Finding Value in System Contracting

Image by NobMouse via FlickrAssociate Guest Post by Rusty Joerin of Woodsgift Enterprises

System contracts, also known as standing orders, open purchase orders or similar terms can add considerable value to your procurements. Reduced overhead, efficient use of staff time, standardization of product and volume discounts deliver value to the buyer.

System contracts are most frequently utilized for the supply of low cost items routinely and commonly used in the organization. Often referred to as Maintenance, Repair and Operating (MRO)category items, the value is delivered both on the price of the individual items and the processes surrounding and incorporated into the supply contract. System contracts can also apply to furnishings, fleet maintenance and software licensing amongst other goods and services.

System contracts provide great opportunities for co-operative procurements between several organizations. I managed the procurement of stationery and copy paper supplies on behalf of a number of public sector organizations that resulted in better volume discounts than could be obtained through separate contracts. With one organization leading the procurement process duplication of procurement effort across the group was eliminated.

Standardization adds value through reduction of inventory carrying costs, reduction of training costs in the use or installation of product and interchangeability of products throughout the organization.

System contracts can and should be longer term contracts. Three to five years with appropriate safeguards is reasonable. This provides a balance between competitive requirements and procurement process savings to be achieved.

Next time – some things to consider when writing contracts for system type procurements.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.

Information about his experience and qualifications may be found at:www.woodsgift.com

Yet Another Countdown...

Tuesday, January 3rd, 2012. Government offices are back to regular working hours again. In Procurement, its the calm before the storm. Just like the mad rush of shoppers on Christmas Eve, Government year-end spending comes just before March 31st every year. Returning from winter holidays means there are merely 12 weeks and 3 days for the public sector to commit (spend) any remaining budget funds they may have.

Although the budget approval process starts in September the year before (ie the business plans for capital and programs are submitted in the Fall prior to the start of the new budget year) you will find procurement is only 'called' at the moment the program area is ready to go to RFP.

Timelines will be short, as the RFP needs to be "on the street" from 2- 5 weeks, depending upon the complexity and value. Evaluations will take another 2-3 weeks depending upon the schedules of the evaluators, and the number of responses required. In order to commit the funds, the contract needs to be signed before the year-end and delivery made.

So, dear vendor, at this time of year, when you send in a request to extend the closing date of the RFP - don't be offended, when the request is summarily refused. What I would suggest, rather than stating you need more time, explain WHY it is necessary that the marketplace has more time to provide complete materials that will shorten contract negotiations and expedite delivery, in a manner that would 'save time, money & scope creep' for the buying organization.

Wishing you a Wonderful 2012

Image by AlicePopkorn via Flickr2011 is almost packed away, and being curious, I googled 'business resolutions' to see what writers, businesses, advisors were recommend for the coming year. Instead, I found an article written at the beginning of 2011, which I find to be good advice for any year: Your 2011 Guide to Business Resolutions

I wish all of you a wonderful new year filled with abundance, joy, and treasured moments. May 2012 be your best year yet!

Should buyers worry about how long it takes to pay suppliers?

Image via WikipediaAre your 'internal processes' affecting your relationship with your suppliers? Do you know what happens when your suppliers attempt to get paid for their goods & services?

The vendor relationship does not exist only in contractual interactions with the team. Nor does it end when you negotiate a contract for as, if and when requested goods & services. A very simple and KEY area that can make/break a relationship is PAYMENT TERMS. If your firm doesn't pay on time, or worse, makes it complicated for a vendor to get paid, you will end up paying for it later...

Here's a case example: a meat processing equipment distributor in Ontario had a contract with a national chain of supermarkets, to supply selected equipment to chain stores within the province of Ontario. The specifications and pricing were set, and individual stores would select from the list as required. Orders were placed/delivered in Ontario, but the purchase order & payment would come from a centralized department in the East Coast. The 'draw-down' process worked like this:
- meat manager would select equipment from the list
- store manager would approve
- the store would give a 'heads up' to the distributor as they wanted the equipment by a certain date
- order would be sent to centralized purchasing to issue a purchase order so the system could issue a cheque
(note sometimes, the purchase order would not arrive until weeks later which created its own complications)
- equipment delivered to store, delivery slip signed by receiver
- original delivery slip was attached to invoice and sent by mail (as instructed by finance)
- once the invoice arrived 4 days later in accounts payable, it was put into a pile for processing
- copies were made, coding stamped and documents sent back to the store manager in Ontario for approval (4 days via mail)
- once approval was signed/mailed back, accounts payable would enter the invoice in the system for payment within 30 days of the date of entry into their system (note we've lost at least 2 weeks already)

The vendor thought they'd try to speed up the process by having the store manager stamp/sign the delivery slip at delivery time - it took a bit more effort to track down the store manager, but at least the approval was on the slip before mailing an invoice. They thought it would save the extra back/forth mailing of the documents, and cut 2 weeks off the process...

