How small business can challenge their indirect costs

No risk no reward it is often said. Small business ownership is definitely not for the faint at heart.  Owning your own business has incredible rewards and can represent everything about yourself professionally.  The old saying of “you’ll never work a day in your life if you love what you do” certainly applies to many small business owners.

However, the same passion small business owners have for their core business does not necessarily translate well to other areas outside their core competency. Welcome to the world of indirect costs.  It does not matter if you are restaurant, medical office, manufacturer or a retail store, indirect costs can eat right through your profits in no time.  Indirect costs include many areas that are not a deliverable to your customer such as transportation, merchant services, electricity, gas, fuel, insurance and office equipment or supplies.

Small business owners struggle in these areas because of a lack of expertise, leverage and most importantly the lack of time. The indirect cost providers have no such lack of expertise or time compared to the small business owner.  This usually leaves the small business owner with the least amount of leverage.  Kind of like a nail to hammer relationship!  Not much leverage for the old nail.

However, small business owners do have options to increase their leverage if they choose.  Here are three ways they can increase their leverage with indirect costs:

1. Open up negotiations – there a lot of indirect expenses in which there are no restrictions to competition so rebidding the service is a very viable option. This even includes using your current provider. There is nothing wrong with checking the marketplace for updated pricing and service plans. Service levels, service providers, technology and your own needs change over time. You just might be surprised to find key savings right in front of you.
2. Buying groups – buying groups add value to their members through essentially group discounting. These groups are often associated by industry and can be a very effective way to increase leverage with providers to the industry.  There can be costs associated with joining these groups, but the cost of membership can easily payoff in the savings associated.
3. Strategic partnerships – there are strategic partners that specialize in indirect costing solutions that give small business access to negotiation leverage they just can’t get on their own. These partners add leverage to the small business owner through their expertise and their relationships with these types of providers. They can provide preferential pricing to the small business owner because of their track record and relationship with these providers and pass these savings onto the small business owner. These partnerships not only pass along savings to their clients, but they also allow small business owners to leverage time because they act on the behalf of the small business owner allowing them to focus on their core business. Some of these partners specialize in one are while others can provide a one stop shop for all indirect costs.

Small business ownership requires maintaining cost to keep you competitive in the marketplace. While you can’t save your way to higher sales, you can price yourself out of the market.  Indirect costs are just part of doing business so make sure to review those costs for opportunities that just might give you an edge. If it has been a while since you reviewed those contracts the investment of time could payoff exponentially.

If you know of anyone that would like more information on how to reduce their indirect costing solutions in transportation, utilities, insurance, merchant services or many other areas please email info@atssoutherncal.com.

Question:  what’s the longest you have gone without reviewing a service contract with your indirect provider such as small package delivery, insurance or merchant services?

Leveling the playing field

This week’s supply chain article is presented by guest blogger Michael Rogers of 4 Way Logistics.  Michael and 4 Way Logistics provide industry leading transportation solutions for small companies to large businesses.

Businesses are competing against each other regardless of their size, potential and capacity. Often the small sized businesses are at a disadvantage when facing a larger competitor. This edge allows large scale companies to offer more services at a lesser cost while maintaining their desired profitability. So how can a level playing field be established as far as business competition is concerned?

Large logistics firms make news as they work with huge shippers. Meanwhile, other logistics firms are serving small and mid-size clients with results that can be even more profound. The reason this is possible is a 3rd Party provider can use their technology and leverage in the marketplace to level the playing field. It can give smaller companies the same transportation advantages as their large competitors.

These transportation advantages effectively include freight management, warehousing, carrier selection, pricing analysis and negotiation, technology, market expertise and risk management. These functions are vital to all manufacturing concerns in order to make their products readily available for their customers. If handled by a third party supply chain management company, the services are not only bundled intelligently and take advantage of the provider’s expertise in all areas of the transportation process (as it is their core competency and most likely not that of the company utilizing their services).

