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Joe Payne. Managing Indirect Spend
Table of Contents
List of Tables
List of Illustrations
Guide
Pages
Managing Indirect Spend. Enhancing Profitability Through Strategic Sourcing
Preface
WHAT THIS BOOK WILL DO FOR YOU
WHO WE ARE
HOW THIS BOOK IS ORGANIZED
Part One: The Process
Part Two: The Tools
Part Three: Examples from the Field
Part Four: How to Do It
BEGINNING YOUR JOURNEY
Acknowledgments
About the Authors. JOE PAYNE
WILLIAM R. DORN
DAVID PASTORE
JENNIFER ULRICH
CHAPTER 1 An Introduction to Strategic Sourcing
VISIBILITY
OBJECTIVITY
PROJECT MANAGEMENT TOOL
Data Collection and Spend Analysis
Research
The RFx Process (Requesting Information, Quotes, and Proposals from Suppliers)
Negotiations
Contracting
Implementation and Continuous Improvement
IN SUMMARY
CHAPTER 2 Data Collection and Spend Analysis
WHAT IS DATA COLLECTION?
WHERE TO START?
DEALING WITH DECENTRALIZED DATA SETS
SPEND ANALYSIS
SPEND ANALYSIS TOOLS
KICKING OFF THE PROJECTS
END‐USER INTERVIEWS
Building Sponsorship
Understanding the Project Category
Defining Roles and Responsibilities
LINE‐ITEM DETAIL AND GETTING THE MOST FROM YOUR SUPPLY BASE
Response 1: Acceptance
Response 2: Avoidance
Response 3: Pushback
Handling the Responses
SUPPLIER INTERVIEWS
ANALYZING CONTRACTS AND PRICING AGREEMENTS
General Terms
Pricing Information
Liability and Other Specific Terms
Service Level Requirements, Specifications, and Scope of Work
Service Levels and Scope of Work
Specifications
THE FINAL ANALYSIS: BUILDING A BASELINE
Pricing Information
Service‐Level Details
Contractual Requirements
Go‐Forward Strategy
Presenting the Baseline
IN SUMMARY
CHAPTER 3 Conducting Research
TYPES OF COST‐SAVINGS OPPORTUNITIES
UNDERSTANDING THE CATEGORY
IDENTIFYING SUPPLIERS
UNDERSTANDING THE SUPPLY CHAIN
Local, Regional, and National Suppliers
Manufacturers and Distributors
Group Purchasing Organizations (GPOs), Brokers, and Other Third Parties
UNDERSTANDING CURRENT MARKET CONDITIONS
UNDERSTANDING THE FACTORS OF COST
REVIEW OF TECHNOLOGIES, PROCESSES, PRODUCTS, AND SERVICES
Alternative Technologies
Alternative Processes, Products, and Services
Performing a Want‐Versus‐Need Assessment
COLLECTING MARKET INTELLIGENCE THROUGH THE RFI PROCESS
Do Not Rely Solely on the RFI
Consider Your Format
Always Start with a Phone Call
Important Considerations for Properly Designing an RFI
Bypassing the RFI
IN SUMMARY
CHAPTER 4 The RFx Process
USING THE RFI TO BEGIN THE SOURCING PHASE
DEVELOPING YOUR SOURCING STRATEGY
Tactical—Low Risk of Supply Loss, Low Cost/Value
Leveraged—Low Risk of Supply Loss, High Cost/Value
Critical—High Risk of Supply Loss, Low Cost/Value
Strategic—High Risk of Supply Loss, High Cost/Value
GOING TO MARKET
GENERATING THE RFP AND RFQ
The Elements of a Typical RFP
Cover Page
Header and Footer
Table of Contents
Business Description
RFP Details
Scope of Work
RFP Evaluation Process
RFP Response
Appendix
Disclosure
Liability Clause
Customize the RFP Design as Needed
The Elements of a Typical RFQ
Deadlines
SUPPLIER SELECTION AND SCORECARD CRITERIA
ADMINISTERING THE RFX PROCESS
REVERSE AUCTIONS
ALTERNATIVES TO THE RFX—THE IMPORTANCE OF FLEXIBILITY AND CREATIVITY IN THE SOURCING PROCESS
IN SUMMARY
CHAPTER 5 Scorecarding Suppliers
MEASURING VALUE: DEVELOPING SELECTION CRITERIA
