of such additional information tending to incriminate your organization. Failure to make the requisite disclosures at any time in the process could result in the termination of the transaction and could also potentially result in your suspension and debarment from future government transactions in both procurement and non-procurement transactions. Debarment could be devastating to your organization as your exclusion from all government-wide contracts could last for up to three years.

Secondly, you have a regulatory obligation to do business with responsible individuals when entering into “covered transactions” where federal money is funding procurement activities for goods or services. This requirement mandates that prior to entering into a “covered transaction,” participants in non-procurement transactions that are using federal funds actively determine whether the individuals in which they are about to do business are excluded or disqualified. A procurement contract for goods or services will be considered a “covered transaction” under the regulations if a participant in a non-procurement transaction awards a procurement contract for goods or services and either the non-procurement award demands agency consent of all lower tier transactions or the amount of the contract is expected to equal or exceed $25,000. Please note that the regulations specifically state $25,000 and make no reference to terms provided in other federal guidelines like small purchase threshold or simplified acquisition threshold.

In validating the accountability of a party to a covered transaction, the agency gives three options for the participants making the determination: checking the Excluded Parties List System (EPLS), collecting a certification from individuals or adding a clause or condition to your contracts stating that the individual represents and warrants that he or she is and will remain eligible to participate in government contracts throughout the duration of the contract. The EPLS is a publicly available source managed by the General Services Administration (GSA) which houses information regarding the disqualified and excluded individuals. You may access EPLS through the Internet at http://epls.arnet.gov or subscribe to a printed version by calling the Government Printing Office Inquiry and Order Desk at (202) 783-3238.

Finally, 7 CFR 3017.330(b) requires participants to non-procurement transactions to mandate incorporation of the debarment and suspension rules into all contractor’s subcontracts which either require consent or are expected to exceed the $25,000 threshold, as well as create the obligation on the procurement contractor to determine the accountability of all its subcontractors in accordance with any of the methods stated above. The inclusion of these clauses in a subcontract would not be subject to any negotiation, unless the subcontractor simply walks away from the negotiations altogether.

In the event that you find that your organization or principal or your business partners are excluded individuals, please be mindful that there are regulatory procedures that allow you to seek an exemption from the Department of Agriculture to enter into a contract or continue to fulfill a contract (7 CFR 3017.120) or appeal the excluded status (7 CFR 3017.720 - 890). Please note that disqualification is not appealable under the Department of Agriculture’s regulations; however disqualification under a statutory scheme may not necessarily prevent the Department of Agriculture from entering into a non-procurement transaction with a participant nor will it automatically prevent a participant from entering into a contract with a disqualified lower tier participant. The regulations emphasize disclosure allowing some room for agency flexibility if the parties act candidly in the initial disclosure phase.

Restrictions on Lobbying

Restrictions on lobbying originated from the notion that it is improper for the government to subsidize special interests. This principle of responsible government spending attempts to ensure contracts are rewarded fairly, thus securing the public’s trust in their government and in their elected officials. Codified at 7 CFR 1726.17, RUS Borrowers complying with 7 CFR 1726 must adhere to the restrictions on lobbying contained in 7 CFR 3018. These regulations place constraints on how recipients of federal grants, loans or cooperative agreement may use federal monies. The regulations restrict the advocacy voice of recipients by prohibiting the direct or indirect use of funding to “pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress” in connection with the receipt, extension, continuation, renewal, amendment or modification of any federal contracts, grants, loans or cooperative agreements.

There are three specific exclusions from the bar on the use of appropriated funding to lobby. First, the Department of Agriculture allows an employee or officer to receive reasonable compensation if acting as an agency and legislative liaison as long as the liaison’s activities are not directly related to the federal opportunities. Pursuant to 7 CFR 3018.200(c), permissible liaison efforts may include discussions with the agency concerning the value of products or services, any specifics related to the terms or conditions of sale, or the potential to adapt or create products or services for agency’s specific use or purpose. Only prior to the official submission for federal opportunities may the legislative liaison discuss the proposal with the agency or provide information requested by the decision-making branch of the government awarding the federal money.

