IMO - Observations by Mikel Taylor, C.P.M.
management, supply chain, career development and business issues.
2/21/2019 Leaders vs. Managers Not all managers are leaders!
Suggest that NARA be authorized and funded to create and manage a central electronic-record archive (cloud storage system) for mandatory use by government contractors and agencies. All other government-related electronic record systems would cease to be funded after a phase-in period. Basically NARA would be in control of this "cloud storage system" for all the record data created and used in the day-to-day performance of government contracts and operations.
DCAA and GAO would be the primary customers for the NARA-operated data system with full data access and joint responsibility to define the data collection and feeds for contributors.
For example: Every Federal Government contractor is required to create, keep and make available for audit significant quantities of financial, contracting and operation data. Literally there are thousands of contractors creating and storing millions of records in hundreds of different systems located all over the country. Instead, NARA would specify the data elements to be uploaded and contractors would all point their operating systems to a single cloud storage solution. Storing government contracting data locally would essentially become redundant and eventually an unallowable expense.
Contractors will raise privacy concerns, but this will force resolution of the issue that government contracts produce data that belongs to the public.
This will force the upgrade and standardization of all the obsolete data systems still in use throughout our government – and it's about time!
Managers; Reconsider your communication style. The internet and Information overload has trained us to skim data sources quickly and critically filter information for salient facts. As a manager, your message will end up in the "junk mail folder" if you don't get to the point fast and make a clear and concise case for relevance. Here is why I think so….
I just read yet another article discussing the unique management needs of millennials. But upon reflection, I think that some of the traits attributed to millennials, are manifesting in multiple generations of professionals. In that way, the article has more to do with an evolving workplace than it does in describing a new generation of workers. The result is management styles are being challenged and have to evolve in order to remain effective.
In My Opinion: All professionals are learning to absorb and process information differently. Our communication needs and aversions have changed.
Okay… there were a few of us who were skeptical about the kitchen gadgets, but if something showed up on the evening news – it just had to be correct. We coveted the long explanations provided by shows such as 60 Minutes and thus we learned how to communicate important information in long formal processes.
With the advent of VCRs and digital recording we learned that some information could be recorded without seriously affecting the quality of our lives. However, that also created a problem of time shifting data and entertainment into overlapping time slots. Add internet data resources, news feeds, podcasts, social media posts, etc. and our lives have become a dense pile of compressed data. Thus we have had to learn how to filter out irrelevant programing, can spam and (hopefully) identify "fake news". Younger generations are probably much better at this than us older folks who still believe the 'watch kept on ticking'.
Net result – the workplace has changed. Managers should be reconsidering their data delivery style and process. If we want people to listen and grasp the salient points, then we can't sound like spam and deliver information like infomercials. All employees, not just millennials are expecting more relevant and succinct communication. Managers need to stop with the long introductions and qualifying exceptions. Leave the chatter until later. It's no wonder some millennials appear to be tuning out.
In My Opinion - If you want people to listen; get to the point and explain the why it's relevant or important before you lose the listener. Details, explanations and historical perspectives should be relegated to the 'encyclopedia' for future discussion or reference as needed.
I was recently asked to talk about taking supply chain management to the next level. Continuity, sustainability and environmental considerations are certainly hot topics for those organizations with long world-wide supply chains. But I think there are also next-level opportunities for all of us in much closer to home in MRO procurement and indirect spend.
Since the growth of the internet and cost-effective software solutions, we have been inundated with products to help wring every penny out of supplier pricing with better solicitation and cost analysis tools. And they have. We can analyze previous purchases, compare prices and track MRO costs much better than we ever could before computers and the internet. That's been a good thing, but in my opinion it's time to expand our focus beyond just the price savings.
Sure, buying from the right vendor at the right price is important; we can't lose sight of that goal. However, with improved automation and AI tools, we can do better. Consider the overall internal costs to obtain indirect and MRO items and services. The time and effort involved not only for supply chain managers, but internal customers and other administrative organizations. Instead of saving a penny on the price, I think organizations can realize additional savings by reducing internal cycle times, cutting transaction costs and improving internal customer processes.
Artificial intelligence and automation are making huge inroads in consumer marketing. Retailers are innovating at warp speed to try and lure and retain consumers. AI, automation and cloud-based data are making it easier and quicker for people to order online. If we are seeking ways to innovate our supply chain processes, we only need to look as far as our last online shopping experience.
As a preview of what could be available, think about the shopping experience of consumers at online retailers such as Amazon, Walmart, Costco, etc. When a consumer logs in to the web site, the seller displays previous purchases, recommended products, current- order status, alternative products, special offers, etc. all customized to the specific shopper. This "guided shopping experience" can be a little annoying – although it can also be a big timesaver if you are not sure what to order. Who doesn't appreciate one-click reordering of commonly used items? How much savings and improved performance could a company realize if a maintenance manager could reorder commonly used supplies with only one click?
Could the price be a few cents higher? Maybe, but consider the total cost of acquisition – not just the price.
An example: Big grocery outlets are offering online shopping. Buy your groceries and then just drive up to the pickup line and they will be loaded into your car. No need to get out, traipse through the store and wait in a check-out line. Sure the stores might have raised overall prices by a few cents, but I know several families who love it. For a busy person, or families that have to shop with small children, saving the extra hour and reducing stress more than makes up for the few dollars extra it might cost.
Another example: Vendor managed inventories and in-house MRO vending machines have been supply chain options for many years now. For one company that implemented several MRO vending machines for common maintenance needs (duct tape, Loctite, gloves, etc.) I was told the big savings realized was in reducing the 'tool-box inventories' and improving the acquisition experience for users. The maintenance folk became the champions for the new machines – not just procurement.
Online shopping tools powered by automation, AI and software innovations are making huge improvements in consumer online markets. I think it's time we started asking sellers for similar innovation and improvements in our supply chain procurement processes.