THE QUANTITATIVE ANALYSIS: EVALUATING THE BID PORTION OF SUPPLIER PROPOSALS
Best Alternative to Negotiated Agreement
Best Single Offer
THE QUALITATIVE APPROACH: DEVELOPING THE RFP MATRIX
REFERENCES
TEAMWORK AND OBJECTIVITY
TECHNOLOGY'S ROLE
IN SUMMARY
CHAPTER 6 Negotiations
KNOWING WHAT TO NEGOTIATE
Motivating the Supply Base
Providing a Clear Scope of Work
Becoming the Perfect (Potential) Customer
Backing Up Promises
Creating a Team Environment
Identifying Leverage Points
NEGOTIATION OPTIMIZATION: DEVELOPING FINAL TARGETS
GETTING TO “NO”
Finding Access to the Decision Makers
Opening the Books
Considering the Timing
Continuing to Ask
WHAT NOT TO DO
Negotiating After a Reverse Auction
Negotiating Price at the Contracting Phase
Establishing Artificial Targets
IN SUMMARY
CHAPTER 7 Get It in Writing: The Contracting Phase
ESSENTIAL COMPONENTS OF A CONTRACT
Term and Termination
Renewals
Early Termination
Indemnification
Liability
Warranties
Title, Risk of Loss, and Freight Terms
Payment Terms
Force Majeure
Other Terms to Consider
Right to Audit
Right of First Refusal
ATTACHMENTS
Pricing and Price Change Mechanisms
Scope of Work
Service‐Level Requirements and Servicing Metrics
Letter of Intent
CONTRACT MANAGEMENT
MAKING THE BEST USE OF YOUR LEGAL TEAM
CONTRACTING PITFALLS AND LANGUAGE TO AVOID
Most Favored Nations
Continuous Improvement
WORKING OUTSIDE OF A CONTRACT: PRICING AGREEMENTS AND HANDSHAKES
IN SUMMARY
CHAPTER 8 Implementation and Continuous Improvement
THE CHALLENGES OF IMPLEMENTATION
The Facts Do Not Always Speak for Themselves
Misinformation
Missing the Big Picture
“We Tried This Before and It Did Not Work”
Lack of Planning
The Absence of a Dedicated Team
OVERCOMING CHALLENGES
Be the Savings Cheerleader
Never Lose Focus
Maintain High‐Level Support
MONITORING IMPROVEMENTS AFTER IMPLEMENTATION
Tracking Your Savings
Tracking Lost Savings and Ensuring Compliance
Calculating Projected Lost Savings
Calculating Actual Lost Savings
SAVINGS AND COMPLIANCE BEST PRACTICES
Automating the Analysis
Making the Reports Meaningful
CONTINUOUS IMPROVEMENT INITIATIVES
Volume Reductions: Doing More with Less
Process and System Integration
Optimization, Standardization, and Substitution
Optimization
Standardization
Substitutions
Let the Supplier Help
IN SUMMARY
CHAPTER 9 What Not to Do During a Strategic Sourcing Initiative
CREATING OVERLY COMPLEX OR LONG RFPs
LETTING THE SUPPLIER WRITE THE RFP FOR YOU
Examples of Why You Should Not Let a Supplier Write the RFP
Demographics
Features and Functions
The Yes/No Approach
RFP SPAM
Examples of RFP Spamming
Using Generic E‐Mail Addresses
The Hard‐Copy Spam Method
Filling Out a Series of Template E‐mails
Sending an RFP to Companies Who Do Not Sell the Product or Service You Are Sourcing
Reasons That RFP Spamming Occurs
The RFP Was Just a Formality
Overreliance on Technology
Lack of Resources
Lack of Training
Elitist or Entitled Attitude
Laziness
Expected Results from RFP Spamming
How to Avoid Becoming an RFP Spammer
First, Some Basic Tips
The Proper Way to Conduct RFPs: Make Contacts, Make Time
Training
Get Help
IN SUMMARY
CHAPTER 10 The Importance of Market Intelligence
THE TYPES OF MARKET INTELLIGENCE
Global Market Conditions
Benchmarking Data
Understanding Market Pressures
COMPONENTS OF SUCCESS
Making Time
Is Now the Right Time?