On top of this, the transportation advantages from third party supply chain management companies not only reduce costs, but streamline processes and optimize procedures. This cost effectiveness eventually translates into higher profitability for the company. In other words, the small business concerns get a chance to compete with the large scaled businesses on more equitable grounds with similar services provision involved.

By turning over their logistics details to someone who specializes in this field, business owners eliminate time-consuming responsibilities. They don’t have to worry about keeping track of the effectiveness of carriers. They need not invest in transport software, which now has an expected life cycle of about 18 months before something more robust is available. They don’t have to keep constantly on top of regulations and trends. They can keep their eye on what’s most important – their business.

There is a saying applicable to this type of strategic alliance – “Never doubt that a small group of thoughtful, committed people can change the world. Indeed, it is the only thing that ever has.” Small businesses have the power to alter the playing field in their favor. It is not size that puts them at a disadvantage but rather the resources available. By outsourcing the logistics concerns to supply chain management companies, they are able to devote more time and effort towards the core business functions and thereby focus on things that are central to their profitability.

Outsourcing logistics functions can also help in expanding business realms beyond the conventional borders. By partnering with the right logistics provider, a small/medium size business can work through an intricate distribution strategy. This allows the company to grow and compete against the large scaled enterprises effectively and efficiently. This gives all businesses the level playing field to showcase their true potential across all ventures.

5 reasons why procurement outsourcing works for small business

A hat trick for small business owners translates into wearing every hat in the company sooner or later.  Wearing all these hats creates strong emotions for owners from hope and accomplishment to frustration, fear and anxiety. There is nothing like having to wear every hat from CEO to janitor in the same day.

What you quickly realize is that time is the most precious commodity and you never seem to have enough of it.  The reality is that you only have so many resources no matter what your size.  You know in your gut that staying focused on your core competency is what will ultimately help you become successful.  Unfortunately, there are many other tasks outside of your core that requires your time too. Procurement is likely one of those tasks and in most cases, people do their best to ignore procurement challenges. I often hear from small business owners that they have a solution in place that has been working for years and causes no problems. Most of these same owners do not realize they can get the same service levels or higher at a reduced costs.

Procurement outsourcing for small business is designed to help the small business owner take advantage of many of the strategic benefits larger companies have been using for years.  According to KPMG, nearly 75% of all large companies plan to increase their use of outsourcing.  Entrepreneur.com recently stated “Entrepreneurs have long seen outsourcing as a strategy reserved for big business, but technology has made it a more accessible tool for small businesses.”  Times indeed are changing.

Here are 5 ways procurement outsourcing is helping small businesses succeed:

1. Accesses to expert talent – most small businesses have very limited procurement support that is usually a shared resource to other departments. Procurement leaders know there is an expected large talent gap coming soon due to baby boomers retiring and small businesses will feel the pain as they have limited resources to attract talent. Procurement outsourcing solves this problem by allowing access to industry experts on demand.
2. Risk management – adding additional head counts for small business is a major risk due to the fluctuations in business. More employees mean more risk.  Having procurement outsourcing reduces risk since you get the benefit of the service without the additional overhead expense.
3. Access to strategic partnerships – any small business can use additional purchasing power, but how can you create negotiation leverage on your own? This is a huge benefit to using procurement outsourcing.  There are strategic alliances in place to provide immediate savings across many goods and services that most small businesses are already using.
4. Competitive advantages – using procurement outsourcing allows small business to tap into competitive advantages most of your competitors are not using. Creative solutions come from collaboration with the supplier network which is exactly where the procurement outsourcing lives. Exclusive distribution, new product development, inventory solutions, packaging, and financing solutions are all areas that can help to separate small business from the competition.
5. Cost savings –using best practices helps to drive cost savings and it can even come through existing solution providers without the additional overhead costs. Needs change, technology changes and services from providers are constantly changing but most contracts remain in place costing small business huge amounts of money simply because they don’t address these changes. In many cases, procurement outsourcing even pays for itself through cost saving splits creating no risk for the small business owner.

