What kind of Boss are you?

I have spent many of my previous blog postings discussing ins & outs of various sourcing and procurement functions. This week I am going to shift my focus a bit and talk about becoming the boss who want to be; not just in the sourcing world but across any industry.

For many us, we have all had a great boss, someone we never felt obliged to go the “extra mile for” or follow in anything they ask of us. We have also had the typical definition of a “BOSS”, someone who just cares about what we can do for them, watches our clock and cares little for professional or personal development. I am a firm believer that professional and personal developments go hand in hand; I know that if I am making myself a better person through education or development classes, this is going to make me a better professional and boss also.  While there are bosses that subscribe to these practices, there are others that seem to think that shows weakness because if someone below them shows promise or potential it is more of a threat to them instead of a strength to their team or department. Most, if not all of us are either in this type of situation or have worked in a situation like this. The question is, what kind of Boss does your worst boss turn you into?

From what I have experienced, there are really two ways to go once you are presented with an opportunity to become a BOSS. First, you can take everything you learned from your worst boss and treat the people that work for you the exact same way. This is the trickle-down effect (rolls down hill) or the mind set of “I dealt with it and it made me a great manager, so others should deal with it too and it will make them stronger”. More times than not, this type of approach just does not work and the same way that you hated your boss, the people that work for you will feel the same way. The other way to respond is to take everything that you learned from your worst boss and do the complete opposite. Be the Boss that you wish you had and remember all the times that you felt like you weren’t heard, valued or good enough and make sure that the people who work for you do feel valued, appreciated and valued as a member of the team. Now, there is no way to treat all employees this way because not all employees are made equal; but then again not all Bosses are made equal either.

The question is, what kind of boss would your department or people describe you as and if able to see the results, is that truly the kind of Boss you want to be?

Sourcing of Raw Materials

As mentioned in a previous posting, the sourcing and procurement of raw goods and materials can be very different from sourcing goods and services. When sourcing raw good or materials, the most important fundamental part will be quality and the ease of transforming that raw part into the product that is needed for your business.

Raw material sourcing is critical to revenue and profit, because most of the time, raw materials are tied to commodities such as oil, wood, soy, wheat, etc… There have been times when I have been negotiating a pricing adjustment with a supplier that had pieces of their pricing matrix tied to a specific commodity market that had nothing to do with the actual product. Example, there was a time when I was negotiating a new contract for our company’s room amenities, when it came time to negotiating the price for the product I asked for everything that the supplier used to calculate their pricing and one of the factors was the PPI (Producer Price Index) for crude oil. While I expected oil to be part of the matrix, but it would have been soy, coconut or palm oil, crude oil was a bit of a surprise. Turns out the supplier was essentially using a “Fuel Surcharge” and the price of gas as a pricing factor for their fleet of trucks to get my company the product. This was negotiated out of the price of the product and we negotiated a separate part of the contract to include a pricing adjustment strictly for the price of gas, but not part of the product we were buying.

Commodities are tricky parts of sourcing because they are hard to account for and determine how much of that commodity makes up the material that you are sourcing. Also, if those commodities are not closely monitored, suppliers can hide pricing increases under the “increase in commodity” excuse.

The Sourcing of Raw Materials do share a lot in common with sourcing of goods and services as far as wanting to obtain the best product in terms of price, available supply and quality; but then the raw materials have some different factors that will come into play such as capacity (can this material still be purchased if your business grows), predicting the future demand from other customers and are there any geo-environmental issues with the material factor into your usage of that product.

There will be many factors that going into picking the right suppliers and partners of raw materials, but those companies will really have to become partners instead of just suppliers to make sure that your company is not getting priced gouged at each step and that their business will grow with yours!

Sourcing Strategy – Goods vs Services

In most cases, the procurement department for a hospitality company is going to be sourcing, selecting and negotiating in two areas, products and services. In the hotel industry, we rarely procure or source directly from the manufacturing company or for raw goods. Sourcing and Procurement for Raw goods or materials is a whole different kind of animal, which I will discuss in a future blog post.