It didn't help - the accounts department put coding on the delivery slip and wanted the store manager to approve THAT too (even though the code for the equipment was always the same - all of this was standardized in the contract negotiations).

This is an industry that would scan barcodes to tally up someone's grocery purchases, manage its ordering and inventory via EDI, yet needed original documents and Canada Post for approval of delivery & coding of items that were pre-selected by a centralized department, at a pre-negotiated price.

Guess how the price negotiations went the next round...

Does Anyone Care if I'm Certified?

I've been delinquent in renewing my Purchasing Management Association of Canada (PMAC) annual membership. If I don't renew, my SCMP certification (Supply Chain Management Professional) will expire. For our annual business forecast & budget, I decided to question all expenses (as we do for clients), so I've been debating the benefit to being a member and maintaining my certification. (Rationale: I have an MBA so is the certification necessary?)

Of all my past & current employers and clients - only one has REQUIRED that I be a member seeking/holding certification...and that was for my first purchasing job. My manager was a wonderful mentor (and if you ever goto a PMAC National event, seek her out - Donna Lee Reid - Dufferin/Peel Catholic School Board - she's incredibly smart). Donna introduced me to the concept of 'networking' - because of Donna, I see the purchasing/supplychain/logistics profession as a group of peers ready & willing to help each other out. Whenever I need to buy something 'new to me', I contact someone who may have done it before to seek advice (Most of whom I've never even met in person!) Everyone has been willing to share their experiences & expertise.

From there, I 'educated' my next employer(s) on the benefits of the PMAC training and membership - I negotiated a deal that I'd save them more than they paid in my tuition (in actuality, I always 'earned' my annual salary in 'savings').

In later years, a director told the staff the certification meant "nothing" to them, but a business degree (especially an MBA) made more sense. As I crept up the ladder, strategy was more important than tactical thinking, but, the PMAC education went through phases to build strategic thinking, so yet again, I needed to 'educate' my employers and clients.

I completed my certification in 1999, back then it was called CPP (Certified Professional Purchaser)...in the last year, it's been rebranded as SCMP (which personally I think better reflects the education/experiences I've had in the profession). So with a new certification brand, I have to 'yet again' educate my clients (no its not a new certification, it's a rebranding of what I've always had..). So for this year's forecasts/budget, I had to question the benefits of my "Membership Dues".

Being a member does not get me discounts on Errors & Omissions insurance (that I require for government clients); nor does it lobby/educate government & corporations on the certification requirements as well as other associations do for their members; nor am I finding courses I want to take this year at a member discount. So what does my membership get me? Networking opportunities that perhaps I wouldn't have if I weren't able to open with "I'm a fellow member of PMAC"; I have fond memories of the program, and still keep in touch with fellow 'live-in course survivors'; I receive lots of 'free' trade magazines as a result of being a member and even if the clients/corporations don't understand the certification, some actually do put it in their requirements; there's opportunity for me to be a course instructor; I receive emails/calls from students in the program when they see my certification...

Perhaps the certification isn't about the education, courses & discounts per se, but instead its about what you do with it. I love teaching, and one of my dreams was to be one of the instructors for the final "live-in course". Perhaps it's like a marriage - I stuck to this through the good and the bad...I'm committed to seeing this through (I think I'll go write a cheque now)

What do you 'require' of your professional associations/memberships?

Related articles

• The Importance and Relevance of PMP Certification Requirements (pro2sell.com)

Supply Strategy in the Public Sector

Image via WikipediaGuest Post by Rusty Joerin of Woodsgift Enterprises

Public sector supply is a tool used to advance the goals of public institutions. A municipality planning to increase downtown density by permitting taller buildings may wish to upgrade fire protection equipment. Construction of roads, bridges and the purchase of new jet fighters are all the result of strategic decisions designed to advance the goals of the governments of the day. Supply professionals will adopt strategies that support goals set by policy makers.

