Procurement Investor

Purchasing technology company that "gets it"

2007-10-22T19:25:00.000-05:00

Dave Stephens, CEO of Coupa Software, an open source procurement software provider, has just announced that they are providing "transparent pricing". Clearly Dave thinks he has a competitive advantage and I love his line "I’m challenging the rest of the industry to follow suit. So far, there haven’t been any takers." In the procurement world market knowledge is key to writing good contracts. The cost of engaging software providers in lengthy dances of displaying enough interest in order to get a firm price quote hurts both buyer and supplier by adding costs to both parties. I applaud Dave for taking this position; his software solution is worth looking at too.

Cheers,

David Rotor

Super Crunchers ...

2007-10-14T12:53:00.000-05:00

These two are the super crunchers in my life ... followed by what they thought of Ian Ayres' book ... I'll let you know what I think about it myself if there is enough left to read ...

Airfare increases

2007-09-05T10:49:00.000-05:00

According to Bloomberg, several major US airlines increased their fares starting 31 August. Southwest kicked off the price increase with $1-$10 increase for each flight (up to $20 roundtrip). The usual suspect, jet fuel price increases, are being blamed.

Buying the top job

2007-09-05T07:03:00.000-05:00

The new chairman at Renault F1, Bernard Rey, has been Renault's "go to" purchasing guy for about a decade. He was appointed Renault's International Chief Purchasing officer back in 1998, and then followed Ghosn to Nissan where he drove a program to lower Nissan's purchased expenses by 20%.

Hat tip to Grandprix.com

How much for an iPhone?

2007-07-03T09:29:00.000-05:00

Over at Gizmodo they've posted a ton material on the iPhone. Here's one (they didn't write it) about the material cost of the iPhone. Bottom-line is an estimate of $200. "What if costing" is fundamental in procurement, and one of the main tenets of the technique is to understand what bits of the cost equation are you estimating and what, if any, relationship that has to pricing. With the iPhone retailing at $600 give or take, I would suggest that "what the market will bear" factored more heavily in the pricing discussions than the material costs. But even so, the guys at Giz suggest that consumers should be a bit taken back by Apple's profit. The real cost of the iPhone is probably somewhere north of $400, even without allocating any development costs to the product.

Material cost
Logistics (transportation, handling, inventory)
Retail costs (labour, facilities)
Advertising & Marketing
Support costs (how do I activate this dang thing?)
Warranty costs (shipping, handling, labour, parts)
etc, etc

Rough numbers, this type of equipment often runs about 50% material and 50% other costs (again not counting any development costs). Is $600 a fair price for a $400 phone? My buddy Mike says yes, and who is a lowly buyer to argue with that?

Cheers,

David Rotor

What's the number?

2007-06-25T10:02:00.001-05:00

I've negotiated a fair number of contracts over the years. Most of the time its a simple exercise of determining the how much will one pay for a good or service. But when the transaction is extended in time or over a number of payments even the simplest transaction can become difficult to conclude. I've found that one of the biggest issues is a disconnect between what is emotionally fair, and what is numerically reasonable.

Let's take a car purchase. A dealer has it listed at $38,789 after some negotiation you settle on a price of $35,600. The dealer then asks if you would like to finance the car over 6 years, and offers to do so at $702/month. Is that a good deal? In order to decide you need to be able to calculate some numbers, and have some external information. One piece of information you need is "what interest rate would someone charge me to borrow $35,600 and repay the loan over six years?"

In this case, the answer depends on whether you can get someone else to write this loan for less than 12.3%. All in all, these are not difficult calculations (and any number of web-sites, calculators, or spreadsheets will perform them for you).

However ... when you are negotiating procurement or outsourcing contracts don't assume all the parties at the table will be able to perform these calculations - especially "right there at the table" and that even if they can, that they will think the result is reasonable.