Example: Amazon is moving in this direction with Amazon Business. Helping organizations reduce processing costs while still complying with "well-formulated procedures".
Our maintenance manager uses consistent maintenance supplies. His online portal already knows most commonly used items based on that person's organization, previous ordering history, product model numbers and/or purchase order items list. Lower prices beyond a certain percentage are made visible before the order is finalized.
As we move into a new year, conditions change - some changes are market driven: competition, material sourcing, freight bottlenecks, etc. Some changes are government caused; tax rate changes, tariffs, import/export restrictions, environmental regulations, etc. And some changes could even be considered 'acts of god' e.g. severe weather, storm damage, crop failures, etc.
All of these changing conditions could impact our suppliers and contractors - and eventually become issues that will affect their ability to perform. Changing conditions could materialize as delays, disruptions or cost increases. Suppliers may simply be unable to deliver, might seek equitable adjustment and depending on how contracts are worded - might win in court (if it comes to that). Sure the buyer might also prevail, but a shrewdly written contract- that results in no delivery - will nevertheless delay / cost your operation.
Regardless of the cause - we have to be prepared for the risks to successful completion of our contracts. it is our job as contracts administrators to know the contract, understand the supply chain, be aware of the market conditions, and have a good idea of the cost pressures on our key suppliers. As part of the contract award process, we consider the contractor's ability to perform and likelihood of successful performance. As the old saying goes "we'll make it - God willing and the creek don't rise." Thus, if our contract depends on the contractor being able to "cross the creek" and we've had a lot of rainy weather - we can probably anticipate a delivery problem.
Over the past few months there have been a number of news reports about items that will obviously affect some contracts and some buyers. Unemployment tax rate changes, tariff changes to Canadian Lumber, trade embargos in the east, severe weather in the Midwest, work visa restrictions, family leave policies, etc. As we listen to the news reports we can considering which items might affect our contracts or suppliers. We can be proactive about estimating the impact and developing a mitigation strategy. We might even decide to contact the supplier first and inquire about the potential for problems, as a means of encouraging a languid supplier to wake up and take remedial action.
When placing new contracts and purchase orders determine if a risk level ( you decide what the risks are - price, performance, delivery pressure, critical need (failure will shut us down or cost us money), intellectual property, etc.).
In the risk outline, identify each important risk and the factors which might affect it. Also note any additional analysis or contract language which you included at the time of award to mitigate the risk.
Make a plan to regularly review the risk analysis outlines for critical contracts on a regular basis. Review at the least often enough so that you are aware of the potential impact issues and will recognize those when the issue appears in the news.
As issues arise, take proactive action to mitigate the risk, develop a negotiation plan and prepare for the inevitable impact.
It's our job to manage the supply chain for our companies. Part of management is understanding and anticipating risks. Being proactive with a simple risk analysis is one good way we can add value.
It's a valuable reminder for all of us and a recent interview on the subject is worth listening to.
Why do I think this is important even for folks who do not make professional presentations?
We are constantly communicating – it's a large part of our job as professionals.
Obtuse, and verbose communication styles, confuse your message. Regardless of how important, if the message is misunderstood by the listener, then you have wasted your time.
Flowery prose is not a good style for business correspondence. More words, more commas, more qualifying caveats lead to more ambiguity.
If our written or spoken word is ineffectual – then we have done a poor job and are less valuable in our profession. We all know coworkers who ramble and never quite get to the point.
With respect to leading meetings – "What is the goal of the meeting?
Schwartzberg makes a number of useful suggestions during the interview. I plan to read the book, and I recommend listening to the interview.
Ransom ware data breaches have successfully targeted large companies. Thus I think it is imperative that those of us in smaller organizations review data-storage practices.
More specifically; Sensitive personal & private information (PPI) about individuals we collect and store in our systems, laptops and smart phones is risk-of-loss liability.
Medical practices, manufacturing companies, movie production studios, and government offices have had their data locked for ransom or even worse, released publicly. Even with layers of IT minions, nefarious hackers gain access. Unfortunately, this means that those of us in smaller organizations are likely vulnerable. Instead of just concentrating on trying to protect our data – I think we must take steps to mitigate the real possibility of data loss.
Yes! Having organizational data revealed or encrypted and a ransom demanded for the unlocking key is painful. It might cause lost time to reload backup data, or impact profits, but that is a business risk for which we can plan. However, consider the added risks if the data loss includes sensitive personal & private information about members, customers, marketing contacts and other individuals not-related to business operation. Is there a chance that the lost data includes a random social security or credit card number, birthday, home address or names of spouses and children? If so the risk of loss might also be an organization liability.
Losing control of personal & private information you have collected and stored on your systems could expose your organization to accusations that you did not take reasonable steps to protect the data.
Consumers are targeted by pervasive advertising reminding them about the risks of using sensitive data online that can be lead to stolen identities or credit cards. We need to extrapolate that warning message to include sensitive data we store about other people in our personal contact lists, messaging software, documents, spreadsheets, cell phones, laptops, Outlook files, and management systems.
Make a management decision to review data storage practices and policies with all key personnel. NO! I am not talking about buying new firewall software. I am referring specifically to reviewing the PPI data-elements collected and stored within the organization. True, improving data security is important and vendors spend a lot of effort in marketing the latest security software. But, as news stories demonstrate, a firewall defense is never perfect.
Consider: Does the organization possess any information about individuals that might be personal, private, sensitive or something else that reasonable people would not want released to the public? Do we need that data? Why store sensitive information at all? Pare down data elements in our databases to the bare minimum and reduce the risk of loss.
Review PPI data collection practices. Don't collect and store PPI that you don't absolutely need. Does the organization possess data that might have been deliberately collected for some reason, but the risk of loss now outweighs its usefulness? Do old forms ask for data elements that are no longer used? Examples: Social security numbers, birthdays, home addresses, family member names, etc. Do we really need to know a customer birth date or gender? Is it necessary to have home addresses and emails? Even if a specific piece of information is needed at one time – should it be retained and stored in our systems?