So in essence, are there different ways to go about sourcing for goods or products vs a service? The answer is not a simple yes or no, but it can depend. When sourcing for a specific product, it is really easy to narrow the business requirements down to a few key items; from price and quality to assurance of supply. Once a few items are submitted from suppliers, it is fairly easy to determine the best quality for the best price. Example, a department in your company needs 50 HDMI cables, through a small sourcing exercise, it has been determined that Office Depot and CDW have identical product. Office Depot sells them for $2.50 each; CDW sells them for $2.85 each but with a 25% discount if you buy all 50. This type of decision strictly comes down to price. If you purchased through Office Depot, the total price would be $125.00 for the HDMI cable, although the total price through CDW would be $107 because of the discount. Good like this are very easy to assist with as in most cases there is already a relationship set up with the supplier and discounts are built into pricing.

Sourcing Services is quite a bit different, as the business requirements of the services can vary by department and scope of a project (if any). As discussed in a previous blog post, services can vary depending upon scope and nature of the service. Let’s say that a company wants to source a service that will compile data from customer satisfaction surveys to give proper feedback to that business on how they are performing in the eyes of their customers. Many different factors will be determined on how to select a proper company for these services. Many will include reporting capabilities (how the data is reported), reporting scale (does the company use a 10-pt or 5-pt scale), if there was a previous service that did this can that data be imported seamlessly so that there is not loss of data, and how does the information from the survey get into the hands of the people that need to see it? While these may seem like easy answers, each question can vary from one supplier to another. If you have narrowed down the field to 3 companies, each company may have a very different answer to all of these questions. In that case, it will come down to what is more important (reporting vs scale) to the stakeholders for the project.

This is just a small example of the differences between sourcing for a product vs sourcing for a service. Although, it is another example of why Procurement and Sourcing are TEAM activities.

Collaboration

Collaboration is defined as “the action of working with someone to produce or create something”. When taking on a new project, it is very beneficial to include your company’s procurement team from the very beginning stages of the project lifespan. There are multiple reasons for this, but none are more important than possibly leveraging spend to negotiate better pricing for this project. Other benefits are just an extra set of eyes and ears to help determine scope of any project.

When looking at any project in its infancy stage, collaboration is a very important step. Inevitably, there is always something that is missed, whether it is a requirement, deliverable, or action item as part of the project. Usually, when a project begins, the department that is initiating the project is too invested emotionally to see how the project will affect others within the same department or others throughout the company; therefore only their wants and needs are addressed initially, but through collaboration with others, more items can be addressed.

In many cases, taking a manager from another department that has no stake or value invested in the new project is very helpful, because since there is no emotion or personal stake attached, the department will get open and honest feedback of what will work and what won’t, based on the scope of the project.

At times, there will be disagreements as to what is a necessity and what is considered a “wish list” item, but even from this there can be progress made on any project. There can be tremendous growth from a disagreement if used properly and funneled through the right channels. Is the disagreement is not personal and used as to what is vital for the actual project, and then it will help really dive into what becomes a necessary aspect.

Collaboration is one of the most important pieces in any project (no matter the size); being open to opinions, suggestions and items from others also is an effective way of leadership and is a behavior that is beneficial to everyone involved in the project!

Cola Wars in the New Millennium

Cola Wars are essentially over, now it is about who can diversify more to stay relevant in today’s every changing marketplace…

For years, the Red and Blue Soda companies have been battling over the public’s market share in terms of consumers, businesses, collegiate programs and the national pastimes; but in today’s more health conscious environment, it is no longer about soda; it is about the ancillary products that these large companies offer such as juice, water, snacks and energy drinks.

It is no secret, that in the last 20 years, sales of full calorie soda drinks have declined each year. This market saw a sharp increase in sales between 1960 and 1990 with campaigns like choice of a new generation, etc… Then the market turned cold when obesity was linked directly to the soda industry and so they had to diversify their product line.

Today each brand has diversified so much that it is amazing to find out which company owns what. If you are shopping and buying Frito-Lay Chips or Doritos, you are contributing to the Blue Company. If you are buying Simply Lemonade or FairLife Milk, then you are contributing to the Red Company. The amount that these companies have diversified has been outstanding in today’s marketplace to remain current.

