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Oftentimes those of us in the business process improvement world place extreme emphasis on cost-reduction – and one of those activities is the pressure we are asked to place on suppliers to lower prices. That works well in the short run but can have disastrous effects in the long-term. There is a better way. The upside is that it will save your company money in the long term – the downside is that it takes an investment of time and trust.
Let me illustrate with a story.
One of the first items that we sourced in China was box packaging. Previously, our client was purchasing packaging in the states from two sources – a manufacturer in the US and a broker who was importing boxes from (you guessed it) China. We were determined to figure out a better way. In China, box packaging is mostly done by hand – the only machinery was the printing press for the outside paper and a rotating glue cylinder that the employees would manually coat the box pieces as they assembled them. We quoted out nine manufacturers and chose three suppliers which we labeled A, B and C. The A supplier received about 50% of the business, the B supplier 35% and the C supplier 15%. We did this to mitigate risk and to discover and leverage any process efficiencies.
Rather than hammering on the suppliers to lower prices, we went inside the plants and learned the cost of the raw materials, labor and the process. This research effort resulted in changes made to the manufacturing processes in order to eliminate bottlenecks, needless steps and standardize product output. Quality output improved by more than 12% which made our customers happy and created more profit for our suppliers.
Using a scorecard system for our suppliers, we ranked them on several metrics including initial quality check, on-time shipping, completed orders, value-add, total cost of ownership, and ease of doing business (including making process changes). The percentage of business awarded was adjusted quarterly and served as a catalyst for continuous improvement.
Opportunities in Marketing Procurement March 26, 2010Posted by solutionsbconsultants in 1, Business Improvement, Increase Profitability, Marketing, Procurement.
Tags: advertising, agency, creative, design, expense, Marketing, spend, waste
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Thanks to Robert R. of New York City for his question, “Steve, I am a CFO of a medical supply manufacturer. Our marketing spend has spiraled out of control. What suggestions can you provide to help put this cost center in check?”
Great question, Robert. Marketing spend oftentimes represents a large portion of a company’s indirect spend. Without specific targets or a look at your detailed spend, I am going to provide a generalized list of items that you can focus on.
1) Rank marketing spend by dollars.
2) Focus on top 20% of spend.
3) Use agencies and outside creative ONLY for idea generation and development of concepts whenever possible. Never use them to outsource printing, video production, web-design, etc. unless you want to pay a large 25% or more premium. (Note – even though agency commission might be 10% they will always use the high cost provider (since they make a percentage of the final price).
4) Create an in-house agency to take advantage of agency discounts.
5) Resource top 20% of spend – print, video, web-design, seo/sem, etc. And source out to 7-10 supplies instead of the industry standard of 3 potential supplies. The advantages of engaging multiple suppliers in the quotation phase are based on statistics – you cannot locate innovative, competitive, and quality-oriented suppliers with a small sampling.
6) Require that all completed digital files are supplied to the marketing department including original files, fonts, images, etc. This way your in-house graphics/video person can repurpose graphics and video at no additional charge to your organization. (When I use the words “original files” I mean the original source files (such as a flash .fla file or layered photoshop file) instead of the completed file (flash video .flv or .swf or merged photoshop file). The reason for this is that you can only edit the source file. My experience is that you must require this to be done when you place the original purchase order.
7) Marketing has a tendency to go with who they know and oftentimes they have a personal relationship with many of these suppliers. Sometimes this can be useful but once a supplier knows there is no competition you can guess what happens – price creep (and it never creeps down).
8) In the web-space be careful of trying to reinvent the wheel. Chances are that someone has created that special widget or function that is needed. There are great sources for inexpensive quality code, Search Engine Marketing and Optimization, and other web services. Make sure to be careful when creating the scope of services document so nothing is left to chance and make sure to involve multiple suppliers. Even if you are in a major metropolitan area, you will need to conduct a national search. Research can help you target your sourcing.
9) Take the time to understand and document your company’s marketing strategy. Early involvement by Finance and Procurement can eliminate any rush procurements which is used as a tactic to avoid best practices.
10) Never allow marketing to unilaterally select suppliers and negotiate with suppliers. This is true with all departments, not just marketing so don’t think I am picking on marketing folks in particular.
11) Consolidate suppliers whenever possible to leverage spend.
12) Create a preferred supplier list of suppliers who provide quality service at approved pricing.