If sensitive personal data is under your control, have you deliberately decided to assume the risk of loss? Have you taken steps to mitigate the risks? Can we store sensitive information separately or encrypted? Is access limited on a need-to-know basis?
Is there a clear PPI data-access and security policy? Establish and communicate a clear organizational policy that sensitive personal information will not be collected or stored. Give priority and elevate data retention policies and processes to management discussions. Review data collection, storage and security policies regularly. Then conduct meaningful training with all personnel who have access to the data.
Ask everyone to identify and examine lists of people they might have in all of their systems and devices. Search for and remove PPI wherever possible. Get IT help with search tools or parameters to seek out forgotten tidbits that should be deleted.
Don't assume everyone in your organization understands, or agrees with the perceived risks. It does little good to scrub the organization's customer database, if a random employee keeps sensitive information on a laptop or in a personal-contact list.
Conduct regular discussions and training about data storage risks to keep everyone in alignment.
IMO: This is not an IT task! Understanding the risks; then establishing, communicating, implementing and enforcing a clear personal data collection and storage policy is a management responsibility.
The good news is that little evidence of potential fraud was found although a number of weaknesses were identified.
The report is worth reading because it describes useful process controls and potential weaknesses in purchasing card programs.
Figure 2 - actions taken by Govt. in last 10 years to strengthen credit card purchasing controls.
1- Appreciate you inclusion and comments about high-risk transactions. It seems like a good differentiator when discussing micropurchases in general.
3- Are you aware of any analysis which discusses the control costs vs. risk in credit-card micropurchases? I've seen one case, where an organization added so much documentation and control procedures to credit-card purchases, that I think the overall cost-savings was nearly nil.
A: No, we are not aware of any specific analysis. This particular topic was out of scope due to the size of the engagement and our available resources.
4- Are you aware of a good report which documents that various agency processes which would be considered best practice? Your Appendix II is interesting but misses Energy for example. Also interested in which practices establish a reasonable balance between auditability vs cost effective. That is which practices establish a reasonable balance and could be a model for other agency improvements? I know of several organizations which use pretty good software and electronic documentation systems but it seems like many agencies have differing processes and procedures. Might be helpful if they had a best-practice target - other than just an abstract "complete documentation" goal.
A: No, we did not encounter a report that could be used as best practices. In our report, we were only able to present the information we gathered that highlighted the policies in place and how agencies followed them.
5- Also, are you aware of any guidance for internal auditors relative to identifying "high-risk" transactions? Seems like that might be one way that agencies can help protect themselves – that is, by doing a better job of defining and validating high-risk purchases vs. all the other micropurchases.
A: No, we are not aware of any guidance on how to identify types of "high-risk" transactions. GSA and several IGs have identified several specific types of transactions as "high-risk" and in some cases have developed additional guidance and controls for those specific types of transactions, but there is no overall guidance on how to identify "high-risk" transactions.
6- Did you look at the guidance provided to agency contractors?
A: No, we did not specifically examine guidance provided to contractors. However, we did review some contractor-related transactions during the course of our audit.
7- I didn't see an average transaction value – might have missed it – but it seems relevant to establishing risk.
A: As the scope of our review was micro-purchases, we did not report on an average transaction value.
In addition to identified process weaknesses; I think the report raises a number of issues appropriate for a management policy discussion: - That is; at what value should we establish controls? The auditor specifically cites several transactions valued at less than $10. Really? When does it cost more to audit than the risk is worth? How can we set up a cost effective policy to preclude auditors having to waste everyone's time looking at $10 transactions? At what point do added documentation requirements outweigh the benefits of a purchasing card program? However, how long can you ignore a minor leak before it grows into a large loss? A good subject for debate at a management retreat.
Are there new and more cost-effective ways to prevent fraud? Do new software and data tools provide better opportunities for detecting fraud? Example: credit cards that send an email confirmation for each transaction. Would that provide a way to automatically gather a real-time audit population in a secure location?
What management policy regarding purchasing cards is appropriate for our organization and our circumstances? Are managing the company based on being ultra-conservative and surviving a nitpicky audit? Or, are we going to perform a risk analysis, do a cost-benefit review and set appropriate policies?
IMO: Some organizations wait until after auditors have spent weeks pulling detailed data and grilling staff before responding with opinions about appropriate thresholds and policies. Thus the time and effort of staff and auditors has already been wasted. A more effective process would be to establish complete policies and set audit parameters well in advance of the actual fieldwork. Management should be able to anticipate audit concerns (reports like this one help) and address potential issues with appropriate policies before the audits start.
2/5/2017 Are you a fan of financial statements?
Like to see the detail and read between the lines about corporate management?
Here is an interesting read; GAO audit of FY15 and FY16 financial statements of the U.S. Government.
1- Certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2016, and 2015.
In this audit, you can see some of the audit interpretations leading to ambiguities; example- the value of assets. Look at the note 5 on page 85 about the value of inventories, property and equipment and then also at note 24 on page 165. Obviously in valuing a corporation you would consider the value of equipment and real property the company owns. However, how would you value it, if the equipment was an aircraft carrier or the real property was Everglades National Park? Even more confusing would be the value of a historically value item such as the Declaration of Independence. Corporations might have a similar problem in valuing a trademark and supply chain managers in determining the cost vs benefit of switching to new supplier management software.
People tend to focus questions about the fiscal health of our country by looking at cash-flow topics. But, as this audit points out, the subject is a lot deeper. The report presents details and raises management questions that are much more interesting than just what we hear in the news. Regardless of our opinions about auditors and U.S. fiscal policies, the audit and underlying data is truly an interesting read.
12/23/2016 Contract Price Increases - Are You Prepared?