Building the Right Team
Establishing Metrics
Identifying Suppliers Who Can Meet the Requirements
Identifying Adjacent Technologies
Asking the Right Questions
When Was the Last Time This Product/Service Was Sourced?
How Old Are the Data That You Currently Have About the Product or Service?
How Static Are the Data?
What Meets My Requirements?
BREAKING DOWN THE COMPONENTS
IN SUMMARY
CHAPTER 11 Introduction to Procurement Technology. A BRIEF HISTORY OF PROCUREMENT TECHNOLOGY
THE SOLUTION LANDSCAPE
UPSTREAM AND DOWNSTREAM PROCUREMENT
SPEND ANALYSIS
Working with Data
Spend Analysis Tool Types
Opportunity Analysis
SOURCING
REVERSE AUCTIONS
CONTRACT LIFECYCLE MANAGEMENT (CLM)
SUPPLIER INFORMATION MANAGEMENT (SIM)
SUPPLIER PERFORMANCE MANAGEMENT (SPM)
SUPPLIER RISK MANAGEMENT (SRM)
PROCUREMENT (P2P)
INVOICING AND PAYMENT
Invoice Automation
Payment
S2P INDIVIDUAL PRODUCTS VERSUS FULL‐SUITE SOLUTIONS
IN SUMMARY
CHAPTER 12 Increasing Stakeholder and Supplier Engagement
WHAT IS A STAKEHOLDER?
WHO ARE THE STAKEHOLDERS?
The Decision Makers
The Influencers
The End Users
Other Interested Parties
THE VALUE BROUGHT BY STAKEHOLDERS
Building a Project's Foundation Through Data Collection
Enriching Your Research
Defining Your Business Requirements
Going to Market
Taking Advantage of the Benefits After Implementation
IN SUMMARY
CHAPTER 13 Leveraging Group Purchasing Organizations
TYPES OF GPOS
SERVICES PROVIDED BY GPOS
Implementation and Compliance Services
Catalog Management
Consolidated Billing
Reporting
Custom Sourcing and Program Build
BENEFITS OF GPOS
Speed to Savings
Outsourced Supplier Management
Increased Supplier Visibility
Access to Benchmark Data and Knowledge Share
Networking and Events
GPO DISADVANTAGES
Restricted Ability to Compete
Supplier Channel Conflicts
Pricing
BEST PRACTICES FOR MANAGING GPO RELATIONSHIPS
IN SUMMARY
CHAPTER 14 Supplier Collaboration
OPENING UP YOUR REQUIREMENTS
Discover a Better Solution
Find Acceptable Substitutes
GIVING SUPPLIERS WHAT THEY NEED
Use Market Intelligence
Involve Technical Teams
HELPING SUPPLIERS WITH THEIR SUPPLY CHAIN
Improve Supply Chain Efficiencies
COLLABORATING WITH SUPPLIERS IN SIMILAR INDUSTRIES
Change the Process to Improve Efficiencies
IN SUMMARY
CHAPTER 15 Leveraging Supplier Feedback
AVOIDING THE RFP PROCESS
MAKING YOURSELF THE IDEAL CUSTOMER
EXAMPLES OF LEVERAGING SUPPLIER FEEDBACK SUCCESSFULLY
Improving Solutions by Asking Questions
Finding Real Motivations
Discovering Soft‐Cost Benefits Through Open Dialog
Finding Leverage Points by Expanding the Scope of Sourcing
IN SUMMARY
CHAPTER 16 Opportunity Assessment and Sourcing Roadmap. INTRODUCTION
STARTING WITH SPEND ANALYSIS
PROCUREMENT TAXONOMY
UNSPSC and NAICS Taxonomies
Suggested Taxonomies
Build Your Own Taxonomy
Future Taxonomies Nonhierarchical Data
OPPORTUNITY ASSESSMENT
Understanding the Data
Determine Your In‐house Capabilities
Enriching the Data
Get Outside Help
Building the Opportunity Profiles
Get Visual
Packaging Together the Opportunity Assessment
