A question frequently arises when a supply management pro is considering supplier consolidation: Are there any benchmarks or guidelines on how much I can save by undertaking supplier consolidation?

It’s an important question, because it’s frequently necessary to provide estimates of savings when building a business case for supplier consolidation.

By the way, the new lingo for supplier consolidation is “supplier rationalization.”  Supplier consolidation, by the very nature of the term, requires a reduction in suppliers.  Supplier rationalization, on the other hand, doesn’t require a reduction—instead, it means that you have the right mix of suppliers.  I think it’s more about being politically correct than anything else.  Sort of like using “right-sizing” instead of “down-sizing.”  So, for purposes of my explanation here and because I’m not always politically correct, I’ll just call it what it really is: supplier consolidation.

Back to the question…  While there’s a fair amount of supplier consolidation pseudo-benchmarks floating around the Internet, the answer is that you’re going to have to figure it out yourself.  The reason is that the question is extremely fact-specific...

First, what do you mean by savings?  The definition of “savings” means different things to different people.  Do you mean just the savings from having fewer suppliers to manage?  Do you mean those savings plus the savings that you’ll get through better pricing from the remaining suppliers (who should offer you better discounts because of the “same size pie, bigger pieces” result of supplier consolidation)?  Do you mean those savings that you’ll get because you can, as a result of supplier consolidation, focus on more strategic procurements where you can negotiate greater savings?

Second, what’s your spend mix?  Meaning, how much direct versus indirect?  What categories of spend?  Direct spend will arguably save more because there are more costs involved (e.g., logistics costs).  Certain categories of spend affect savings—I’m likely going to save more by reducing the number of suppliers providing hazmat (think MSDS) than I would from suppliers providing courier services.

Third, and speaking of political correctness, what’s included in your possible areas for saving?  If you’re in procurement, do you really want to guesstimate what the A/P savings will be based on pseudo-benchmarks?  Your A/P manager will hate you if you suggest some unachievable guesstimates in your business case...

Fourth, what are you really going to save?  Many pseudo-benchmarks assume that you will be able to reduce headcount and systems costs.  Are you going to be able to RIF some procurement or other support staff?  Maybe.  If you have Oracle iProcurement, are you really going to achieve lower system costs by having a smaller pool of suppliers?  I don’t think so.

Finally, what are the risks / costs you’re going to introduce as a result of supplier consolidation that will affect savings?  If you reduce your number of suppliers, are you going to spend even more time managing them because you’ve become more dependent on your supply base?  Are suppliers going to gig you on price over time because you’ve reduced competitiveness through reducing suppliers?

Unfortunately, you’re on your own in terms of estimating savings for your supplier consolidation business case.  But, if you do some basic research on the Internet, you’ll come across enough material to get you thinking in the right direction.  Just think of all of the possible costs that flow from a supplier relationship—here are but a few:

• RFPs or other types of competitive bids
• Contracts (procurement and / or legal review)
• Purchase orders
• Paying / Reconciling invoices
• Managing suppliers
• Certificates of insurance
• Contract compliance / audit
• W-9 processing
• MSDS / Safety compliance

I’ve created some example formulas for myself that might help get you into the right frame of mind in terms of quantitatively calculating potential cost savings.  If you have any other suggestions that you think might be helpful for others, let me know or post a comment.

• Annual PO cost per supplier = ((Total current year costs of staff generating POs / Total number of supplier POs generated for current year) * (Total number of supplier POs generated for current year / Total number of suppliers with spend for current year)) + (Total current year depreciation and maintenance costs for supporting systems / Total number of suppliers with spend for current year)
• Annual contracting cost per supplier = (Total current year costs of staff contracting with suppliers / Total number of suppliers contracted with during current year) + (Total current year depreciation and maintenance costs for supporting systems / Total number of suppliers contracted with during current year)
• Annual management cost per supplier = (Total current year costs of staff managing suppliers / Total number of suppliers with active contracts) + (Total current year depreciation and maintenance costs for supporting systems / Total number of suppliers with active contracts)
• Annual invoicing cost per supplier = (Total current years costs of accounts payable staff responsible for supplier payments / Total number of invoices paid for current year) * (Total number of invoices paid for current year / Total number of suppliers with spend for current year)) + (Total current year depreciation and maintenance costs for supporting systems / Total number of suppliers with spend for current year)

        

Here's an opportunity to work for a progressive procurement organization! 