Public supply operates in a fish bowl. It matters not if a village or national government all supply strategy will have as its foundation transparency and the highest ethical behaviour. This is essential to receive the best value from your suppliers.

Public supply may be used for local community and economic development even in the context of national and international trade agreements. A small town wishing to increase local employment in tourism may partner with a resort developer; a province wishing to nurture secondary manufacturing may mandate inclusion of manufactured products from its natural resources in the buildings it contributes payments for. Supply managers will adopt strategies compatible with the policy goals set by government.

A critical function of government is preparation for emergencies. These range from a broken water main or house fire to a war and everything natural or human made between. The supply manager’s strategy is to prepare and plan for the expeditious supply of goods and services as may be required yet respectful of constraints placed on the public purse. Strategies that build relationships and trust with key suppliers of emergency supplies are essential.

Strategic Supply Management is a learned skill. Two organizations I am familiar with and can recommend as providers of supply management training are:

BC Institute PMAC http://www.bcipmac.ca/ and
NECI http://www.neci-legaledge.com/

Enjoy your Summer, see you in September.

Rusty James Joerin, SCMP is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply.
Information about his experience and qualifications may be found at:www.woodsgift.com

Related articles

• Better Value Procurements: Planning for Success - Procurement's Role (psbdelegation.com)

Social Media "Experts": How well could you answer these RFP Questions?

In 2009, a public sector organization issued an RFP for a social MARKETING campaign (they knew back then that social media in and of itself wasn't enough to raise awareness to their cause). The proposal questions & evaluation criteria are below. Do you think this criteria is now irrelevant? Is there anything new that should be considered?

How would you and/or your hired consultant/advisor/"guru" stack up to this criteria?

Note: being public sector, the organization had to evaluate carefully as they are spending YOUR (taxpayer) dollars....does your organization use the same scrutiny for selecting expertise that ultimately spends YOUR money & time?

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Being this is an emerging area of expertise, ABC encourages suppliers to submit questions in writing for any information that will assist in providing better proposals for evaluation.

Submissions shall include, but are not limited to, the following components:

1) A brief description of your firm’s approach, resources and timeline for each of the project stages:

• Stage 1: Develop the project strategy and action plans.
• Stage 2: Research the target audience’s current understanding, beliefs, attitudes, perceptions and motivating factors related to Y.
• Stage 3: Develop the social marketing plan with performance measures.
• Stage 4: Develop, test and produce any creative components.
• Stage 5: Implement and evaluate the web campaign.
  

2) An overview of any required ABC staff involvement – although there is a staff member assigned to this contract, that person will not be available to the project on a full-time basis.

3) An overview of proposed forms of social media to be considered for the ABC campaign, and why these media forms would be relevant.

4) A brief overview of your firm’s experience and expertise in social marketing. List clients with a general description of services your firm provided and results achieved.

5) A minimum of three client case studies for social media campaign services. Provide the role of your firm, the goal of the campaign, what your firm implemented, what obstacles were encountered, how your firm managed obstacles/issues, and outcome of the campaign (or measurements to date).

6) An overview of the forms of social media used by the firm in past projects (technologies, applications, grassroots networks, NOT ad buys).

7) A list of the consulting team members who would be assigned to this contract and their CVs outlining relevant roles, experience and education.

8) An overview of your firm’s ability to work with messaging created by other advertising or media firms. Note: ABC may have contracts competed for other requirements that may or may not influence this project (i.e. updating the ABC website; event management; advertising for events, etc)

9) A price quote and all pricing options available to support the requirements of the ABC campaign. The price should include

• upfront costs (if any), what is included in upfront costs, and deliverable associated with the costs;
• Hourly rates for consulting team members, and estimated time commitments of each team member to the project
• Costs for each stage/deliverables associated with each.
• Estimated expenses and details on what these expenses include.
• Prices quoted must be in Canadian Dollars.

10) Name and contact information for two clients with similar project requirements to be used as references.

Criteria for assessing proposals
ABC will apply several criteria to assess the submitted proposals. In brief, these criteria include:

Criterion 1: Approach (50%)

• Clear description
• Addresses project objectives
• Identifies necessary resources

Criterion 2: Demonstrated capacity to do the work (30%)

• Relevant knowledge, skills and experience

Criterion 3: Cost (20%)

• ABC is a not-for-profit agency publicly funded by the Ministry of X. Fees must represent good value for quality of services rendered.