I'm often surprised at how frequently clients (and sales staffs) get tied up on this issue when services are paid on a deferred basis. You will often see sales staff asking for outrageously high margins just as often as you'll find a client wondering why they can't pay, for example, $1M in 10 years for $1M in services today.

And just when you think everyone is on the same page and being all reasonable, then we need to consider deal and partner specific risk ...

Cheers,

David Rotor

A quick hello and and some fast procurement news

2007-06-13T11:16:00.000-05:00

I've been off working on a confidential client project so I have not been able to post anything recently. But I thought some of you might find this juxtaposition of two of my favourite topics interesting.

The rising cost of carbonfibre

"The current worldwide shortage of carbonfibre is going to make it more difficult and more expensive to build racing cars, until supply catches up with demand."

Click on the link for the full story from www.grandprix.com

Yet another supply risk post

2007-03-03T11:28:00.000-05:00

The usual suspects of smart supply guys ...

Michael (Sourcing Innovation) - here - here - here (and many more)
Tim (Supply Excellence) - here - here - here (and also many more)
Jason (Spend Matters) - here - here - here (and you guessed it ... many more)

... keep trying to make us pay attention to supply risk. A recent quote from Michael "Your supply chain will be disrupted. Bet on it. You'll win." If only some of the brain trust in the Toronto and Calgary offices of Imperial Oil (Esso) had been paying attention. While it's been making news for a week or so, (and hitting our wallets) today's Globe and Mail article on the retail gasoline supply chain disruption in Ontario provides a nice summary of how it happened.

1. Take a couple of refinery fires to constrain production.
2. Add in the winter closing of the St. Lawrence Seaway (if you're not familar with the seaway, or perhaps more importantly if you think you do, spend some time on their site to gain an appreciation of just how important this stretch of water is to the North American economy) to limit alternative distribution
3. Simmer with a rail strike to further limit distribution

The result has been a 25% spike in retail prices for gasoline and "dozens" of gas stations being closed due to lack of gasoline. If this can happen in Ontario in a widely competitive commodity market like retail gasoline what are the odds that it can happen in your supply chain? If you disagree would you care to take me up on Michael's bet? Thought not.

Cheers,

David Rotor

A life without compliance

2007-03-02T13:31:00.000-05:00

Ask procurement types what are their major challenges and you'll routinely hear:

1. Talent (attracting, training, and retaining);
2. Data visibility; and
3. Compliance

Let me touch on compliance today. I've worked on a variety of models to drive compliance both on the demand side (buyers using the right mix of contract, supplier, and scope of service or specification) and on the supply side (suppliers honouring their commitments). My current approach has been to treat this as a sales/marketing challenge (here and here). What if we're all wrong?

Russell Roberts, writing in Cafe Hayek, talks about "Order emerges in unexpected places". His example is the experience of a couple of European towns that are deregulating their traffic patterns by removing signs, traffic signals, and the like. I'd say it was counter-intuitive, but I guess most of us actually would guess that, indeed, accidents are reduced with fewer controls. I seem to recall reading someone (The Economist, Marginal Revolution?) on this topic not long ago, and if I recall correctly it was posited that fewer external controls meant individuals felt an obligation to have more responsibility.

Can this approach translate to the procurement world, and if so, what should procurement departments consider to make it effective? It's not so crazy, most companies have some form of procurement anarchy already:

1. Expense policies that allow travellers to select hotels and restaurants
2. R&D labs that are exempt from production procurement rules
3. Conference planning that is not restricted by corporate travel regulations
4. Gifts and trinkets
5. Media and advertising relationships

etc, etc

To make it effective I believe that three conditions are necessary:

1. The cost of the decision must be visible to the person making the decision. This is often referred to, in the negative, as "visual guilt". If you can display lower cost options, the decider will often select the lower cost. A real world example is what the folks at Rearden Commerce are doing for travellers.

2. The decision has limited impact on business processes beyond the control of the decision maker. This is really just expanding on the first condition, purchases that entail risk, long-term maintenance or support costs, or which impact other purchasing decisions probably should not be left uncontrolled.