Lead the National Rural Electric Cooperative Association's Vendor Management Office (VMO), providing exceptional customer service in the procurement of goods and services at the lowest cost consistent with appropriate levels of quality, service and regulatory requirements.

Roughly $350M in annual spend, around 90% of which is indirect.  Domestic and international spend.  Significant category spend in insurance and financial services / products including group healthcare, defined benefit plans, and defined contribution plans.  Other major spend category is IT.  NRECA is a member-based organization (see www.nreca.coop) and we also provide procurement training to our members on a fee-for-services basis.  The VMO is also a revenue center as a result of its national discounts program, receiving over $250K in revenue annually from participating vendors.

This high-visibility position is a senior level within NRECA and is a direct report to me.  The current VMO staff (the negotiators) are some of the best in the business.  If you're someone that loves procurement as a profession and you want to work with some great folks who are passionate about their mission--this could be the place for you.

High-level responsibilities include:

* Source categories of indirect spend, including insurance and financial products and services, IT, MRO, and professional services.

* Lead supplier selection and competitive bidding.

* Lead  on complex or high-visibility procurement projects

* Responsible for obtaining service level requirements, pricing terms, and all other relevant contract terms and conditions.

* Draft contracts, including statements of work.

* Manage contracts and supplier relationships, including supplier disputes.

* Ensure the proper operation and use of automated purchasing systems.

* Represent the NRECA VMO in the procurement industry through local ISM chapter participation, speaking at industry events, and authoring procurement-related articles in trade journals or websites.

The position requirements are:

* 10+ years of commercial indirect spend experience.

* 5+ years of management experience.

* Competency in terms and conditions negotiations and contract drafting.

* Knowledge of commercial contract law and the UCC.

* Proven track record of achieving significant cost savings and other concessions.

* BA/ BS and C. P. M. / CPSM, CCCM, or CTPE designation - Required.

* JD (law degree) - Preferred.

I will accept someone without procurement certification, but it is a condition of continued employment to obtain a CPSM certification within the first year of employment.

The VMO is not subject to legal review, meaning that the staff negotiate "legal" terms and conditions.  Therefore, candidates should have a reasonable amount of experience with contract drafting and a solid understanding of contract terms and conditions.

NRECA, with offices in Arlington, VA, Lincoln, NE, and international locations, is the trade association for over 900 consumer-owned electric cooperatives serving more than 40 million people.   NRECA is committed to harnessing the strength of America’s electric cooperatives into a single powerful voice.

* 50 Greatest places to Work - AARP

* 50 Best Places to Work - The Washingtonian

* 100 Best Places to Work - ComputerWorld Magazine

* CARE Award Recipient - Recognizing organizations that promote a positive work-life balance

NRECA is an equal opportunity employer. All applicants are considered without regard to race, color, religion, sex, age, national origin, veteran status, disability or any status that is protected by law.

        

Scenario:  You had a contract dispute with a vendor regarding their breach.  Your discussions with the vendor didn’t bear fruit.  Unfortunately, you had to threaten litigation and you actually had to file a claim against the vendor which included drafting a complaint, a request for production, and interrogatories.  The vendor finally acknowledged their breach and makes good.  You get a bill from the attorney who your company engaged to go after the vendor.  Who pays for your attorney’s fees?

Answer:  Under the so-called “American Rule,” you could be on the hook for attorney’s fees even though your vendor was at fault and even though it was their foot-dragging that forced you to hire legal counsel.  That is, unless you’ve contracted around the American Rule…

The American Rule isn’t as much a true rule as it is a concept enabled by custom and case law.  The rule is that, unless authorized by statute or otherwise agreed upon in contract, each party to a dispute pays its own attorney fees.  There are other very narrow exceptions to the American Rule, such as bad faith, which eviscerate the rule but that’s not important for discussion here—which is how to be "un-American" by contracting around the American Rule.

The rationale for the American Rule is that potential plaintiffs would arguably be discouraged from seeking legal recourse knowing that they would have to pick up attorney fees for the other party (the defendant) if the plaintiff lost.

So why call it the “American Rule?”  Well, it’s uniquely American.  In contrast to the American Rule, the “English Rule” in the United Kingdom and rules in many other countries award attorney fees and costs to the prevailing party.  The rationale for the English Rule and similar rules is exactly opposite of the American Rule: a litigant (whether bringing a claim or defending a claim) is entitled to legal representation and, if successful, should not be out of pocket by reason of the litigant’s own legal fees.