Related articles

• 'Why I will never ever hire a social media expert' (IMedia Connection)
  
• A Social Media Bubble? (Harvard Business Review)

Revenue Generation vs Expense Reduction

My husband and I both love to help non-profits. He has spent a number of years on the marketing, event management side to generate more funds (revenue), whereas I've been on the logistics/purchasing side (expense reduction). However, in our experience, a large number of organizations spend a great deal of their efforts on lobbying government for more funds or 'exhausting their donors' by repeatedly going back to the same 'small' group. When a new capital campaign is required, few, if any, non-profits look for new alternative revenue streams nor (gasp) expense reduction. A Review of job postings on CharityVillage.com shows all the NPOs looking to fill positions for revenue generation, and not a single one for expense reduction (procurement).

I'm reminded of one of the basic principles of purchasing "the profit impact of purchasing" (from "Purchasing & Supply Management" Leenders, Fearon). A reduction in costs, go directly to the bottomline, vs an increase in revenue generally is paired with an increase in expenses...

or to look at it another way, as the Georgia Center for Non-Profits puts it "every $1 spent on pencils, Post-It® Notes, computer keyboards or printing by a nonprofit equals $11 that must be earned via fundraising."

So, how does an understaffed nonprofit reduce expenses? Operate like a corporation:
1) Stop buying retail - get yourself a corporate account with business discount for the 'basket of goods' small dollar items such as stationery, printing, etc.

2) Streamline your ordering process - it costs you money to send staff/volunteers to go to the local printer, buy pens, etc - consider the time/wage/gas cost before sending someone out to run errands.

3) Negotiate contracts for repetitive purchases - rather than having to obtain quotes for each and every time you need someone to do a mailout, print a brochure, etc - look to your historical volume and negotiate a contract for 1-3 years of service.

There are lots of ways that a nonprofit can benefit from operating like a business...far too many items to list all at once - watch for future posts :)


Do you have a tip for nonprofits to reduce expenses? Add it to the comments below:

Fairness in the Process - Now or Later?

In the aftermath of the Gomery report, many organizations have started using a "fairness" role with their large complex or politically sensitive procurements. The primary objective of involving fairness resources is to provide objective evidence that the process has been run in a fair, open and transparent manner. Having the role start with the process keeps the process ontrack and saves time later, versus the standard waiting for complaints and having someone audit the process 'after the fact'. I've done both roles a number of times, partly to deal with the perception of bias towards incumbents; alleviate union concerns of outsourcing, ongoing vendor relations issues, etc. Thanks to close contact with National Education Consulting Inc & the Legal Edge publication means keeping up-to-date with the latest/greatest court decisions.

Even in cases where RFPs are better developed (in terms of how evaluations would occur) with an incumbent in place, it might be useful to request a fairness advisor/monitor/auditor play a role. Generally, the procurement department itself doesn't hire the fairness role (as it is reporting on their conduct/process!) Personally, I believe a fairness role needs to be appointed by an assurance department or a higher authority. There are even 'little things' that should be considered in the course of 'fairness' such as having all the evaluators sign a disclosure agreement (much like how the vendors are to provide within their proposals). I sat in on an evaluation process where the chair did NOT request this, and the evaluators went through a dozen grant application proposals and it wasn't until they faced the last proposal, one evaluator disclosed his son worked for the firm and would recuse himself from that evaluation - which was good to do, HOWEVER, he was involved in the scoring/discussions on all the competitive proposals up until that point! That is still a conflict of interest, even if he wasn't going to play any role in the scoring of that last proposal, he influenced the other scores. The organization changed their practices for future evaluations, and dealt with the issue by awarding to 'all' grant applications received - eliminating the risk of breach of process. I've been in other processes where the evaluations had to be 'tossed' and a second evaluation had to occur.

Is this more bureaucracy? Red tape to an already onerous process? How do you think the fairness can be 'above reproach'?

Comments/discussion appreciated

Spending Less on Credit Card Processing

Image via WikipediaCost Savings opportunities abound for entrepreneurs, SMEs, and non-profits to improve their bottom line! Remember, any savings in expenses goes DIRECTLY to your profit/loss line!

Recently, a business-to-business furniture company asked that I review their credit card processing service. They (correctly so) thought the service was expensive. In October of last year, the former accountant had done an analysis by comparing the % rates of 5 different companies. They didn’t pursue things any further, but the owner just ‘knew’ there had to be something better.

