Buyer Analytics

Some links with advice and information on dealing with the economic downturn.

Sparta Systems, asked its customers the question...

What are the most serious supplier quality challenges facing the manufacturing industry?  Here are the top five concerns.

1. Reluctance to implement performance-based scorecards.
2. Inefficient, decentralized reporting.
3. Lack of senior-level involvement in supply quality management.
4. Constant battle between supply quality management and supply chain management.
5. Lack of risk-based analysis for supplier quality.

My point of view would also include the following:

1. Inconsistent quality. The ability to fix problems but unable to consistently deliver quality.
2. Lack of formalized quality programs for training, testing and continuous improvement.
3. Changing specifications without requesting customer approval.
4. Failure to pass third party quality audits or meet criteria for certification schemes.
5. Inability to conduct root cause analysis and develop effective corrective action plans.

Seeing the dramatic rise in commodity prices has made for a tough environment for procurement professionals. With the slowing economy commodity prices in a number of sectors have retreated dramatically.

If you enjoy watching prices decline (most buyers live for this) here is a small collection of Dow Jones indexes for your viewing pleasure.

Precious Metal Index

Natural Gas

Corn

Unleaded Gas

Copper

New research conducted by Amar Cheema, Ph.D., assistant professor of marketing at Washington University in St. Louis, provides some interesting insights about consumers' perceptions of surcharges.

• Consumers pay more attention to surcharges than what was previously thought
• How consumers think about and respond to surcharges depends, in large part, on the seller's reputation
• When buyers don't trust the seller — they are vigilant of such tactics. In many such cases, his research concludes, buyers will decide against making a purchase
• Participants took longer to make a decision when buying from low-reputation sellers than when buying from high-reputation sellers
• Sellers who divide the total price of a product or service into a base price and a surcharge could prosper when buyers ignore the surcharge
• Surcharges levied by low-reputation companies lower purchase likelihood. Thus, low-reputation companies may benefit more by offering a consolidated price
• High-reputation sellers can post higher surcharges to increase the total price paid by the buyer, but low-reputation sellers cannot do so effectively
• Low-reputation sellers can benefit by absorbing the surcharge into the base price and offering a consolidated price for a product or service

The research, holds interesting implications for businesses and their pricing practices, and looked at pricing data of online sellers, catalogs and service providers.

The paper is available at http://www.olin.wustl.edu/faculty/Cheema/CircSurchargeReputation.pdf

One aspect of the U.S. Federal Government that I appreciate is their ability to gather and crunch data. Government statistics including Producer Prices, Census information and BLS data often come in handy.

With energy being a hot topic, I recently visited the Energy Information Administration web site. Basic information topics include:

• How much renewable energy do we use?
• How dependent are we on foreign oil?
• How is my electricity generated, delivered, and priced?

Be sure to also check out the Short Term Energy Outlook. Global petroleum, natural gas, coal and electricity are covered. Also of interest is The 2008 Outlook for Hurricane Production Outages in the Gulf of Mexico.

The simulation results indicate only a less-than-1-percent probability of experiencing seasonal outages similar to 2005 when Hurricanes Katrina and Rita struck the Gulf Coast, i.e., cumulative shut-in production of more than 100 million bbls of crude oil or 600 Bcf of natural gas. Conversely, EIA projects the chance that offshore production in the Federally-administered Gulf of Mexico will be impacted this year is 98 percent for both crude oil and natural gas.

I also like the snapshot of energy prices provided on the gasoline and diesel fuel update. Information on both gas and diesel prices are provide by region. Historical graphs and trends are provided.

A recent article in the Telegraph titled "High commodity prices are hard to swallow" points out that one strategy for price volatility management -  just "pass on" the increase. If this were the way your business operated - you wouldn't really need procurement.

Different skills are required in this environment - classic marketing and production skills might now be less important than skilful procurement and risk management. Today's environment should help demand for procurement professionals.

Of course, what's happening today is rather timid compared to the Jimmy Carter era. Anyone remember 16% inflation with double digit interest rates?

In the past many studies may have put a low or no value on the cost of water. With regional drought and economic growth the cost of water can vary dramatically depending upon where you live.

According to an article from People and Planet, over the past five years, municipal water rates have increased by an average of 27 per cent in the United States, 32 per cent in the United Kingdom, 45 per cent in Australia, 50 per cent in South Africa, and 58 per cent in Canada. In Tunisia, the price of irrigation water increased fourfold over a decade.

Some key factors that determine the price of water:

• Distance to point of consumption. Elevation plays a role especially if water must be pumped.
• Government subsidies - actually causes higher water usage by artificially pricing water.
• Geography - including supply and demand of water

Some interesting cost comparisons from the article:

• A recent survey of 14 countries indicates that average municipal water prices range from 66¢ (34 p)per cubic meter in the United States up to $2.25 (£1.17) in Denmark and Germany.
• The average American household consumes about 480 cubic meters (127,400 gallons) of water during a year.
• Homeowners in Washington, DC, pay about $350 (£182) for that amount.
• Buying that same amount of water from a vendor in the slums of Guatemala City would cost more than $1,700 (£880).

Here is the link for the full article: http://peopleandplanet.net/doc.php?id=2969

Are you more worried about the stag' or the 'flation? Federal Reserve Chairman Ben Bernanke is more worried about the stag. According to the WSJ he hinted that the Federal Reserve will probably continue to try to grow the economy by cutting interest rates.

According to a recent survey conducted by Prime Advantage inflation is the biggest concern of buyers.  About 46% of respondents in the survey said raw materials were a major concern, followed by energy at 17.5% and logistics and supply chain costs at 16.4%.

This quandary has no winner, but there is plenty to worry about. Inflation, labor, foreign competition, bankrupt suppliers, overhead costs, currency fluctuation and healthcare costs make for a lengthy list.

A challenging time to be in procurement.

Supply Management

• New study recommends companies "Bring manufacturing home" - In their rush to source from China many companies are blindly walking into a strategic trap. Thinking that sourcing from China will result in lower product costs, when in reality the supply chain dynamics will, in many cases, drive up overall costs ...
• How To Make Better Transportation Decisions -  ... billion, more or less, that companies are spending on transportation management systems (TMS), which are software solutions ... Business process outsourcing for supply chains will be concentrated in the indirect procurement and transportation areas.
• Partnership rather than procurement key to outsource success - ... on shifting the customer-service provider relationship from adversarial to collaborative; from one based on procurement to one grounded in partnership.” ...

Purchasing Tips and Training

• Executive debate: what does world-class procurement look like?
• Do Kaizen Like Toyota
• Subject: 5 Ways to Improve E-mail
• Curiousity Never Killed the Manager
• Critical Supply Strategies for Succeeding in a Dynamic World

Procurement Information

• Another Take on China's Just Announced Export Tariffs
• Cheapest gas in the nation - full service
• Leading Indicators

U.S. consumer prices advanced 0.4% in April on strong growth in food and energy prices, but for a second straight month underlying inflation stayed under wraps, bringing it closer to the Fed's comfort zone. Core inflation, which excludes food and energy, edged up just 0.2% amid falling prices for clothing, airline tickets and tobacco products.