3. Decision that are either very simple and quick to make (I'd like that pen, not that one) or extremely complex and ad-hoc (this charting software is better for my development team than that one). Simple, as the cost of involving a procurement administration to make the decision would often out weigh the cost of the purchase. Extremely complex ad hoc decisions because those decisions are very difficult for the procurement department to have expertise and add value, and if they are truly ad hoc their is little value to be gained from the experience that will translate to other buying decisions.

Any thoughts, other than to lynch the procurement heretic?

Cheers,

David Rotor

Shared savings?

2007-03-01T09:17:00.000-05:00

I'm working on a few investment opportunities that have come up for this fund. The fund is, obviously, interested in the mechanism for shared savings and while we are starting with a bias on how the funds would flow it's been useful to work through some other scenarios.

We're exploring five shared savings models:

Identified Savings
Front End Rebates
Back End Rebates
Transaction Payments
Periodic Payments

Identified Savings
This is commonly used by strategic sourcing consultancies that have contingent savings contracts with their clients. Savings are "identified" but not realized prior to payment. Often the milestone for payment is at the time of awarding a contract to a supplier that provides lower costs for a good or service.

Front-end Rebate
In this model the supplier takes on the future purchased volume risk in a contract and pays the client their savings at time of contract award.

Back-end or Volume Rebate
In this model the supplier pays the rebate at some pre-determined point in time, such as quarterly, annually, or at contract expiration. This is normally defined either as a lump-sum payment (thereby having the supplier hold the purchased volume risk) or as a volume related payment (thereby having the client hold the purchased volume risk.

Periodic Payments
Savings are tracked and paid on a periodic basis (often monthly or quarterly). While there can be multiple mechanisms this form of shared savings are managed they are usually based on tracking the volume of purchases over the defined period and applying a savings formula to that volume.

Transaction Payments
Savings are tracked and included in the transaction. Payments are made coincidental with supplier payments for each relevant transaction.

Sit down and read this

2007-03-01T09:05:00.000-05:00

Procurement "professionals" are often asked, either seriously or in jest, for retail buying help from friends and family. While there is obviously some overlap in skills and approach, it's a bit akin to asking your friend the Finance Director for help selecting a life insurance policy. Over at the consumerist, they've posted an article aimed at the consumer buyer, that has a lot a valid points for the professionals. The topic is buying on-line furniture, but just as it makes sense for a professional, it also makes sense for categories beyone furniture. Here are a few of the tips, and a link to the full article.

#7. Ask them about the shipping procedure and how long it takes for
the order to be processed.
# 12. Confirm everything. Hold them to their word, and WRITE DOWN THEIR
NAMES. Get their last name if possible.
#6. Ask them what the furniture is made of, and if it can be configured in
a number of different ways.
# 3. If they have a warehouse, ask for a tour. Take a look at the way they
warehouse employees act and handle the packages. What the retailer expects of
its employees is what they expect from their manufacturers.

Cheers,

David Rotor

Elevated pricing - supplier cooperation gone bad

2007-02-22T09:47:00.000-05:00

Today's Globe and Mail reports that the European Union (EU) has fined Otis, ThyssenKrupp, Kone, and Schindler, Mitsubishi Elevator some US$1.3B for colluding to fix prices in Europe (appeals expected). I expect a resounding silence from industry lobby groups on this one. Lobby groups like to be loud and clear about the value of working closely with suppliers, that "strategic partnerships" are more valuable than commercial relationships, and that buyers should trust their supply partners with more of a firm's value chain.

I agree ... but in the words made famous by Ronald Reagan "doveriai, no proveriai". On more than one occasion I have enforced a right to audit supplier invoices. The first time I did it was when I was working for CN Railways, the supplier was (and is) a Canadian subsidiary of a global "MRO" parts supplier.