Just comparing the % charge doesn’t give a full picture of what it will ‘cost’. When it comes to POS/credit card processing services, you need to look at what cards you are using, how you are processing (in person or over the phone), if any of your clients use ‘premium’ cards, etc. All of these incur additional costs over and above the % fee. So to do a full comparison, and not spend weeks doing it, you can download a report from your provider for your annual transactions, sorted by card type (most providers give online access to monthly statements and various reports without an additional fee).

So in this instance, we took the annual $ total for each card type (Visa, Mastercard & Debit), the total number of transactions for each type, and the total number of transactions that incurred the ‘non-qualified’ ‘premium’ fees. After having all those numbers, we built a spreadsheet to plug in the comparative fees for 5 providers.

Ultimately, we found the current provider was indeed the most expensive, by approximately 35% ($3000 a year), no, not a huge number but a huge difference in cost year after year!

We also realized the lowest % rate, didn’t end up having the lowest total annual cost! What are you overpaying by not reviewing annually?

Related articles

• Overview of Typical Merchant Account Fees for Credit Card Processing (creditcardprocessing.net)
• Do Merchants pay higher "swipe" interchange fees when accepting government issued debit and credit cards? (stiel.wordpress.com)

Is there Profiteering in Fuel Surcharges?

While working on an ERP system upgrade for a client, I'm entering/matching a number of invoices of late. In doing so, I've seen fuel surcharges ranging from 6% to 17% on items from office supplies to furniture. So I started a bit of an investigation as to how companies are calculating these charges.

1) Couriers and freight companies in Canada are (with a few exceptions) using a standard rate set by the Freight Carriers Association/North American Transportation Council. http://www.ntscanada.com/CFS.asp http://www.fca-natc.org/INFO/FLCDN11.htm

2) Some companies spell out their calculation based on a third party fuel cost audit - http://www.purolator.com/dbwp/fuel_surcharge.html

3) Some companies could not tell me their calculation but instead said 'it wasn't that much to worry about'

When gas prices were doing crazy things a few years ago, I understood that businesses had not anticipated that huge increase in their overhead cost, so fuel surcharges were added/negotiated onto contract prices. Prices had been set based upon their standard operating costs plus profit. Years later, we still have fuel surcharges, AND increased costs - when reviewing bids for waste removal, not a single vendor provided their fuel surcharge within their quotes...yet, I know each of them charge surcharges.

Are fuel surcharges a new way to beat the price comparison? Win the business then add on a % cost to make up the profit? In 2006, Daniel Gross wrote an article on this topic, yet nothing seems to have changed?

As buyers, I hope you now request vendors provide their fuel surcharge calculation/table in their quotes for your business - or put it under some other scrutiny. When comparing the waste management company bids, I found the lowest bids had the highest fuel surcharges...

In addition, I found a local university purchasing department has set what it will ALLOW for freight surcharges http://web.uvic.ca/purc/fuel.php

Related articles

• Europe airfares soar with fuel surcharges (seattletimes.nwsource.com)
• Surcharge for Promotional Products - Now Pirating charges.. (theodmgroup.com)
• LETTER TO THE EDITOR | Surcharge would make bad fare system worse (kitsapsun.com)

RFP Templates

Image via WikipediaI dislike templates 'usually' because I've seen too many people ignore defining their requirements and instead 'cutting & pasting'. That being said, templates serve a purpose of consistency and providing some 'legal' protection of the process through the use of standard terms & conditions/administrative requirements for the process.

I'm currently assisting a client with developing an RFP template to be used by skilled and experienced procurement staff. Not a difficult assignment since I know the end-users understand the process so will need less 'prompts' in the template. This will be more about making their job easier and more consistent. It's also the first time I'm NOT having a template dictated to purchasing by the legal department!

In past, I've found the legal department develops the template terms and conditions and puts them up-front in the document, leaving procurement to fill in their requirements around it. Legal's point of view is to keep the legal information front and centre. From a technical writing perspective, the MOST IMPORTANT information should be front & centre.

So I ask you, what is more important in an RFP document - legal boilerplate or project scope/requirements? Please comment/email me or comment on twitter - I seek viewpoints from both the buying and selling sides!

Saving Lives, not $$

Image via WikipediaI once worked with a long-term care facility. It was an interesting experience as I had always respected doctors/nurses/healthcare providers for their expertise in ensuring my health, however, in this context, they never respected my expertise, and I saw flaws in 'the system'.