The second exclusion the Department of Agriculture allows on the use of appropriated funds is for professional and technical services. According to 7 CFR 3018.205 and 7 CFR 3018.300, you may reimburse employees, officers or other contracted individuals for professional and technical services rendered directly in the preparation, submission, or negotiation of any bid, proposal, or application for the federal opportunities or for professional and technical services related to your contractual or regulatory compliance with the terms of the federal arrangements. This exclusion is limited to professional and technical positions rendering advice or providing analysis that affects either the technical or legal aspects of your submission and would not extend to those who are in professional or technical positions who are advocating the selection of your bid or proposal. Contracted individuals who are not employees are not required to file the disclosure discussed below of their lobbying activities related to the federal award under which they are receiving reimbursements if their services were employed only in the preparation, submission, or negotiation phase of the federal procurement or non-procurement process.

The third exclusion for utilizing appropriated funds extends to the reimbursement for the reasonable compensation made to regularly employed officers or employees involved in the preparation, submission or negotiation of any bid, proposal or application for federal support.

In making a request for agency consideration for a federal contract, grant, or cooperative agreement that exceeds $100,000 or a federal loan exceeding $150,000, you must certify that you have not and will not charge the government for costs you incurred to influence your receipt or continued receipt of the appropriated funding. In addition, you must disclose, at the same time, whether you have made or have agreed to be made any payments using non-appropriated funds to attempt to gain influence over governmental decision-makers involved in managing and controlling federal appropriations. Any subgrants, contracts or subcontracts under any of the aforementioned federal opportunities which exceed $100,000 must make the same certifications and disclosures concerning their lobbying activity related to the federal opportunity under which they have contracted.

The regulations do not limit an organization’s ability to lobby with non-federal resources, the regulations do require disclosure of any lobbying activities related to the receipt, extension, continuation, renewal, amendment or modification of any of the federal opportunities referenced above. Disclosures are collected by the head of the Department of Agriculture and then submitted in a report to the Secretary of the Senate and the Clerk of the House. The reports become publicly available unless the information is deemed sensitive because it pertains to intelligence or contains classified information.

If you are asking the government for a commitment to insure or guarantee a loan exceeding $150,000, you must file a statement with the appropriate government party indicating whether you have made or have agreed to make any payments to influence or attempt to influence any government body in connection with receipt of the loan insurance or guarantee. If you have made or agreed to make such payment(s), you must file a disclosure with the appropriate department or agency revealing the proposed or actual amount(s), the identity of the individual(s) attempting to influence government behavior and the government officers, employees or Members that are potentially being influenced.

After receipt of federally appropriated money, you must determine at the end of each calendar quarter whether any events have occurred which materially affected the accuracy of the information previously certified to or disclosed to the federal agency. The regulations give examples of material changes to include an increase of $25,000 in the amount of private funds given to influence the receipt of federal funding, a change in the person lobbying, or a change in the parties being lobbied.

There are costly ramifications for noncompliance. Failure to abide by the lobbying restrictions or amend the disclosures may result in a civil penalty of not less than $10,000 per infraction not to exceed $100,000. In addition, the federal government reserves the right to pursue other remedies, possibly criminal sanctions, for the same conduct that was the basis for the imposition of any civil penalties.

Conclusion

If already receiving a federal grant of money, whether it is a loan, grant or cooperative agreement, you should consult the terms specific to your agreement before looking to the regulations. The regulations contain a standard for conduct, however, each agency reserves the right to set conditions for receiving funds within the actual award documents. Remember the intent of these regulations is to foster the public’s trust which rests upon the government being openly accountable for its decisions to enter contracts with responsible individuals like you. Therefore, you must be particularly cognizant of the public’s trust when carrying out obligations under government contracts.

Got Some Grant-Based Stimulus Money? Congrats! Here's How to Spend It.