As Supply Chain Specialists, it's our job to think strategically about issues that will affect our contract prices. Contract prices for critical supplies and services are affected by market pressures, shortages, transportation disruptions, global competition, sustainability policies, environmental regulations, lower-tier human rights concerns, etc. In the news lately is a major supply chain cost-pressure we can't overlook; minimum wage increases.
Minimum wages are due to increase in many locations. I've also heard that unemployment insurance rates in some states may rise. Many contractors will seek to pass along the increased costs to buyers.
Astute procurement professionals will already be preparing for the inevitable negotiation with suppliers about the impact of wage increases to contract prices. Why? Because suppliers need to recover cost increases and buyers want to limit increases to a reasonable and allocable amount. But much of a supplier's claimed cost increase is reasonable and allocable vs. how much is unearned profit?
This is a key question which forms the basis of many contract negotiations. Remember the sharp fuel-oil price rise a few years ago. Some suppliers reacted with the unreasonable negotiation position that a 10% rise in transportation fuel cost entitled them to raise contract prices by 10%.
"If direct labor wages rise by $1.00 per hour - and we have a service contract with 10 workers, providing weekly service - the supplier's cost to provide the service may rise – thus the supplier will want to negotiate an appropriate increase on current or future contracts, but how much of the $1.00 increase is directly allocable to our contract?
In this case the cost increases is out of the hands of suppliers. Wages and payrolls costs are due to increase; we know that suppliers have to cover costs to survive, thus we can anticipate a negotiation with some of our suppliers resulting from direct labor wages. An astute supply chain professional will anticipate and prepare for the inevitable negotiation in advance.
Find out exactly what wage and payroll cost increases are planned for your area. Don't guess, your HR staff probably already knows.
Train supply chain staff about how seller's costs are compiled into a selling price. Large organizations can add a cost-analyst to the staff – or obtain outside training. Smaller organizations can solicit the expertise of the accountants in their own finance organization who track and compile costs. Basically, the more buyers know about how costs are compiled and liquidated, the more they can defend against a "10% fuel oil price increase" negotiation.
When soliciting new proposals, ask suppliers to provide a breakdown of key cost elements. Even if you can't get specific details, just knowing the relative weight of materials vs labor costs and separating ODCs [e.g. shipping] charges can help with negotiating changes.
By gaining a thorough understanding of the business factors affecting key commodities and suppliers.
By proactively seeking alternative ways to reduce supply chain costs and sellers prices.
Senior managers can also assist in the process by having regular 'strategic thinking' discussions. Rather than trying to force planning as a policy, encourage strategic thinking by leading a collaborative process. A successful organization uses combined knowledge and expertise of all departments to work as a team.
Buyers; Don't let a flakey contractor continue to string you along.
We have a contract problem such as a missed deadline. In the ensuing telephone conversation the seller makes a new delivery promise. Later, the seller misses the new delivery promise and we have another discussion with new promises – ad nauseam.
By acquiescing to the contractor's new delivery promise, it could be argued in court that we have made a constructive change to our contract. Also, we have established a practice of allowing late deliveries that could become a winning position in future contract disputes if we try to enforce a delivery date.
Send a confirming notice after each important contract discussion and draw an enforceable line in the sand. An email could work, although a formal letter is better for higher risk situations.
Do so in language that clearly documents, the contractual failures, promises made, deadlines, action items, etc. I would also make it clear you are depending on that promise and describe how the conversation relates to the contract.
FACTS about missed deadlines, contractual problems and failures to perform.
Contractor agreed to do [****] by no later than 10:00 a.m. on Sept 17, 2014.
[Buyer] will consider [contractor's] actions and attention to this matter in evaluating the impact of this situation to this contract and to contractor's eligibility for award of future contracts.
Each confirmation documents new commitments that the contractor will either keep or miss.
If the contractor misses new promises, the confirmation(s) document a pattern of failure.
The confirmation gets you closer to an actionable bottom line.
If you don't send confirmations – when it comes time to take legal action all you have is an ambiguous chain of undocumented discussions which are open to interpretation and disagreement.
1. This is a simple confirmation notice; this is NOT a show cause notice. Don't include threats that you might later regret or decide are not appropriate. Based on the situation at hand and the contractor's performance we will take whatever actions are appropriate and allowed. In fact the more you say, the more likely you'll open up a can of worms. If the time comes for official action we will discuss with management and send a legal notice if appropriate.
2. Don't use language that changes your contract and lets the contractor off the hook. We are not agreeing to change the delivery date of the contract. We are confirming the fact that the contractor missed the contractual requirement and has promised to do something to mitigate the impact.
What safety and security precautions do you take when contracting for services which will be performed in your facilities? Consider what would happen if; a copier repair technician sexually harasses one of your employees, or a janitor inserts a thumb drive containing nefarious code into an unattended PC, or a delivery driver negligently crashes into as essential piece of equipment?
Even in simple service contracts, we are opening our doors and granting contractor personnel access to our facilities which could easily be abused (or worse). Examples: Do your current contract terms prohibit contractors form sending service personnel who are intoxicated? Do your contact terms require that contractors verify that personnel are legally entitled to work in the U.S.? Do your contract terms give you the right to send contractor personnel home who you believe to be unsafe at the contractor's expense? Do your contracts prohibit contractors from subcontracting work in your facility without your express consent? Etc.
Assemble a cross functional team and consider the risks before contracting for services which will include contractor personnel gaining unescorted access to our facilities. Recent stories about workplace violence, computer security losses, industrial espionage and negligent safety incidents should help generate some scary scenarios.
Prepare a separate addendum of terms and requirements for contracts that require facility access and ensure that all contractors seeking to perform work in your facilities are familiar, and are contractually required to comply with them.
Discuss reasonable, rational and enforceable processes for vetting contractors and their personnel with your HR and legal staff. HR goes through similar processes when they hire new employees; background checks, W-9 clearance, substance abuse checks, etc.