There has never been a better time for small business to take advantage of procurement outsourcing to develop best in class solutions that can that can help separate you from the competition and increase your cash flow.  These principles apply to virtually every industry. Procurement outsourcing allows small business owners to access many benefits larger companies use without the risk.

If you know any small business owners that can benefit from procurement outsourcing please email info@atssoutherncal.com for more information.

Question: have you seen procurement outsourcing projects make a positive impact for companies?

5 Benefits of Procurement Outsourcing

Have you ever felt stuck to move forward on a project because the skills required was not a good fit for your resources?  Kind of like the square peg in round hole scenario.  Yet you knew that making it happen would be in the best interest of your organization?  Think about it for a second. How would you handle this at home if you had an electrical issue and you were not an electrician?  The possibility for electrocution is severe enough to call in experts for most people.

Negotiating goods and services outside of your area of expertise can be just as paralyzing.  Many organizations end up spending too much money due to outdated contracts because they are afraid of losing at the negotiation table or they just simply don’t have the resources to engage.  Markets, technology and your needs change constantly. But existing contracts seem to remain the same.  If companies really understood how much money they could save it would be impossible for them to ignore.

But how do you access the savings with limited internal resources. Fortunately, there’s procurement outsourcing.  Here are 5 key benefits of procurement outsourcing that can help any size organization:

1. Expert talent

Major league baseball allows for the designated hitter (DH) who bats for the worst batter in the lineup. The result provided dramatic increases in home runs, RBI’s and created hall of fame credentials for some players.  Procurement outsourcing allows you similar opportunities to shine.  How many companies have the talent in house that can negotiate freight, utilities, financial services or maintenance contracts? Not many.  But like a DH, procurement outsourcing is there to give you access to the best expertise at your weakest position.

2. Reduce risk

Procurement outsourcing can reduce your risk because it is only used on demand.  There is no need to keep full time staff. Use it as you need it.  By the project, short periods or if you just need expert help in negotiating a specific category in which you have little to no experience.  For example, transportation companies have full time staffs that do nothing but specialize in negotiation of transportation.  These negotiations come down frequently to highly experienced specialist on one side of the table vs little to no experience on the other side.  Who do you think wins that game?

3. Reduction in overhead

The focus of procurement outsourcing is to provide added value through better contracts. But one additional benefit is that it reduces overhead costing too.  No need for training, insurance, office space, medical benefits and all the other employee related expenses.

4. Increased opportunities for procurement solutions

Using in house procurement limits your solutions to only the skillsets and opportunities within your organization.  Procurement outsourcing has the advantage of having a greater vision to procurement solutions that go well beyond your organization.  Through strategic partnerships, ability to pool expert talent and the overall experience allows for the perfect environment for creative solutions that are not accessible through in house procurement.

5. Core focus

Using procurement outsourcing allows your organization to focus on your core competency. It doesn’t matter if you are a restaurant, manufacturer or a law office.  Keeping your limited resources focused on your core business is crucial to your success.  Asking your procurement team to negotiate contracts outside of their expertise is just not a good fit.  Let them do their job and let experts handle the rest for you.

Just about every organization uses outsourcing services of some kind whether it is legal, payroll, IT or human resources.  Procurement outsourcing is just the next service frontier.  Competition is forcing companies to get leaner and more effective.  How can you ask more from your team that is already stretched thin?  Procurement outsourcing just might be your answer.

If you know of anyone that would like more information on how procurement outsourcing can be a fit for their organization please email info@atssoutherncal.com

Question:  Have you ever felt over matched at the negotiation table?

Is your procurement team ready for center stage?

Centralizing procurement is a timeless argument that has plenty of support on both sides.  Cost savings can be identified quickly, but why should the end user be the one that suffers because some other area is saving money? How does their input figure into the argument?