ROADMAP
Establishing the Savings Metrics
Building the Timeline
The Implementation Plan
Move Quickly to Start the Work
IN SUMMARY
CHAPTER 17 Determining Project Complexity
COMPLEXITY DRIVERS
Process Drivers
Data Collection
Current State
Future State Objectives
Research
Requirements Development
RFP Development
RFP Administration
Scorecarding
Negotiations
Contracting
Implementation
Project Drivers
Nature of the Product or Service
Leverage and Market Competition
Timing
Category Experience
Supplier Alignment
Other Considerations
IN SUMMARY
CHAPTER 18 Planning and Optimizing Low‐complexity Projects
GETTING FAMILIAR WITH LOW COMPLEXITY
WHERE TO FIND LOW COMPLEXITY PROJECTS
Unmanaged Spends
Tail Spend
Segments of High‐complexity Spends
High‐complexity Projects
DEALING WITH UNEXPECTED COMPLEXITY
ADDING COMPLEXITY WITH PURPOSE
FACTORING LOW‐COMPLEXITY PROJECTS INTO YOUR ROADMAP
IN SUMMARY
CHAPTER 19 Navigating High‐Complexity Projects
PROCESS DRIVERS
Data Collection
Understanding What Data Are Required
Accessing the Data
Gaining Support
Current State
Category Changes
Stakeholder Engagement
Supplier Relationships
Future State Objectives
Objectives
Interested Stakeholders
Market Influence
Research
Subject Market Expertise and Market Intelligence
Requirements Development
End State Vision
Category Understanding
Stakeholder Alignment
RFP Development
Requirement Articulation
Market Awareness
Pricing Familiarity
RFP Administration
Supplier Management
Supplier Influence
Scorecarding
Scoring Criteria
Stakeholder Team
Negotiations
Supply Base Experience
Stakeholder Involvement
Supplier Quantity
Contracting
Reviewers
Contract Structure
Implementation
Change Management
PROJECT DRIVERS
Nature of the Product or Service
Importance to the Organization
Subjective Qualification
Leverage and Market Competition
Leverage
Market Competition
Timing
Point in Time
Duration
Category Experience
In‐house and Third Party
Supplier Alignment
Incumbent Suppliers
New Suppliers
IN SUMMARY
CHAPTER 20 Building an Indirect Procurement Team
DEFINING THE ROLE OF PROCUREMENT
The Driving Factors
Setting a Baseline
DESIGNING THE FRAMEWORK
The Reporting Structure
Where to Start
Gaining Momentum
BUILDING THE TEAM
Acquiring the Talent
Onboarding New Talent
Retaining Team Members
IN SUMMARY
CHAPTER 21 Team Training and Development
WHERE TO BEGIN
Creating the Matrix
Assessing the Team
Devising the Plan
BALANCING THE CONTENT
Internal Training Materials
The Delivery Model
HOW TO MAKE IT STICK
IN SUMMARY
CHAPTER 22 Process, Policy, and Digitalization
ENACTING THE CHANGE
THE ROLE OF GOVERNANCE
Why Policy Is Needed
An Effective Policy Design
Purpose and Scope
Accountability
Roles and Responsibilities
Procurement Functional Components
Policy Exceptions
Why Good Process Matters
Tying Process and Policy Together to Drive Decisions
ENABLING THE TEAM THROUGH TECHNOLOGY
Why Digitize?
The Old, Manual Way
The New, Automated Way
Planning to Succeed
IN SUMMARY
Index
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