2010-01-21T13:12:00Z

Did your organization get a grant from a Federal agency under the American Recovery and Reinvestment Act? If so, congratulations, but you need to start thinking about the process by which you go about spending the grant money. Your procurement process will need to conform and comply with the corresponding Code of Federal Regulations (CFR) and with any grant-specific procurement requirements. If you've just started looking at this, you know there's an appropriate amount of red tape involved (hey, it's my tax money and I want to make sure it gets spent properly so I'm OK with a little red tape). The good news is that most Federal agencies have very similar CFRs as they relate to the subject of procurement. For example, the procurement regulations in USDA's 7 CFR 3019 look very much like those contained in USAID's 22 CFR 226 which look very much like those contained in DOE's 10 CFR 600. (However, there are nuances from CFR to CFR.) I recently drafted a procurement policy and a Master Purchase Agreement to comply with the DOE codification of OMB Circular A-110 at 10 CFR 600. My work (attached below) is yours for free. As implied above, you can easily convert this work product from DOE to USDA to USDAID to any other Federal agency. The attached Master Purchase Agreement contains all of the contract provisions required by 10 CFR 600. Both the attached policy and the Master Purchase Agreement contain specific CFR citation references, so you don't have to figure it out for yourself as to where the content was derived from.

P.S. and a disclaimer: The attached are "as-is" without any representations. The Internet is still the wild, wild West and my work product is free, so use it at your own risk

DOE 10 CFR 600 Purchasing Policy

DOE Master Purchase Agreement

VMOs, Organizationally

2010-01-08T17:36:00Z

A blog reader recently asked me this question (I'm paraphrasing): "How do VMO / procurement roles differ and how are the responsibilities divided organizationally?"

Roughly 10-years ago, companies with large IT consumption became dis-satisfied with their purchasing departments' attention and focus. It was hard to get the purchasing folks engaged, and when they did get engaged, their focus was lowest cost. That lowest cost focus didn't work when it came to complex IT goods and services because the consumers of those strategic, competitive edge-providing goods and services were worried first about getting what they paid for and less about squeezing costs out the old-fashioned way (i.e., vendor bashing).

These IT departments also wanted to establish strategic relationships with value-adding vendors--predominately, IT systems have a lot of "stickiness," so IT departments want long-lasting (read "maintenance and support") relationships. So, unable to control the purchasing departments (usually buried many layers below a CFO), CIOs went on the hunt for procurement talent that had the ability to get a fair (fair for both parties) deal but, more importantly, could extract value out of IT vendors without decimating the relationship. These small groups of procurement talent commonly took on the name of a "vendor management office" or "VMO." One reason for the name was to mask the purpose of the group: the organizational redundancy and budget questions that a corporate procurement department and an IT procurement department raised wasn't something a CIO wanted to explain. The other reason was to emphasize the mission to manage vendors, not dollars.

The CIOs implementing these types of vendor management departments could have been wrong, but they weren't. In fact, VMOs were such a success that other C-levels, also tired of crusty and grizzled purchasing agents, wanted their own VMO function to boost their business lines. That presented an organizational problem--the CIO could get away with having a psuedo-procurement department but everyone having their own little VMO in addition to the purchasing department wasn't going to fly. So, around 2004, companies started to implement enterprise-wide VMOs.

There were, and are, two major variants: one is with the vendor management and purchasing functions combined and the other is with the functions are separate. Having the functions separate (in my opinion) is a symptom of a problem--the leadership doesn't want to take the time or energy to revamp the purchasing function... So, the thought is, just push purchasing to the side, build-up the VMO, and hope the purchasing folks take early retirement.

The better organizational move is to combine the functions, horizontally / vertically align the staff, and have it report into the C-level. Some staff cut POs, other staff order piece parts, other staff just do competitive bids, and other staff manage / monitor strategic vendor performance. While there may be distinct differences in skills, roles, and focus (you have to match job requirements to staff strengths), the overarching benefit of having a combined VMO is to drive the right attitude when it comes to managing vendors--and that's to get value.