Parties to a contract who don’t want the American Rule to apply can bind themselves (contractually) to the English Rule by writing into their contract a provision awarding attorney fees to the prevailing party, payable by the losing party.  These provisions are often referred to as “fee shifting” or “attorney fees” provisions.

In a procurement context and from a buyer’s perspective, the question is whether to include an attorney fees provision.  Generally, under a procurement contract, it’s more likely that a vendor will be the subject of a claim or lawsuit (meaning, either as the respondent or defendant) versus the customer.  The reasoning is that a vendor has many obligations of performance under a procurement contract and a customer has a limited number (the main obligation being to pay the vendor).  Thus, more often than not, it makes sense to include an attorney fees provision because the vendor will more likely be on the sharp end of a lawsuit.  Just be mindful that, if the attorney fees provision is mutual—and it most likely will be—the buyer will be on the hook for paying attorney fees if the buyer doesn’t prevail on either a claim brought by the buyer or a claim brought by the vendor.  So, if you have a procurement contract that, for whatever reason, puts you at legal risk as the buyer and has as a good possibility of your being on the losing end of a claim, you might want to reconsider contracting around the American Rule.

Another thing to keep in mind is that a party who makes a claim for breach of contract will not just incur attorney fees.  There are also a multitude of potential “costs” associated with bringing a claim: court costs, fees for filing documents with the court, expert payments for court reporters, witness fees as well as costs of photocopying, printing, postage, telephone, messenger services, and travel

Remember that some jurisdictions have legislated exceptions to the American Rule, so check your jurisdiction.  However, figuring out whether your jurisdiction has an exception or not is made moot by the virtue of your including an attorney fees provision in your contract.

Just to be clear, if your jurisdiction hasn’t legislated an exception to the American Rule and you don’t fall under some other exception (such as bad faith), if an attorney fees provision is not included in your contract, then each party has to bear the cost of paying its  attorney fees and costs.  What this means is, without the attorney fee provision, you could end up having to pay your own attorney fees and costs—even if you win.

Here are some examples of contractual exceptions to the American Rule.  Some contemplate a litigation context and attorney fees only and some are much broader.  The provision I prefer and use is the very last one.  Use at your own risk!

• In any action incurred to enforce this Agreement, the prevailing party shall be entitled to reasonable attorney fees.

• In the event of litigation relating to the subject matter of this Agreement, the non-prevailing party shall reimburse the prevailing party for all reasonable attorney fees and costs resulting therefrom.

• Notwithstanding any other term or condition in this Agreement, in the event either party shall take any action to enforce this Agreement, the non-prevailing party in such action shall pay the prevailing party’s costs and expenses, including but not limited to, such party’s reasonable attorney fees.

• In the event either party shall take any action or institute any proceeding to enforce this Agreement and the terms and conditions agreed to herein, then the non-prevailing party in such action or proceeding shall, in addition to any indemnity obligations under this Agreement, pay the prevailing party’s expenses, including, but not limited to, reasonable attorney fees and costs incidental thereto, which may be suffered by, accrued against or charged to such prevailing party.

• In the event of any litigation arising from or related to this Agreement, including the breach of a party’s duties and/or obligations hereunder, the prevailing party shall be entitled to recover from the non-prevailing party all reasonable costs incurred including court costs, attorney’s fees, and all other related expenses incurred in such litigation. In the event of a no-adjudicative settlement of litigation between the parties or a resolution of a dispute by arbitration, the term “prevailing party” shall be determined by that process.

• In any mediation, arbitration, litigation, or other proceeding, informal or formal, by which one party either seeks to enforce this Agreement or seeks a declaration of any rights or obligations under this Agreement, the non-prevailing party shall pay the prevailing party’s costs and expenses, including but not limited to, reasonable attorney fees.

        

This article was contributed by Rebecca Mordas, Esq., one of the attorneys in my Corporate Counsel Office.

It is important that both parties negotiating a contract not only contemplate the possibility of a breach, but also define the appropriate remedies available to each prospective non-breaching party in the event of a breach.  This technique will create certainty in your contracts as well as insulate the non-breaching party from spending time and money proving damages in court. In addition, if the contract clearly spells out the consequences of a breach, then each party will be forced to examine the costs of their potential breach before actually breaching.