More times than I can count on my fingers, a nurse or doctor would bring a requisition to purchase a specific 'brand' of item. I would advise my buyers to question 'why'. In one instance, the facility was looking for AED s. In this case, the ward specified a brand and when my buyers couldn't get an answer as to 'why' this brand, I had to make the phonecall. The managing director responded angrily "you want people's lives on your hands just to save a couple of dollars!?" My response was "no, but are you saying this is the only brand that saves lives and the other brands on the market kill people?"

Once we got over ourselves, I was finally able to explain 'why' I needed to understand their requirements, and they were able to give specifics as to 'why' they specified the brand: because non-medical personnel needed to be able to use the equipment quickly, they wanted a large digital display, large colour-coded buttons, and voice instructions. Still it would not be a perfect process, given the end-users believed voice instructions, large digital display and colour-coded buttons would mean a lay person could perform CPR...all information they learned from a sales person/marketing brochure...HOWEVER, we now had something that gave us specific reasons for the product. We could do a competitive process, find out what was in the market that met the requirement for lay people to perform CPR if necessary.

Ultimately, the buyers learned the lesson to question specifications leading towards a single brand, regardless of the 'expertise' of the end-user.

What do I do...

A few months ago, I tried an 'experiment'. I asked my friends/family (via facebook):

Doing some research on how well I'm communicating my 'brand'. 1) What is your understanding of exactly what I do for a living? (the product, service or skillset that I deliver?) - comment here and it'll show me what I may need to do next

These are the answers I received:

i don't really understand what you do.... enlighten me pls :)

You buy stuff for the gov't right?

you show govt orgs how to buy stuff (the kinds of things they need to run their businesses) better and you teach online courses about this as well to other people who work in the realm of buying stuff for their companies. am i even close?!

Ya ya! What she said!!!

Its hard to clearly explain what a consultant does... isn't it? ;)


I've always found procurement/purchasing has had a difficult time 'selling itself' or making it common knowledge as to what we do. I started in accounting when I left university (1988), and my father still thinks I'm involved in accounting somehow. Even though HE is a retired sales man (in the 80s, alot of the buyers were accountants or owners of small businesses). I read sales books and see them refer to purchasing people as only being interested in the lowest price...

Anyone I talk to knows what an accountant or lawyer is, even the accreditation for accountants is nearly a household name. Is it possible our constant rebranding is affecting our ability to stand out as a household 'name'?

10 Ways to Better Procurements #2 - Mitigate Risk

#2 - Mitigate Procurement Risk

Risk exists and can never be eliminated but it can be mitigated through effective management and knowledge application. All of the articles in this series address risk issues, this is a summary. Procurement risks can be sorted into two general categories: contracting process and supply chain risks.

Laws relevant to the procurement contracting process continue to evolve as a result of case law initiated because one party to a tendering or contracting process was offended by the actions of another party. Involvement in these types of court cases is a huge risk to be avoided. This type of risk can be mitigated by application of equal, transparent and ethical treatment of all respondents to a procurement request. Easily said, but considerable diligence is required to implement. Professional procurement and legal expertise can assist.

It is possible to transfer risk from the purchasing organization to the supplier, however risk transfer comes with its own risks. Transferring too much risk will add to the cost of the procurement and/or may reduce the number of quality respondents. Use a fair balance and only assign risk to the party that has the most opportunity to control it.

Any organization’s supply chain can and likely will break from time to time. A sole supplier may lack capacity, a product may have quality variables or a disaster may close a key supplier’s facilities. These risks can be mitigated through understanding and knowledge of your organization’s supply chain (see #8 in this series). This includes knowledge of your supplier’s supply chain as well. Identification of the weak links such as geographical and/or corporate concentration of supply sources of critical components will assist in the formulation of supply chain risk mitigation strategies.
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Other Posts in the series: How to Add Value to Your Procurements
• Be Proactive
• Analyze what is required – bring clarity to the specification
• Understand the supply chain
• Align procurement strategies with corporate strategies
• Apply the highest standard of ethics
• Use the right tool for the job
• Plan contract management before there is a contract
• Learn from what was done
• Mitigate procurement risks
• Utilize the skills of supply management professionals

Over the coming year, Rusty Joerin, guest blogger, will expand on the above. Your comments are welcomed.