Require potential service contractors to describe their internal processes for vetting, training and supervising personnel as part of their proposal. Include solicitation language that would disqualify offerors who are not taking reasonable and appropriate steps to ensure that qualified and vetted personnel will be sent to your facility.
Require contractors to certify that all personnel sent to perform work in your facility will be; adequately trained, drug free, safety conscious, qualified for the job, well-supervised, etc.
Include conditions under which you have the right to refuse access to contractor personnel.
Require contractors to provide suitable replacement personnel and allow you to cancel the contract, should the contractor be unable to do so. Yes, you could claim breach of contract – but sometimes it's not cost-effective to do so… just easier to move on to a better contractor.
Require notice and consent for any proposed lower-tier subcontractors and flowdown of similar terms to any who will also be working in your facilities.
There is no magic panacea. Obviously the bigger the risk and more sensitive the facility, the more background work we will have to do. Keep in mind, we don't want to interfere with the employment relationship between contractors and their employees – but we do want to reasonably limit which contractor personnel will be granted access to our facility.
We often contract for services performed in our buildings but sometimes forget to consider who the contractor will send to perform the work. Of course if there is a problem we would sue the contractor, but I suspect the plaintiff's lawyers will also seek damages from our company based on our process (or lack thereof) for granting access and vetting contractor personnel. After all, we selected the contractor and granted access….
GSA-IG review of GSA contracting process for schedule 70 (IT) services and equipment. A150022/Q/T/P16005.
Interesting discussion of negotiating before awarding contracts. A good set of references and rational to capture in policy and training guidance for staff.
Auditor maintains, and provides a good rational for negotiating contracts prior to award – even in competitive situations.
Audit turned up examples where negotiations improved an already competitive proposal.
Interesting response from GSA management – basically stating that they have good processes for obtaining price reasonableness [even if they don't negotiate].
I agree with the auditor. Buyers can improve contracts by "negotiating" prior to award in most instances. I've seen many examples where competitive proposals have been improved in value, reduced price, better terms, enhanced delivery, etc. Unfortunately, I've also witnessed a number of examples wherein potentially valuable preaward discussions or negotiations were skipped and rationalized because competitive proposals had been obtained, time constraints, lack of policy requirement and lack of training.
Negotiations don't have to be formal - a lot can be accomplished just by asking the right questions.
Negotiations should target more than just the price or profit. Contracts can be more valuable to buyers in many other ways.
Even a discussion of the specifications or contract "boiler plate requirements" can yield opportunities to solve problems, reduce costs or avoid future change orders -before awarding a malformed contract.
Understanding the principles behind a "baker's dozen" is a buyer's negotiation advantage. e.g. A seller can afford to give you one item at (or below) his cost if he makes up the difference or profit by selling other items. A baker can give away the 13th donut because he covers his cost (and probably makes a profit) on the other 12.
A supplier's cost for a product or service is usually less than the selling price.
b. Thus the purchase is more expensive for the buyer – than cost to the seller.
c. The $20 difference is profit for the seller and how sellers remain in business – but all of a seller's profit doesn't have to happen in the sale of one item.
d. Good to know: What is the seller's cost to produce and provide the item or service?
The supplier's cost almost always includes an indirect cost component which is added to the direct cost to when selling a product or service.
a. Thus the value of an item to a seller is less before it's sold than it is when it is sold.
b. Ex.: G&A costs (like insurance bills, payroll for the purchasing department, etc.) are incurred even if nothing is sold.
c. When a contractor "throws it away" they don't write off the same cost as they would book income if they sold it.
d. Good to know: What did the seller have to pay out to produce or provide this specific item or service vs what are the costs generally added to the sale of all items?
Indirect costs sometimes relate to intangible elements that enhance the transaction which, if not itemized in the contract, can be lost-value to the buyer.
a. Ex.: Installation, regular maintenance checkups, service manuals, training, etc. are often touted by sellers as advantages for purchasing their product or service.
b. These benefits are generally more expensive to buy as separate items, than if they are included in the initial selling price and agreement.
c. Good to know: What "benefits" are available, how can our company take advantage of those benefits and how are they specified in the sales agreement or contract!
b. Most extras are never included in the "price list' or offered as part of a sale.
c. Good to know: What are the seller's added values and how are we going to take advantage of them.
Selling prices may vary for reasons not related to seller's costs.
a. A seller could be selling at less than cost – discontinuing old stock, aggressively fight competitors, a loss-leader to get buyers to buy other items, etc. etc. etc.
b. A seller could be setting prices based on market conditions (or other factors) and not considering or seeking to reduce his actual costs.
c. Good to know: How is the seller setting the price? What could, or should the price be?
Compare the proposed selling price to the general market. If the offer is significantly higher or lower than other prices figure out why. The seller's price could be different for many reasons- which could be critical. If the proposed price is a fair market value, that's good – but don't stop analyzing.
Consider the significant cost elements which contribute to the selling price. Look for cost-saving opportunities. Seek cost-drivers that can be changed to reduce the price. Example: seeking a better shipping method, grouping purchases, use less-expensive packaging, change materials, etc.
Consider ways to change the purchase that might also reduce the overall acquisition cost. Example: buy larger quantities to get a price break, schedule long-term deliveries, consolidate requirements, time purchases to coincide with production lulls, etc.
Consider all of the additional ways the seller could add to the purchase and structure the purchase to include or take advantage of them.
In a similar way, new business-management software tools can bury management in reports and data. More data is not always helpful. Accordingly, the business-decision process cannot be static. Management must adapt their business operations to analyze and filter mounds of data so important information surfaces and becomes easy to understand.
How many pumps did we sell last month? Which type of pumps sell better than the others?
Which cities purchased more of our pumps? Do different cities use more of one kind of pump?
Answering these questions helps management plan for business productivity and growth. However, as markets expand and business complexity increases, the available data grows exponentially.