The red company has actually been at the forefront of the new cold pressed juice phenomenon that is happening in the healthy category segment and decided to purchase the Suja Juice Company and become the primary distributor of this product.

While the public may no longer be interested in carbonated soft drinks, there will always be a demand for this product and this will remain the backbone of these 2 companies. Although, now the companies can continue to compete in different market segments for bottled water dominance – Smart Water (red company), the new LFE Water (Blue Company); juice – Tropicana (Blue Company), Minute Maid (Red Company); these are now the target competition segments for these companies with the decline of sugared carbonated beverages.

Liquid for thought!

Procurement Career Path

Like many other departments in the world of business, when I was in college, I did not sit around and think “I can’t wait to graduate and start my Sourcing and Procurement Career”. My career path in procurement actually started as a bit of a fluke and one that I kind of “fell” into.

I figured since I was completing my undergraduate studies in Hotel Administration, I should start working in the industry. My hotel career started at the front desk of a local hotel/casino and after a few promotions I was the Hotel Manager of my own property. As I am sure you can imagine, working 6-7 days a week and never being more than a phone call away can really get to you after a while; so I decided to change industries and head into the financial/banking industry during the boom in Las Vegas. When the economy crashed in 2008/2009, my career in banking met a similar fate. So, I returned to the industry I knew, but did not go back into operations and instead opted for a financial analyst position in a large gaming company’s Strategic Sourcing/Procurement department. This allowed me to see the procurement functions of a large company from a financial aspect and see what the story was “behind” the numbers, as well as really understand the financial impact a procurement department could have if run well.

Since then, I have changed companies a few times as well as progress through a few different levels of a career path. Many companies will have different variations of job titles and levels, but below are some of the positions and levels associated with them in a procurement department.

Example of Career Path

Assistant or Jr Buyer – Entry Level

Senior Buyer or Sourcing Specialist – Entry/Mid-Level

Purchasing or Sourcing Manager – Mid-Level

Sr. Sourcing Manager – Mid

Director of Procurement – Mid to Sr. Level

VP of Sourcing and Procurement – Sr. Level

Chief Procurement Officer – C-Level

While these may not sound like the most exciting job titles in the world of hotels and hospitality, make no mistake; each one of these positions or titles can have a direct result on the profits/financials of a company.  If you enjoy researching the best service or price possible or negotiating contracts, as wells as a variety of other duties, maybe a career in Sourcing/Procurement is right for you!

Contract Negotiation

Contract Negotiations is the process of give and take, or what are you willing to “live without” as part of the deal. Many people will negotiate contracts and start by asking for the world and then it will whittle down to what is necessary to the actual “deal”. Often in business, it is said that “you don’t get what you deserve, you get what you negotiate”, more often than not there are many things left on the table that could have been negotiated for, but were never asked for.

In anything that is negotiated, a car deal, buying/selling a home, or even a child’s bedtime; it all comes down to risk/reward.  What are you willing to risk as part of the negotiation of a reward? In business, it is the same principle but comes more down to Risk vs Revenue in most cases. The more the deal points get analyzed, the more revenue will either be spent or earned.

Types of Negotiating Behaviors

The 2 most common types of negotiations are usually adversarial (dominating or cherry-picking) and collaborative (win/win). An easier way to think is, when buying a car you want the most options and creature comforts and usually aren’t willing to pay full price for those options so you start to negotiate a lower price even though the price is clearly stated, this would be considered a cherry-picking negotiating behavior or taking the best parts of the deal and not really giving anything up in return. In a win/win negotiation each party is aware of what is necessary to get the job done.

In the Book “Getting to Yes”, written by Roger Fisher and William Ury; the authors state that “a collaborative negotiation without big emotional displays is most likely to achieve the optimum results. Anger and similar emotions tend to cloud judgment, create competition, discourage mutually beneficial outcomes, and sometimes result in a retaliatory approach to problem-solving.”