The great part of centralized procurement is that you control all the pieces. Centralization puts you in the driver seat for better negotiations, increased visibility of demand flows and at the same time increasing your overall level of talent.  The key is to balance the benefits of centralization while not losing the local touch.  Thanks to technology, keeping a localized touch is now easier than ever before.

Cash flow is king and centralizing procurement directly impacts your bottom line like few other business strategies. Here are 5 key benefits that will impact your organization by implementing centralized procurement:

1. Negotiation leverage

The biggest benefit in centralizing procurement is the benefit of being able to negotiate with your centralized demand.  Would Walmart ever consider negotiations with their suppliers based on an individual store?  Never and neither should you.  Negotiating with your suppliers with centralized demand in mind increases your leverage significantly.  Consider it buying in bulk.  Negotiations change quickly when you can look at a bigger picture.

2. Increased utilization of resources

Everyone has to deal with limited resources and centralization allows for the most effective use of those resources.  This not just limited to manpower, but other resources such as space, equipment and technology.  Why pay additional expenses for duplicate resources if you have the option to consolidate expenses.  Office space, software licenses, training and many other opportunities exist in the consolidation of procurement. Fluctuations in the marketplace create challenges when attempting to allocate resources and centralization helps to smooth out those peaks and valleys.  Centralized procurement is better equipped to handle seasonal demands, new projects or customer spikes than a localized procurement strategy.

3. Strategic alignment

Implementing strategic goals across an organization is tough enough, but attempting to implement strategies in procurement when there are different leadership teams is even tougher.  Aligning the teams into one centralized structure allows for a consistent message to be delivered top to bottom. It also lends itself to standardized processes from beginning to end. Key metrics are easily identified, tracked and used for evaluation throughout the process.

4. Driving down costs through technology

ERP solutions have changed the game when it comes to centralizing procurement.  Centralized procurement is now possible through the use of ERP applications that can be accessed from just about anywhere.  Cloud services make those solutions easier today that what it was just a few years ago.  Now purchasing can essentially stay on top of all localized demands through real time ERP systems.  Inventory levels and logistics costs can be directly reduced through information that is easily accessible in centralized ERP applications.

5. Procurement outsourcing

Outsourcing is a well-established model that is widely utilized in many areas such as IT, Human Resources or Payroll and is now gaining traction through procurement outsourcing.   Centralized procurement allows for a much easier transition since many of the processes can be standardized and information is flowing through one focal point rather than many points. Procurement outsourcing is an extension of centralization because it allows even greater access to industry experts and potential technology solutions such as eprocurement applications.

Centralized procurement is a strategic solution that helps benefit operational efficiencies across many areas from negotiations to increasing cash flow.  Once upon a time, keeping the localized touch was out of reach with a centralized procurement strategy, but today’s technology such as ERP applications easily helps keep centralized services in touch with end users as if they were just next door.

If you or anyone you know would like to know more about how centralizing procurement can add value to your organization please email info@atssoutherncal.com

Question: Have you ever been hurt or helped by centralizing a procurement function?

4 keys why procurement’s like an ace up your sleeve

It sure would be nice having an ace up your sleeve as part of your “go to market” strategy. Look no farther than you own procurement team.  Procurement has been working to establish itself as a worthy member of the executive team in every industry for years.  Procurement has long lived in the shadows behind sales, operations, finance and IT. Sales teams tend to get a lot of recognition for bringing in the business and it is well deserved.  Operations, finance and IT all seem to have their moments to shine too.  But procurement in general seems to get lost in the shuffle behind those other disciplines.

However, that in no way diminishes their ability to add value to the organization.  Maybe they just need a new marketing campaign.  Years ago procurement was viewed only as a necessary support function to fulfill internal requirements.  It’s continuing to evolve as more companies are seeing greater value being added than just filling a material requirement at the lowest cost.