The relationship was worth about C$12 million a year, mostly driven through a huge number of small dollar transactions. Work to integrate the supplier into our EDI system led the team to wonder about the quality of the data feed from the invoices (a polite way of saying that their pricing seemed wacked). We had the right to audit, and on 24 hours notice put a couple of internal auditors into the supplier's offices. We agreed to sample about 1000 invoices and share the results with the supplier. We found that roughly 50% of the invoices had pricing errors which pointed to our concern about the quality of their data system, when we also observed that about 83% of the errors were in the supplier's favour it suggested that we might also have an ethical concern about their behaviour. The difference between contracted prices and invoiced prices was roughly $1M (8% of the C$12 million in sales). For a railway that only made $75M in profit that year, it was pretty significant.

The very talented guys over at "The Buying Triangle" are working on this type of problem (and others). Here's how they describe a portion of their solution:

Analyzing costs of goods and services—the third node on The Buying Triangle—can
be difficult to validate without effective price discovery. After contracts are
negotiated, the work of determining whether savings are real or theoretical
still lies ahead. This is often complicated by factors such as:

* the best pricing may be for items rarely used much of what you buy may actually be off-contract
* you can't validate contract compliance because you can't produce a detailed breakdown of historical purchases

I suspect that some of the buyers who experienced "elevated pricing" in Europe got the "verify" bit right. What are you doing to verify your supplier contracts?

Cheers,

David Rotor

If we keep quiet maybe nobody will notice - good supplier cooperation

2007-02-22T09:34:00.000-05:00

For cell phone companies in Canada it might seem that the Ides of March are a day early this year. But if they are feeling a sense of impending doom, they're doing a great job of keeping it to themselves. As I wrote back in December, wireless number portablility (WNP) is finally arrving in Canada on March 14th. You wouldn't know it from the industry's advertisements, as Catherine Maclean writes in the Globe and mail "The lack of advertising, however, shouldn't be surprising. Some observers predict the move could lead to an uptick in so-called churn, or customer turnover, as unhappy subscribers, who are wedded to their phone number, head for the exit signs."

I am all for the awkwardly named WNP, having seen it work to great advantage in other countries. I can also support the position cell phone companies are taking, none of them are advertising this pretty significant change in their industry but they aren't doing anything illegal, colluding, or misleading their consumers. Where am I going with this comment ... see my next post.

Cheers,

David Rotor

Common sense lease advice

2007-02-20T10:19:00.000-05:00

Terrence Belford writing in the Globe and Mail today has an article on negotiating commercial real estate leases. Here are a few nuggets of good advice for any supplier negotiations, not just negotiations with your landlord.

* Don't begin negotiations with a threat
* Understand your supply market and what options/substitutions are real
* Consider what the other side wants to get out of the negotiations
* What can you bring to the table that is more valuable to the other party than it costs for you to provide - and vice versus

The article concludes with a pitch from a real estate negotiating service "In seven years, we have never had a situation where we did not save a client and in some case those savings have been considerable."

If you're thinking about using a service to do negotiations you should think hard about that quote. Do you have the expertise and market experience to do as well as a firm that has been doing this for seven years? Consider that your internal staff haven't been held to the same standard of having to earn revenue from their expertise that a service provider is required to meet. On the other hand, also take a hard look at how they define savings and what strategic value your company expects to receive from the negotations that are not captured by the term "Savings".

This one caught my eye

2007-02-16T11:06:00.000-05:00

The Economist has published a book review (subscription required) that caught my attention this morning. “Firing Back”, by Jeffrey Sonnenfeld and Andrew Ward, on how executives can rebound from being sacked. Here's an interesting section:

There is a five-point plan, which begins with “fight not flight”: it is
crucial not to become so preoccupied with coping with failure that you fail
to pursue a new career seriously. The story is told of how Mr Dimon decided
to seek out his former mentor, Sandy Weill, who had fired him from
Citigroup, a year later. “I wanted to get this event behind me so I could
move on. I made my own mistakes. I acknowledged I was partly to
blame.” The ousted boss also needs to “rebuild heroic stature”, prove his
mettle to regain credibility and rediscover his “heroic mission”. Much of
this boils down to reputation management. Despite Mr Dimon's admirable
private candour, the authors urge executives to devise a plausible narrative
about their failure that includes “clearly denying culpability, shifting
responsibility for the mishap, reducing the offensiveness of the act, giving
the appearance of reasonable behaviour and offering acceptable motives.”
Head-hunters may be a more important audience for this story than intimates
or the broader public. Some sources of failure are better than others: get
fired during a merger, a political clash or over a strategic disagreement,
and you have a two-thirds chance of returning to corporate leadership within
two years. Best avoid being sacked for poor performance, unacceptable
personal conduct or illegal behaviour, however.

Cheers,

David Rotor

Do you understand PPP?

2007-02-12T11:04:00.000-05:00

There is an interesting discussion going on over at Marginal Revolution on the value and definition of Purchasing Power Parity. If you think you know what it is and how it impacts your supply contracts you might be in for a surprise or two.

Cheers,

David Rotor

Blackstone's Office Properties

2007-02-07T16:49:00.000-05:00

In November I wrote about Blackstone's bid for EOP. It closed today at $39B. My advice still stands, they should take a hard look at their SG&A. I also recall something I had forgotten about back in November. When EOP was a client, a Vice President of Procurement had the last name "Borg" (I did a cursory check on the web-site and can't see if he's still there). It's a funny last name. For you Star Trek fans, ok, it's a little funny. For us purchasing types Borg means "B"uying "org"anization. Juvenile yes, but it still brings a smile to my face.

Cheers,

David Rotor

Limits of Sourcing - Part Deux. PI gets e-sourcing tool.

2007-02-05T14:21:00.000-05:00

Back a couple of weeks ago I was thinking (and posting) about the limits of strategic sourcing. How small can a company's spend be and still benefit from sourcing? The challenge was to source for a client with less than $10M in SG&A across all categories.

The obvious constraint is the cost to source versus the benefit, and the relative market power generated by volume versus market knowledge. If one is trying to improve productivity deploying technology is an obvious solution. In this case, e-sourcing technology, "e-auctions" or "reverse auctions" is the technology of choice.

For those who are either not procurement types, or if you've been sitting in a three-bid cave for a few years here are some indications of the growth of e-sourcing technology.

* OGC, the UK government's "management board" is providing e-sourcing across many of their departments:

41% cost reduction in IT hardware costs.
http://www.theregister.co.uk/2006/06/08/public_sector_eauctions/

Here some background info on the OGC program.
http://www.ogc.gov.uk/documents/cp0025.pdf

* GSA, the US government's "management board" is also providing e-sourcing for the US government.

Fed-bid was awarded a five year contract to perform e-auction
http://www.fedbid.com/dictator/media/68/200701_general_overview.pdf

Here they announce they have conducted their 10,000th auction.
http://www.fedbid.com/news/46/ 10,000th reverse auction.

* Aberdeen, the analyst firm, has just released a report on advanced sourcing. Here's a quote "With an adoption rate within the Fortune 500 approaching 100%, eSourcing is a widely accepted business practice that can generate compelling benefits for its users."
http://www.aberdeen.com/c/report/research_briefs/RB_Advanced%20Sourcing_AB_3804.pdf

* ELP, European Leaders in Procurement, the magazine, explains why e-sourcing is good for suppliers.
http://blog.europeanleaders.net/procurement-blog/2006/10/4/why-e-sourcing-is-good-for-suppliers-part-i.html

* Here's a press release from my old boss. Minister Fortier bucks the trend of the UK government, the US government, and the vast majority of the Fortune 500 by making e-sourcing off-limits (ignoring the fact that the Canadian government has been conducting e-sourcing for close to ten years).
http://news.gc.ca/cfmx/view/en/index.jsp?articleid=237679

* Supply Chain Digest, the magazine, identifies e-sourcing as the #1 strategy for supply chain management in 2007
http://www.scdigest.com/assets/Reps/SCDigest_Top_10_Strategies_2007.pdf

Back to the $10M sourcing problem at hand. Let's assume for a minute that 30% of SG&A in 12 categories is addressable for sourcing - leaving $3M - and with a savings estimate of 10% that means the company could enjoy $300,000 in savings if sourcing can work on this small scale. What will it cost to use e-sourcing to attack those twelve categories?