In world-class markets the need for more timely data is an imperative. World-class competition and product innovation make cost cutting and reduced time-to-market critical for survival. Unfortunately making good decisions using large tables of data isn't always easy for management. Thus, the rise of data analytics as an industry and a profession.
But as we learned the hard way during the explosion of electronic commerce vendors starting in 1999, new software tools are not a panacea. Yet assembling huge data tables into easier to understand charts and graphs is a business-survival imperative. Thus, the growing need for data analysts who can create visualizations of business data.
Before jumping on the data analysis bandwagon, Caveat Emptor (buyer beware). There are significant pitfalls inherent to the collection, analysis and presentation of business data.
Gathering data has to be done by someone who understands the source of the information. ERP software tools assemble huge amounts of data across the entire enterprise. However, the resulting large relational databases may include thousands of tables with similar data elements using various collection processes. Select data from the wrong table or join information using inappropriate fields and the resulting charts and analysis will be flawed. Even worse – the problem in the data collection will not be visible to management.
Example: In collecting pump sales by city we might use buyer's zip codes from the customer tables. However, if some of the buyer data in the tables includes corporate offices or banking remittance addresses, a flawed analysis about sales locations could easily result.
Creating meaningful graphical representations of raw data is a skill which must be learned and practiced. With new software tools, anyone can click on a table of data and create a graph. But does the graph highlight the right data elements or does it make trends easier to see? Could the graph inadvertently select wrong formulas or only pieces of the whole list [absolutely]?
Locate, train and support staff members who can assemble, analyze and present business data to management in a meaningful way. It is not an incidental part of the organization and not a function that can be performed well as fill-in work.
Train managers and staff about how organizational data is collected and reported using the charts and graphs. Ensure a common understanding of what the charts mean and where the conclusion might be weak, misleading or less certain. Use the book I recommend above as the source for an internal management training program about the perils of depending on charts without understanding the source data.
Include data analyst staff in management planning so that the analysts understand which information is critical for business decisions and can help design data collection processes. Analysts who are involved can also suggest additional data analysis that might be available, but untapped.
Don't rely on software suppliers to provide canned reports from management information systems unless you have made sure they understand your business needs and that you understand the data that the reports are collecting and analyzing. Even after you have reporting systems running; give data analysts the mandate, the time and the support needed to constantly test results, investigate data anomalies and control system configuration.
Ask your data analysts to provide a senior management overview about data gathering and graphical outputs. In words that everyone will understand, ask for descriptions of terms like: GIGO, relational data bases, data integrity, normalizing data inputs, data definitions, configuration control, real-time vs batched data, etc. In addition to defining these terms your analysts should be able to explain why they are important to your business and how the resulting analysis could go very wrong.
GAO is changing the process for filing a protest in a government solicitation. According to the GAO announcement the process will change this summer. Here is a link to the GAO proposed rule change.
This summer, GAO will establish a secure and easy-to-use web-based electronic bid protest filing and dissemination system (EPDS). EPDS will also provide automatic notice of a protest to the agency. Once it is live, all protesters will be required to use the system to file new protests, and there will be a $350.00 filing fee…….
While most Supply Chain managers are not directly affected, I think all of us should be interested. The GAO bid protest process and legal decisions give all of us on the procurement side, a look into the sensitivities of contractors to the solicitation process. A well-formed competitive solicitation is one of our most powerful procurement tools. When contractors feel like the solicitation process is unfair, we directly affect the competitive environment for current and future solicitations.
Thus I recommend all procurement organizations take the time to review GAO protest decisions. Most of the cases will revolve around the interpretation of arcane government regulations – however, a few will be enlightening and worth using as training tools. In addition to the nature of the argument, GAO cases often include numerous regulation references as well as an analysis of what the buyer might have done wrong (and could have done better).
Observe the interaction in this TV movie between Bernie and the SEC – then have a training discussion with staff about management controls and when it's time for employees to raise questions. Auditors can only do so much to detect fraud. Unfortunately, just as in this example and at ENRON, employees sometimes fail to raise questions and challenge legality when they should.
I'm just back from the Pacific Northwest Purchasing Conference in Portland. A number of the world-class speakers talked about the significant changes Big Data, Cloud Data Services and the Internet of Things are already making to our supply chains. They expect an accelerating rate of change in business operations pushed by new technologies.
Organizations face cost and competition imperatives to use new technologies in their supply chains. A large percentage of the new technology will be outsourced or incorporated directly into our contracts and purchasing agreements. And, as we know all too well, jumping in to new contract relationships without completely evaluating and mitigating the risks is unwise at best and a big risk.
Technology changes in business processes have already spawned a huge growth industry in legal discovery software and forensic accounting. Electronic "dust bunnies" reproduce exponentially and [as many public legal battle demonstrate], electronic records will be discovered and will be used against you.
My Opinion – Supply Chain Professionals have to get on board the technology train now. We need to gain at least a basic understanding of the buzzwords and issues related to using new processes. We have a very short window of opportunity to help manage implementation planning before management, IT folks and potential suppliers make the decisions moot.
Need a basic introduction to the buzzwords? This presentation might help.
Warning: Don't expect the legal profession to lead or be much help with changes to business processes. As we have seen in the past with fax machines and electronic signatures; the laws and legal profession will lag way behind business implementation. Our business needs cannot and will not wait for legal clarity. Confusion abounds.
Electronic data management is already governed by a number of different government regulations (e.g. HIPPA, personal privacy, etc.). Data privacy regulations between the United States, Canada and Europe are different and changing frequently.
The risks in using new technologies are large. Fraud-detection, Data Analytics, Forensic Accounting and Electronic Discovery software are big growth markets. That takes care of finding the mistakes and problems AFTER they happen. Unfortunately, many organizations don't have an adequate information governance plan nor have they educated staff about the legal discovery process as it relates to electronic documents, information governance and records.