Procurement’s strategic effect touches just about all areas of the organization.  Here are 4 key areas that procurement can effectively provide a competitive advantage for your organization:

1. Product design

Developing products is a creative process that can consume lots of time and resources in order to maintain relevance in the marketplace.  Sales and operations typically drive the process, but don’t forget that procurement has direct communications to the supplier network.  That is an incredible resource that is easily tapped into for support to the latest technology and market solutions that extend well beyond your internal capabilities. Go ahead and invite your suppliers to be part of the process, you might be surprised what they bring to the table.

2. Inventory strategies that increase cash flow

Investing into inventory is one of the biggest expenses for just about any company.  Unless you can turn around and sell the material without further touches, expenses quickly add up like space requirements, tracking inventory, audits, compliance, theft, packaging and support management.  Then there’s the risk of the inventory moving slowly or not at all.  Why not work with the suppliers to find solutions that minimize that risk and inventory investment?  Increasing cash flow, reducing lead time and logistics costs, what’s not to love about those benefits!

3. Corporate social responsibility

Unfortunately as global commerce continues to expand into developing countries, corruption still exists but the good news is that information has never been more accessible.  There is so much injustice across the world, but organizations have never had as much information as they do today to make informed decisions on where they award their business.  There are major concerns when working internationally such as human rights, environmental issues or intellectual properties. How about turning those concerns around and sourcing responsible suppliers as an example of the right way to do business?  Now that’s an advantage that benefits everyone.

4. Exclusivity

We all want to standout in the marketplace and having exclusivity in your supply chain is a very real possibility that allows you to be distinctive.  Procurement can drive this exclusivity advantage through strong relationships in the supply chain.  Keeping competitors out of your supply chain is a huge advantage that is best established right from the procurement team.

If you are tired of just being another supplier in the market place and distinction is what you want, look to your procurement solutions as a real advantage.   Advantages like this can be achieved through internal teams or through procurement outsourcing providers.  They have the experts on demand with proven concepts, experience and partnerships available to make ideas like this part of your competitive advantage.

If you know of any companies that are looking for a distinct competitive advantage through their procurement solutions, please email info@atssoutherncal.com for more information.

Question:  What creative procurement solutions have you used to develop a distinct competitive advantage in your marketplace?

Following the money is just the beginning…

“Follow the money” is a timeless quote made famous in the movie All the President’s Men.  But the point remains just as relevant in today’s business climate.  Accounting departments today can tell us where the money is being spent, just not necessarily why.  This is especially true when it comes to indirect spending which can range from 20-50% of all costs for companies.  But how does that much spending go without proper oversight?

Indirect spend is mostly made up of spend categories that fall outside of core competencies for most organizations. Whether you are a restaurant, law firm, manufacturer or dentist the fact of the matter is you likely are very in tune with every detail from your supplier base through delivery to the customer that involves your core competency.  You have organized the structure of the company to deal with all facets from sourcing, contract development, marketing, sales and customer service.  Indirect spending by contrast has little accountability to any one person or organization in most cases.  Costs such as insurance, fuel, utilities, office support equipment and supplies or maintenance.  These have a way of flying under the radar.

If your goal is just to match last year’s indirect spend budget then you are not asking the right questions.  Business services change, technology changes and your demands are constantly moving.  Take the time to investigate existing contracts. The effort will more than pay for itself.  Here are three ways to help you manage those costs:

1. Start by following the money – Identify, track and create awareness as to how much and where those costs are being spent. Most people in the organization do not have an understanding of how many total dollars are being spent outside of the areas they directly touch. Awareness is the key to making change possible.
2. Review contracts – Most companies get into contracts and do not update the level of service timely to account for the shifting demands of their business. Increasing or decreasing staff or new technologies often change your demands on the level of service required. Service `providers also are constantly updating their level of services, rates and not to mention competitors.
3. Engage partners if you are short on resources– There are many options when attempting to negotiate with indirect services. No one has to go it alone.  Just like you have a core business, there are companies whose core business is to simply negotiate these services for you and they will often times more than pay for their services through their work.  They have the experience, capacity and strategic partnerships already in place to quickly deliver turn-key solutions that fit your needs.