13) If you shoot video, this category has huge potential for savings. The economy and technology have produced a wide variety of talented individuals and equipment who can take your (or your agencies) concept to successful completion. Even if you are in a small market, a few phone calls can lead you to a wide variety of suppliers. Hint: Stay away from suppliers who use hardware based Avid suites or non-digital solutions Currently the best bang for the buck are editors who use Apple’s Final Cut Pro Studio.
14) Limit long-term contracts for marketing services – that means not signing any agency contract – business is tight and competitive so you as a buyer are not compelled to limit your options.
15) Develop strategic partnerships with suppliers – concentrate on value-add services, payments terms and other benefits that they can provide.
Yours in Supply Chain,
Remember what the Aberdeen Group says……….
“For a typical enterprise, it takes an increase
of $5 in sales to equal the impact of
a $1 reduction in procurement costs.”
Solutions is happy to complete a complimentary audit of your firm’s expeditures. Just call or write to get started.
If you have a topic of interest you would like me to discuss in our blog, “in-person”, or if you find a typographical error, just send me a comment or email me directly. I would like to hear from you!
Solutions Business Consultants
”Bringing Service, Value, and Efficiency to the Supply Chain”
All Business is Selling December 28, 2009Posted by solutionsbconsultants in 1.
Tags: achievement, business, Gates, sales, sales people, selling, service, skills, Trump
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We are fortunate to have a guest blogging this week. Business writer Laura Bell shares her wisdom. You can find Laura at her website, http://www.bellbusinessreport.com
or read her book, “101 Things You Didn’t Learn in Harvard
Business School,” on Amazon: http://tiny.cc/Ir4OC
All business is selling
I ran across a trade group recently who acted as if they wanted me to write for their publication. When I submitted info on successful ad campaigns, they weren’t interested. (That was to be the article topic.) In their eyes it didn’t apply to their clients. You see, their clients were financial planners. As such, they were service oriented, not product sellers.
The woman who wrote me back said that they had been debating the idea of whether or not their clients actually sold among their board members for years. This is another example that there are those in the corporate world collecting pay checks that haven’t got one iota of sense when it comes to business. Such ignorance finally takes its toll.
I have been interviewing top business leaders and writing my own business prose since 1979. In 1984, I did a lengthy profile on the first woman Dean Witter ever recruited for the sole purpose of being a stock broker. She told me that the first two years she had to work like the devil to build her name and reputation. After that, it was a virtual piece of cake because they all came to her. (Keep in mind that more people were pushing to invest back in that time. Nothing is that easy today.) Her adage was simple. “Sell yourself and then they will buy anything from you.”
If you run your own business, you are always going to be selling. It hasn’t got an anything to do with whether or not you are selling service contracts, investment plans, or the newest widget on the block. You are selling.
You are selling from the first day you decide you are going to launch a business. If you can’t convince someone else you have a valid idea, then you are going nowhere. You then have to either write a business plan or hire someone do it. You have to either convince a partner this is the new bonanza or you have to hire employees. Then there is the money to get the thing going, probably the hardest sell yet.
Some people are natural born sales people. The rest of us have to be pushed, myself included. To make it even harder, we try to convince ourselves we are just offering a service. Well, so is the guy down the street who has already paid his bucks to launch a great ad campaign. He paid someone to do the job he didn’t want to do.
I betcha if you could ask the ‘big guys’ they would probably admit they were tired of selling. I remember hearing Donald Trump on a talk show discussing his hard times. He was millions in debt. His task was to call the bankers he had dealt with in the past and convince them if given the chance, he would pay back his debts. He had to ‘sell’ them on the idea that he could do it. Without his faith in himself and taking that approach, that would probably been the end of Trump
I am sure that one thing Bill Gates and Steven Jobs have one thing in common, their dislike of presenting new products at conventions and exhibits. Gates is famous for showing products that fail to work properly when demoed. We know he’s Gates, but he still human and I can bet he can’t stand that part of his life.
No one ever said selling was fun. Of course, there are those few who seem to get their kicks from it. Think used car salesmen and high powered realtors. Other than that, it is a job that we are stuck with if we run our own business. If this idea sends tremors to the pit of your stomach, there are two options. You either find a partner who is brilliant at it or stay an employee. Yes, really. There is no way to sugarcoat it. That is simply a fact of business life.
If you are determined to have your own shop, but feel you lack these skills, then take a couple of classes. Spend the time to get this skill or as already said, stay at the starting gate. If you have children coming up, you might want to have in your envisioned business one day, let them spend times selling Girl Scout Cookies or get involved in a Junior Achievement program. The skills learned here will last a lifetime.