Next time you are in a situation where you’ll have to negotiate a result, think about which way the deal should be negotiated. Will a more dominate strategy get you what you want or will a collaborative negotiation affect the parties enough to create a long-standing partnership?

Stages of a Procurement Project

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Most people think when they hear the term purchasing, all that really means is buying goods and supplies for a company. While this is true for the most part, there are many other large aspects of the purchasing process that comes as quite a surprise to some people during their first meeting with their company’s Sourcing and Procurement team.

Usually, first step in this process is to determine the business needs (requirements) of the department that is looking to source the goods or services. Even though this is the first stage in the process, if these requirements are detailed and goal oriented, this step will actually dictate the rest of the process; from sourcing, vendor selection and contract negotiations. Example, if one of the department’s requirements is to see detailed reporting from the company providing the service, that will be one of the main questions asked while sourcing the vendors, if they have limited or sub-par reporting capabilities, they will be excluded from the bidding process.

Once the business requirements and scope of work are developed and laid out, then begins the sourcing process. This is defined as searching and researching companies that can provide the goods or services that are required. Once those companies are narrowed down through an informal conversation of their capabilities, a formal RFP will then be given to the companies that have been selected to participate. An RFP is a request for proposal; part of the RFP document will include questions about specific parts of their business, capabilities of the company, company history and in most cases, the financials of the company proposing so that the requesting company knows that if they enter a long-term contract, the company will still be around by the end of the contract.

Through the RFP process, a vendor will be selected to provide the service and then each will enter contract negotiations. I have been involved in negotiations that took 2 weeks and others that have taken 18-24 months depending on the total value of the contract. A contract for dry cleaning services for a hotel may take a week to negotiate and the contract with a company that provides all of the cash and ATM’s to the casinos of a particular brand may take 18 months to finalize the deal points.

Once the deal points are finalized, the contract is signed and the implementation begins. We will discuss implementation at a later date, but this is good overview of the initial steps in the procurement process for a project.

If you haven’t met your company’s Sourcing and Procurement team, take a moment to introduce yourself. You’ll never know when you may be working with them on a project!

Payment Terms

According to the definition, Payment Terms is the conditions under which a seller will complete a sale. Typically, these terms specify the period allowed to a buyer to pay off the amount due, and may demand cash in advance, cash on delivery, a deferred payment period of 30 days or more, or other similar provisions. While this may seem pretty simple on the surface, there are many ways that payment terms can be used when negotiating a deal with a supplier. Payment terms can actually be a large part of the deal when struck the right way.

Many industry standards are NET 30, which means that when items are purchased or services are rendered, the buying company must pay the invoice within 30 days of the date of the invoice.  Some companies will extend to NET 45, NET 60 or some will even go to NET 90 (which is rare for anything outside of the manufacturing industry). Is essence, companies want their invoices paid as quickly as possible, because they have rendered the goods or services and without payment, their Accounts Receivable balance while an asset is not as good of an asset as CASH. When larger companies such as HEINZ, KRAFT or Walmart delaying paying invoices as long as possible, this creates a squeeze on their suppliers creating uncertainty with that suppliers other customers.

Is there a way to fix this, in short YES! Incentivize companies to not only pay on time, but to pay early. Here’s how that would look. As a hotel company, I order $250,000 worth of Food and Beverage product from one company in the month of May. All of those invoices are due by June 30th, but if I pay all of those invoices by June 7th, I would get a .50% rebate or if I paid them all by June 15th I would get a rebate of .25% of the total $250,000. This would mean a possible extra $1,250 to my business just to pay the bills early instead of floating cash for 30+ days.

I have seen provisions like this work very well for numerous companies and best part, it doesn’t COST a thing. If your company is having trouble paying its’ bills then getting paid to pay bills early is the least of your worries. I like how this is essentially free money to companies that would be ordering that product and having to pay for it regardless. Here is a real world example, the company I work for ordered $3.5 million dollars’ worth of product in Jan 2017 from a large distributor. If we paid all of our bills early, we would have received a rebate of close to $43,000 for doing something that we would have done anyway, but just to do it early. So it clearly pays (sometimes literally) to try and negotiate payment term incentives into deals!