Career development note: Preventing Supply Chain Fraud using system and management controls is a very important topic in all industries. Also the new hot buzzwords ' Advanced Analytics' as it applies to automated systems used to detect and prevent fraud. As you advance in your career, familiarity with these are subjects will differentiate you from other candidates and improve your value to the organization.
4/17/2015 Is Your Cloud Computing Strategy Safe?
Trivia Question: What well-known family is in the news [again] with problems exacerbated by electronic information and emails stored in the "Cloud" and on personal devices? As exciting as the new problem might be, I suggest that the important lesson to be learned is how vulnerable we all are to problems with electronic communications and data.
Imagine working in an organization embroiled in a nasty lawsuit with a vendor, customers or even former employees. All of the related electronic data is subject to discovery demands as well as authenticity questions by opposing counsel. This includes emails stored on personal as well as company or cloud-based servers, text messages, documents, backup storage, thumb drives, CD's, DVDs and of course all the paper remaining in the file cabinet.
Bottom line: Just like any significant purchase – companies take a risk if they do so with proper planning and a good solid statement of work. It's easy to say "let's use G-Mail for all our correspondence", much harder to understand, plan for and contractually address all of the implications.
Can misapplied punctuation in a contract (or Purchase Order) be the deciding factor in a contract dispute?
Simple answer is YES! In fact – this case was about simple option-year language that many of us frequently use in contracts and purchase orders.
When lawyers argue about a contract – any and all ambiguity, lack of clarity or lack of precision can (and probably will ) be used as an argument..
While we can't all have the wisdom of lawyers (thankfully) - we can do our best to keep the lawyers at bay. We do this by writing clearly, making sure our language is not ambiguous, ensuring our intent matches the written agreement and documenting both parties concurrence and understanding of all complicated terms.
What are the ramifications of sloppy language or processes, and how to do a better job of preparing and documenting our contracts and purchase orders? How could the buyer/seller done a better job of wording the option language to avoid the legal dispute?
Want to read more about the million dollar comma?
How can participation in a professional organization help my professional career?
I've learned xy z in seminars which helped our company improve abc process.
I've met and established a network of professionals in other organizations that I can call on for ideas and advice.
By getting involved with leading and operate the organization we can professional depth well beyond the current job at the office.
I have accepted and successfully completed task assignments related to writing, researching, and reporting .
I've become acquainted with various organizational management structures through my interactions with people from both small and very large corporations.
Thinking about it like this: By taking full advantage to help manage a professional organization, I could be getting back much more than I'm putting in.
1/1/2015 Big Data Analytics is the Holy Grail for large organizations.
Example: We've noticed that productions costs at factory x, have increased slightly each January for the past 3 years. That traces back to a cost increase in raw material z each December. Since the contract price remains unchanged, the cost increase is due to a freight cost change in December. Looking at the available inventory space and carrying cost, we would see a savings if we double-up shipments in November. However, what are the risks of overproduction, extra inventory or cost increases at the raw material supplier's facility?
Despite the profusion of software companies that claim to be able to help (for a price) – there are numerous inherent problems in the task. Just compiling lots of data into a big pile doesn't come close to providing intelligent information for analyzing and decision making.
One insidious problem in the process is data normalization. That is, trying to get everyone in all the locations to use the same terminology, standards and data entry protocols. It's a problem we ran into back when converting to ERP software solutions. Those problems are exacerbated by crossing international borders, customs and languages. Example: Consider how differently a date or length measurement could be expressed by different cultures.
New software tools can do a lot of automatic conversion or force some standards by using drop-down data entry options. But the cultural differences will continue to cause confusion in conversations, emails, hand-written forms, reports, etc. Procedures, data-entry rules, standard formats and some serious training will help. In addition processes to find and normalize errors and anomalies will also be needed.
Thus, an organization seeking the holy grail of Big Data Analytics can't just purchase a piece of magic software. Decision making with big data will require big changes in business processes, lots of training, a considerable amount of analysis and ongoing support.
On a personal level by forming cross-functional teams to normalize and standardize the data and processes used internally. We can develop the skill set to become the knowledgeable analyst able to manage the expansion of the standards to other locations and organizations.
On a company level, we can start requiring contractors and suppliers to provide information and data in standard formats. Instead of accepting random feedback from suppliers, we can intervene and start the normalization process. It will take a while – but the sooner we start climbing the learning curve the better.
Not only is Big Data Analytics a growth industry for software suppliers – it's a long-term career opportunity for individuals who understand and can decipher Big Data business issues.
Pay particular attention to the language used in correspondence with contractors. Even though most contracts say that changes have to be in writing – most also say that the Buyer can give the contractor direction. Thus the contractor might literally rely on direction, notices and instructions received from the Buyer. This could become contentious in a dispute where the contractor might argue that he depended on the notice provided by the buyer.
"…Attached is the new statement of work, the significant change is in the delivery schedule…""
"…Attached is the [change / update / revision]. For your reference notice the change in [section/page/paragraph]. This reference is provided for convenience only. Contractor is responsible for reviewing the full text of the revision and complying with the entire document including all changes. Contractor is also responsible to request clarification if the intent or applicability is not clear….".
Important buzzwords include a reminder of contractor responsibility to review and comply with the entire document. You should also be very hesitant to use words like "only" or "all" and limiting adjectives like "significant" and "most important".
Storing data in the "cloud" has risks. Developing a strategy to protecting access to the data across international borders with conflicting privacy and Legal Discovery laws is an important prerequisite to jumping onto the Cloud Computing band wagon. Think your data is safe because you are using a U.S. company? Not so. Microsoft is still arguing a case about releasing email messages stored in Dublin Ireland. Interestingly, in this case Microsoft is trying to prevent access to customer data.
Consider the implications if disgruntled employees or dissatisfied customers could access company records to build their lawsuit. Encryption? That works until company officials go to jail for defying a Legal Discovery order. Read a layman's view of Legal Discovery issues.