Indirect spend is a very significant factor in cash flow that is seldom properly addressed.  Therefore I think the challenge to procurement should not be to just follow the money.  It is time for procurement to take this challenge to the next level.  Cuba Gooding said it best in Jerry Maguire, “Show me the money” procurement!   That is the question procurement should be answering when it comes to indirect spend strategy.

If you know of any companies that may need help in “showing me the money” please email info@atssoutherncal.com.  We would be glad to assist you in finding solutions that will “show you the money” in your indirect budgets.

Question: what other famous movie lines apply to your business challenges today?

The “people bottleneck” in the supply chain

What is a “people bottleneck”?

Where is all the supply chain talent going?  As we end the first quarter of the 2015, baby boomers across the US are focusing on retirement and taking with them decades of experience creating a “people bottleneck” in the world of supply chain.  Study after study tells us that there is a large gap in supply chain talent coming with no easy answer on how to fix it quick enough to backfill all those people retiring.  So how did we get here?

Obviously, baby boomers have an effect on every industry and supply chain is no different.  The industry can be very challenging with the international demands, technology applications, shifting demand flows and limited resources to make it all come together. Business today demands supply chains to be agile enough to handle all of these issues whether it is a multi-billion dollar corporation or just a mom and pop. Education at universities and through continuing education programs will have to increase their graduates to fill the growing demand.

However, one of the biggest challenges within the supply chain industry has been a lack of incoming talent.  I network with hundreds of people and I consistently find that most people don’t even know what supply chain is.  We need a social media star to create awareness across the board. Think about it for a second, for those people under 25, they don’t know a world that is not social media driven.  Stars have been born from social media yet how many people can name a supply chain star?  Unfortunately the supply chain world does not carry a lot of social media credibility with the under 25 crowd.  Stars transcend their industry and create awareness. People like Bill Gates helped make Silicon Valley cool for the Mark Zuckerberg’s of the world.

Effects:

Despite our ability to foresee the problem, we can’t avoid it. So what’s the effect?  Just like life, those with the greatest resources will have advantages over those without.  Due to the limited talent, the Fortune 500 companies will be able to pull the best talent from the smaller companies causing serious issues in the small to medium size companies.  As baseball season is about to start, this is just  like the NY Yankees taking the best talent from the small market teams after they have developed the talent for years.  This lack of talent at the small to medium size company will create a large lack of efficiency in the supply chain causing increases in costs and delays.  Lacking the in house talent, companies will likely have to restrict their offerings based on the limited resources.

Options:

Awareness must be at the fore front.  Who is the Mark Cuban of Supply Chain that transcends the industry and draws people to it?  Someone needs to step up and create the sizzle that sells the idea it is cool to be in supply chain.  We have technology, globalization and the ability to change in the world due to the business we transact. The education system can help train those interested people through universities and continuing education organizations.  Continuing education is a great place to learn the relevant concepts and potentially find a mentor in the process.  Corporations also have a responsibility in helping educate and need to do a better job.  They benefit the most, so those that put some skin in the game will surely reap the rewards.

Education is the long term solution but it will take years to see the effect.  How will companies deal with the reality of today when faced with a supply chain problem?  How do you fix a problem without the proper tools?  Supply chain outsourcing can be a solution to help until the talent is available. Supply chain issue experts have the ability to quickly diagnose and offer proven solutions without the risk of adding additional head count. Outsourcing can be a much needed bridge to get companies through temporary issues.

If you would like to learn more about how outsourcing can help your supply chain issues please send an email to info@atssoutherncal.com for more information.

Question:  Will the lack of supply chain talent cause you to lose business?