Rusty James Joerin, C.P.P. is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada as a Certified Professional Purchaser. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com

Reference Checks

Image by Tim Morgan via FlickrIn 90% of RFPs I've been involved in, the end-users always requested references. However, few, if any actually call the references of their short-listed proponents. Why?

First of all, they think its time-consuming - I generally say it's not likely as time consuming as hiring a supplier that can't do the job.

Secondly, they don't trust the references will be 'candid'. Few, if any contract managers will say something 'bad' about a supplier for fear of reprisal.

Third, and this just might be in the area I've worked, the legal advisors state that a reference cannot change how they scored the 'written' proposal. The argument is 'what has changed in the proposal?'

So, to combat these issues, we found it helpful to build a reference call sheet with specific questions that you will ask ALL references, and keep it fact-based so no-one is put on the spot to say something 'bad'. If a vendor never met a deadline, it's a fact, not opinion. If they had a cost overrun, it's a fact, not opinion. If they had to redo something under warranty, it's a fact...etc

Also, adding some wording to your RFP about using the references to 'verify the information in the written proposal' and allowing yourself to adjust accordingly, *should* satisfy your legal department (but check with them anyway!)

I don't score references as a rule of thumb, I use them to verify information, and if necessary, disqualify someone who either 'stretched' the truth or omitted some key facts in their proposals.

Conflicts of Interest - who's responsible to disclose?

Most RFPs have a Conflict of Interest condition, where potential vendors are to voluntarily disclose real AND perceived conflicts of interest. It also gives the buying organization the right to determine if there are any real/perceived conflicts of interest as well.

That being said, who 'checks' this out? There are a couple of situations we've run across over the years that were not disclosed, but luckily were found out before they became issues.

1) A private sector employee started a part-time consulting business from home. The consultant got a project with a crown corporation that ultimately would be involved in bid opportunities from private sector firms, including the one she was employed with (along with its competitors). She didn't see that as a 'conflict of interest' so never disclosed it. It was found out by accident when an email went to the wrong person!

2) A communications firm bidding on an agency of record project had been working as an agent for a group that was lobbying the buying organization. Again, they didn't believe it was a conflict of interest. It was only found out from a mention within one of the resources resumes.

3) A buyer for a public sector organization went for a spa-day with her friend, who happens to work for a supplier to the organization. Although they were friends before the employment situation, and the buyer did not oversee any work of her friend, the friend 'expensed' these spa-days because her friend worked for a client organization. This was found out from the supplier.

So what is a conflict of interest? In simple terms, a person must not be involved in a decision during the course of public duties with the knowledge that there is an opportunity to further the person’s private interests. There must be no apprehension of bias, based on what a reasonable person might perceive.

So why did these people not believe they were in a conflict of interest? They did not believe they were acting in any way to further their personal interests. Whether or not they believe they are working with strict ethical conduct, the other side of the issue is "perceived" conflict of interest. How would competing vendors feel about a competitors' staff member being involved in the procurement process? How would the public feel about a firm working with a lobby group having 'inside information' on the workings of a specific public organization? How would you as a competitor feel about 'spa-days'?

How are you checking for these types of potential issues?

Related articles by Zemanta

• What is a Conflict of Interest? (brainz.org)
• Conflicts of interest in US Defense procurement (nowpublic.com)
• A Proposal For Managing Pension Consultants (blogs.forbes.com)

Disclosing Number of Responses

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A question for buyers: Should/Do you disclose how many responses you received to a particular solicitation if asked? ie if you provide a debriefing to an RFP and the vendor asks 'how many proposals did you get', do you or should you tell them?

In past, some buyers would say 'no', there is no reason to disclose this information and in a situation where you only had 2 or 3 responses, might the vendor then start pushing to find out who the competition were and/or fight for extra points?

My thought - tell them the number - you don't need to give any further details unless your Freedom of Information Act requires it...and if it does require you to disclose the other details, why fight it?

In the late 90s/early 2000s I found we had dozens of responses - ie I would get no less than 7, but on average 14 responses to 'average' RFPs - and a whole lot more for prequalification processes. However, as time went on, I found in the mid 2000s the response rate dropped and in some cases I was lucky to get 4 responses to an RFP.

Now in the past 1-2 years, those numbers are back up again, and we're finding people/firms that never used to respond to RFPs are doing so now. The economic climate has changed and people are trying new avenues of business...