More of my thoughts about Cloud Computing risks.
Like any new business tool, Cloud Computing strategies should be thoroughly evaluated for risks, and mitigating safety precautions taken BEFORE implementation. Don't assume old strategies – such as locked doors or paper shredders - will protect electronic records.
12/12/2014 Managers are not autonomous [even though some like to think so].
Inexperienced employees will request training, seminar attendance or reimbursement for participation in a professional organization and assume their manager will make a positive decision.
Successful managers ensure they have supporting rationale before making decisions.
Example 1: A meeting runs several hours into the evening and I plan to request some extra personal time to compensate. It will be much easier for management to allow the extra time, if I had provided a summary of the meeting before leaving. That is my manager has an email message from me at 7:30 p.m. about the meeting, thus documenting the situation in a way that supports my manager's decision to approve my comp. time. I've documented my participation and provided details about the work-related purpose.
Example 2: Several people in the organization would benefit from and want to attend a new training program. Management can only authorize one person. The person who provides rationale about benefits accruing to the organization in return for participation is more likely to be selected.
Example 3: I want to participate in a professional organization and request support. It's likely my manager will have to justify approval relative to budget expenditure, staff training development and organizational benefits. I may even have competition for participation from other members of the organization. If I leave it up to my manager to develop the justification, the easy answer is no decision or perhaps the wrong decision. If I provide a solid rationale along with the request, then I have improved my chances of gaining approval.
Perceptive employees, seeking a management decision and support, will provide management with justification and information supporting the decision at the same time they make the request.
Managers depend on the best performers to get the difficult and high-priority work done. Many managers and team leaders will tell you, "If you really want it done, assign the work to the busy person." Of course, that often means the busy person keeps getting piled on with a lot of important work.
It's also a fact that priorities for an organization change like the weather. So the work changes and tomorrows priority will be different than today's. Frustrating! Unfortunately, it is also a fact that organizations can't afford to employee excess resources. Idle time or slow-paced productivity, is an excess-cost target for budget cutting.
Does this sound like your manager?
Employee: How can these assignments all be my highest priority? That's an impossible contradiction.
Manager: Each assignment was your highest priority at the time I gave it to you. The fact that you let them all pile up is your problem. If you had accomplished each one as I gave it to you, there would be no conflict.
Employee: The pace that you are assigning projects is fast than I can finish them.
Manager: You are correct. You should strive to complete the highest priority project; before I assign another highest priority project.
Employee: This doesn't make sense, how can these all be your highest priority.
Manager: These are not my highest priority, I said they were your highest priority. My highest priority is helping you demonstrate your extraordinary skills and ability to accomplish high-priority tasks in a very short period of time.
Employee: So you are saying that because I'm a good employee; I am assigned more high priority work at a faster pace?
Irksome, I know – but consider the alternative. Maybe you've never had the feeling that your manager was assigning you too many high-priority or critical assignments. Why? Maybe your manager (and your organization) is more dependent on other people. That's not a good thing when it comes to budget cuts.
In my career I have interviewed and recommended the hiring of many procurement folks. A number of those people were unexpectedly seeking employment. Unfortunately, it showed. Some had resumes that fail to highlight skills and experience which would be important to a hiring manager. Yes you worked for an important company for 15 years – but why does that make you a good candidate?
Another disappointing observation: Applicant who listed professional associations or certifications – but couldn't articulate the value they received from participation. I'm a member of the Audubon society – but why does that qualify me to tend Emus?
My suggestion; write or rewrite your resume like you were explaining your job to your elderly parents. I'm important because I contribute x and perform y and always do z. I spend my personal time participating in this organization because I get a and learn b and improve my c.
What can I do to demonstrate my value to the organization?
What can I do to enhance my marketability?
What can I do to remain competitive in the job market?
3- negotiate continuously - instead of as a one-time event.
Better a face-to-face discussion instead of endless emails; right? Not necessarily. A poorly planned and executed meeting can be a costly waste of time and leave participants more irritated than informed. Planning and conducting an effective meeting is an important skill; well worth developing. Here are a few of my pet peeves about poorly run meetings, Effective Meetings.
The problem: It is too easy to rant and rave in an email message! It's also too easy to express opinions, take a poorly considered stand on issues and accuse people of failures.
Even Worse: Nearly all email messages will be around forever. Read more www.mltweb.com/news/news0902.htm . It's kind of like the embarrassing high school year-book comment. An email message is most likely to turn up just when you least expect it.
The Impact: All email messages will be found during the legal discovery process and they will be used in court. Whatever has been mentioned about the subject by anyone (not just between the Buyer-Seller) will be found and exposed in the lawsuit. This could include email messages which argue about plans, express differing opinions about compliance issues, discuss contractor's abilities, raise safety concerns, etc.
A notable exception would be messages that are allowed to be attorney-client privileged - if they are properly identified and culled from the email archive before being turned over to the court. Software to help find, review, cull and de-duplicate is a hot growth industry.
Lesson: Don't say anything in an email message you don't want to hear in court. Use email to communicate facts. Keep your ill-considered opinions, expletives, criticisms, etc. out of the electronic record.
Email: The contractor is inept and couldn't build a proper bozat no matter how long we gave him.
Cross-examination: Was your rejection of the contractor's product arbitrary? Did you give appropriate consideration to the request for a change?
Email: If we reject the parts, then we'll save the overspent budget.
Cross: How long did you plan to cancel the contract before notifying the contractor?
Email: I've weasel-worded the contract so we can do whatever we want when the time comes.
Cross- Is the contract intentionally ambiguous?
Email: Why can't you be more like your brother?
Cross: You always liked my brother better, isn't that why you dropped me as a child.
Materials prepared by Mike may be shared for supply chain education, provided that this source is credited and no fee is charged. The rights for any other use are withheld.
Copyright; Michael L. Taylor, C.P.M.