For an industry that is fundamentally about pricing transparency to drive competition, it's remarkably difficult to answer this question. My own experience suggests that you can easily negotiate prices in the $2,000-$10,000 range for a single event. At the low end, this could work for the client ($24,000 cost against $300,000 benefit). At the high end, the benefits would appear in out-years. Alternatively, you could try and run it on one of the "supplier pay" models such as www.sorcity.com, though the low spend may not be attractive for the auction provider.

And finally, the approach I'm taking a hard look at. Tender System has released an open-source e-sourcing tool. I've just installed it on the Procurement Investor web site and will be configuring it over the next few days. I'm intending to also make it available to Procurement Investor readers in the near future.

Cheers,

David Rotor

Brrr.

2007-01-30T10:13:00.000-05:00

Not being quite sufficiently frozen to the bone with -20c (-4 for those brave souls still stuck on Farenheit) at home, I'm heading off to the Winterpeg to experience -25c (-13F) for a couple of days. Feel free to keep the fires burning for me in here.

Cheers,

David

Making pretty

2007-01-29T12:09:00.000-05:00

I've updated the look, and some of the content, on the Procurement Investor home page.

Here's the new look:

And the old look:

Still fighting the talent war

2007-01-24T17:48:00.000-05:00

(No I don't know anything about this comic - but it has great cover art for this article on the talent war)

The topic of recruiting and retaining procurement “talent” is a perennial favourite. Here are a bunch of articles:

Here - European Leader Net

Here - European Leader Net
Here - Procurement Central

Here - Supply Excellence

Here - A comment on Jason Corsello's blog, which is comprised of links to articles on procurement talent!

and

Here - Shared Services BPO

It was top of mind during a discussion this week about estimating strategic sourcing savings. In short, for the situation under discussion, we had two options to consider. The first was to provide training and technology support to a group of corporate buyers. The second was to engage “world-class” consultants to do the strategic sourcing for the client. Should we estimate a difference in savings between the two options? The consensus answer was that we should expect higher savings if we use the consultants. If you accept that the world-class consultants are more “talented” than a group of corporate buyers it appears that we were betting on talent.

In my case, that’s not true. I was betting on market knowledge.

A quick digression. I use the concept of “Market Power” to indicate the ability to negotiate favourable supplier contracts. The more market power you have the better the deal you can negotiate. Several things can contribute to increasing your market power. In my experience the most powerful are:

* Purchasing Volume - the most common approach (not the best, merely the most common) to strategic sourcing is to aggregate as much of the company’s spend as possible into a single contract
* Compliance – the ability to shift demand within your company to your preferred suppliers (and to credibly communicate this ability to your suppliers)
* Market Knowledge – the amount of information you have on current market conditions and suppliers

As I discussed, here, many organizations both over-estimate the degree to which volume will drive better prices and also often fail to understand what are the price/volume economics for a particular good or service.

Your suppliers' view of your compliance management ability (not your internal view) will strongly impact your market power.

In my experience, market knowledge is the strongest contributor to market power. Knowing what others have recently paid for a good or service, what the production capacity or utilization rates (goods, services) a supplier and their industry are experiencing and can support, what T&C’s impose non-standard costs on a supplier, etc, do more to allow great contractual terms to be negotiated than simply adding and delivering volume to a supplier.

Back to the discussion on relative savings rates. I was betting that the consultants would have more market knowledge by the simple matter of their firm frequently going to market for their clients as opposed to the corporate buyers who generally would only go to market every few years.