So, back to the original question, should you disclose the number of responses? I think this might provide vendors with a context as to how competitive their market is. In the mid-2000s a firm may have won a significant number of contracts and are now scratching their heads as to why they aren't winning them now...in all likelihood, they had less competition and now everyone has jumped onto the bandwagon...better for them to understand how the RFP marketplace has changed than for them to blame the process...

Crying Foul...

So you've gone to a great deal of time and effort to respond to a Request for X process and it smells rotten...you didn't win and want some retribution. What do you do?

1) Make sure your emotions are not clouding your judgment - yes you may be the best thing since sliced bread, but if your written proposal didn't address all the requirements appropriately in the request document, the evaluators would never know that! Reputation isn't considered in the process, just the written document.

Remedy: Ask for a debriefing and find out for sure where your strengths and areas for improvement are.

2) Did you understand the process AND did they follow the process as outlined in the request document? Generally 'how' the process works is outlined in the request document and may reference some online procedure manuals (depending upon the organization). Hopefully you read them all and had an understanding of the process before you responded. The time to ask questions about the process was BEFORE the process closed.

Remedy: usually further info/clarification is done during the debriefing, BUT, if by chance your understanding does not mesh with what they explain to you, book a time after the debriefing to discuss your understanding and seek clarification on exactly 'what' they did and/or what you may have misunderstood so you are prepared for next time.

3) Are you having difficulty getting answers and/or hitting a brick wall?
Now you should have some red flags and start escalating your concerns. Most organizations have a publicly available staff directory and if you cannot get responses/clarification from the contact person, start going up the line. Double check if there is a 'dispute resolution' process for the process, as that would be your most expedious route - an example for Province of British Columbia (Canada) is found here Note that it STARTS with a debriefing, then escalates to a discussion with the contact/stakeholders before you actually go through a formal complaint process...most 'complaints' are generally misunderstandings of the process that is required for a publicly funded project!

Feel free to comment/ask questions!

10 Ways to Better Value Procurements - #5 - Tools

Supply management professionals utilize a variety of processes and documents to find, bind and mind a supplier of goods and services. They range from informal phone calls to creation of highly complex tender and RFP documents.
Find a Supplier
Situation: you have a unique need and are uncertain who may deliver the required solution. A Request for Qualifications or Expression of Interest document posted on a public site such as Civic Info or BC Bid may attract the right attention. A detailed internet search and the supply manager’s peer network will also aid in finding qualified suppliers. Depending on possible outcomes stated in the request and other factors, a negotiated contract may result or a RFP may be issued to a short list of responders.
Bind a Supplier
Situation: you are requesting something of high value and/or there are valuable time constraints and you wish to mitigate supply risk. This is a balancing act; transfer too much risk to the supplier and you may not get the best quality of responses, transfer too little risk and you may be left with an incomplete project. Careful application of indemnity, insurance, bonding and liquidated damages clauses in the request document can be used, always depending on the particulars of the situation. Standard industry contract documents such as Canadian Construction Association documents can be used to fairly bind a supplier of applicable services.
Mind a Supplier
Situation: you wish to contract for goods and/or services to be delivered over a period of time; construction, system contracts, and service contracts are examples. A request for proposal or tender document may be issued. The difference being the degree of specification and appraisal criterion contained in the request document. The commonality is that the request will address management of the contract during the contract term. I address this issue in the next installment of this series.
Time
Time is a valuable procurement tool. Use it to plan the procurement from needs analysis to end of contract. Allow enough time for the best suppliers to participate.
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Other Posts in the series: How to Add Value to Your Procurements
• Be Proactive
• Analyze what is required – bring clarity to the specification
• Understand the supply chain
• Align procurement strategies with corporate strategies
• Apply the highest standard of ethics
• Use the right tool for the job
• Plan contract management before there is a contract
• Learn from what was done
• Mitigate procurement risks
• Utilize the skills of supply management professionals

Over the coming year, Rusty Joerin, guest blogger, will expand on the above. Your comments are welcomed.


Rusty James Joerin, C.P.P. is a Supply Chain Management Professional and accredited by the Purchasing Management Association of Canada as a Certified Professional Purchaser. He offers procurement services primarily to public sector organizations that do not have a professional supply manager on staff and provides additional capacity to assist with project related supply for those organizations with purchasing specialists on staff.
Information about his experience and qualifications may be found at:www.woodsgift.com