It would be fashionable, often true, and egalitarian to also say that consultants are rarely more talented than corporate employees. I don’t believe that, I think good consultancies often have very talented people on staff. What I do believe is that reasonably competent people who are provided with the right tools to build market power will out-perform highly talented people without those tools.

This raises some interesting conclusions. First, if you're going to bring in sourcing consultants, make sure the ones who show up have access to their firms recent market experience, and don't assume just because they are from a well-known sourcing consultancy that that is true.

Second, if you are fighting the “talent wars” you must also consider the environment in which that talent will be deployed. Can you offer talent an environment where they can promise and deliver on compliance commitments to suppliers? Can you provide them with the information they will need to remain market knowledgeable?

If the answer to either of those questions is “no”, “maybe”, or “we hope the talent will bring that to us”, you maybe showing up to a gun fight with a knife – talent will migrate to where they can be successful and remain talented.

Cheers,

David Rotor

Wiki'd out

2007-01-22T17:03:00.000-05:00

Earlier I posted that I had migrated to www.procurementinvestor.com and that I had some small ambitions for the new site. I was able to figure out how to get one piece working this week. The Procurement Investor Wiki is up and running.

A wiki is a website that allows collaborative editing of content. The Procurement Investor wiki focuses on procurement topics, and encourages readers to help to develop the content on these pages for our mutual use and benefit. The wiki is grouped into topics. The first topic is:

The Category Hierarchy - Defining a hierarchy of goods and services that are logical for procurement.

As it develops I'd like to add a topic on supplier pricing, supplier quality, and sample bid documents. As those sections develop I'll announce them in here.

Cheers,

David Rotor

$1B a day in cross-border shopping

2007-01-19T10:05:00.000-05:00

This is the time of year that Fleet managers are thinking about their final purchases of the 2007 model year. They’ll continue to be paying a huge premium if they are on the northern side of the Canada-US border (except, of course, the funny inversion you get with Detroit being north of Windsor). Last summer Canadian Driver, published this article, suggesting that prices in Canada, normalized for such things as exchange rates and trim levels, are 17% higher for the same vehicle. As with any study like this the actual amount varied dramatically by vehicle, here’s a chart produced for their article, the source is credited on the image, but I can’t quite make it out.

The article normalized for currency exchange between January-July 2006. Here’s a look at the monthly average exchange rates between 1999 and 2006, from the Bank of Canada (and their currency exchange page).

This price differential across the Canada-US border is going to vary by category of good or service, but cross border economic activity is above $1B per day. If you’re not benefiting from exchange rate/price arbitrage, odds are good that your supplier is benefiting. As always, market knowledge can go a long way to evening the odds, so don't just look locally for price benchmarks; your suppliers view their markets globally, so should you.

Cheers,

David Rotor

Fuel surcharges, part deux

2007-01-17T21:17:00.000-05:00

Tim Minahan, is picking up on the fuel surcharge issue. Thanks Tim.

Limits of Sourcing?

2007-01-17T20:56:00.000-05:00

I've had a busy week. Apart from moving to a personally owned server, Procurement Investor, I've also been working on a large procurement outsourcing deal, the same one I wrote about here. And, I've been taking a look at some leads that are coming in from my post on looking to invest in procurement savings. I talked with some folks at Ariba on Monday, sharing some thoughts on delivering savings for our clients.

But the thing that's really caught my attention this week has been "how small is too small?". I've had the chance to look at some small companies this week, one that had only $5M in payables. It's not unusual to find a sourcing person who will claim that they routinely save 10+% on purchasing. We all, and I'll include myself here, always talk about how big a spend we've saved against. No one brags about how small a spend their expertise is effective against.

I'm intriqued, can strategic sourcing work for a $100M revenue company? How about a $10M revenue company?

If I find out, I'll let you know.

Cheers,

David Rotor