In negotiating remedies, make sure you put yourself in the shoes of both the breaching and non-breaching party.  Determine in advance what you think would bean appropriate remedy if either you or the other contracting party fails to perform the obligations outlined in the contract.  When limiting damages, be sure you are not giving up too much.  For instance, if a supplier has expressly guaranteed the quality and lifetime expectancy of a particular good, and that particular guarantee is the reason or at least part of the reason that you feel comfortable entering into a contract with that party, do not agree to a contract that excludes express warranties.  (Even better, if you are the purchaser, try to incorporate those particular representations into the contract).

Limiting damages is a common risk management tools that parties agree to all the time.  In order to calculate the risk and protect your company, it is especially important that you not only understand what types of foreseeable risks are likely, but also you understand the contractual language used to limit potential damages.  Below are some terms used in contract law that parties tend to limit or exclude remedies in their contracts:

Consequential.  These damages are those attributable to a breach and are an immediate consequence of a breach.   A consequential damage could include loss profits, diminution of value, or loss of product.  Important concept to note on consequential damages is that whatever the non-breaching party is suffering must have been within the contemplation of the parties at the time the contract was entered into.  For example, if Tom Oto contracts with Farmer John to receive 100 lbs of high grade tomatoes for his special spaghetti sauce business from his farm by first harvest date and Farmer John fails to deliver by this date, Tom Oto can only recover for loss profits on the sale of tomato sauce only if Farmer John knew that Tom Oto was planning to use the tomatoes for his special sauce. Consequential damages can get tricky with showing that the other party knew or had reason to know of a particular use.   

Incidental.  These damages would include any reasonable costs incurred leading up to the breach, like any of the costs incurred for inspection and shipment of the breached goods, as well as the costs incurred by the non-breaching to find replacement goods or any reasonable expenses incurred as a result of a delay in shipment. Incidental damages also include attorney fees.

Liquidated Damages.  These damages are contained in the contract and make life quite simple. They state, in the event of a breach by a party, the breaching party will pay the non-breaching a predetermined amount of money.  These tend to be upheld in court as long as they are not grossly oppressive.  In the example above, it probably would be unfair if Farmer John had to pay Tom Oto a million dollars in liquidated damages if the event of breach.

Specific Performance.  Specific performance would require a breaching party to fulfill its obligations under the contract.  This rarely occurs as courts are hesitant to make parties act.  After all, there is such a thing as an efficient breach---A breach of contract is sometimes more efficient to breach if the performance of the contract costs exceed the benefits to all the parties. (Disclaimer- I am not recommending or endorsing breaches of contract,just recognizing that the decision to breach is often a business decision made with careful consideration of whether benefits outweigh the cost or vice versa).

Despite your ability to limit remedies, be cognizant that not all remedies may be contractually discharged.  Certain damages, like punitive damages, are equitable remedies awarded by the court cannot be limited by contract.  Other statutorily mandated damages carry strict liability and also cannot be limited through contract. 

        

Update:  In addition my blog entry below, you may want to check out opinions on the same subject from two gentlemen I have tremendous respect for, Charles Dominick at Next Level Purchasing and Jason Busch at Spend Matters.  Charles' opinion can be found here and Jason's opinion can be found here.

Have you ever been in a situation where a supplier “forgot” to bill you and—out of the blue—you get an invoice from that supplier for goods or services that were provided months and months ago?  It’s particularly painful to get an old invoice from a supplier when you’re already in a new budget year and you haven’t accrued anything for the old invoice.  Surprise!

Arguably, you should have decent enough financial controls to keep this from happening—like reports that show old purchase orders that haven’t been yet matched with an invoice.  That’s a sign that you may not have gotten an invoice from a supplier and you need to pester the supplier to send you one.  But, even with the best financial controls, “old” invoices still have a way of coming back to haunt folks.

So, in the situation described above, what do you do?

Your initial reaction might be, “There’s no way in hell I’m going to pay an invoice from over a year ago!  The supplier can eat it. It’s their fault!”

Well, you’re right, it may be the supplier’s fault but that doesn’t mean that you’re entitled to not pay the invoice.  Generally speaking, a supplier is entitled to recover the value of the goods or services provided, even if an invoice is submitted substantially late.  So, if in fact you really did receive the goods or services, your state law likely requires you to pay up or else.  For example—and without going into the legalese—in Virginia, a supplier can submit an invoice associated with a written contract up to 5 years late and still have a legal right to get paid.

So, as outraged as you might be, here are some suggestions you might want to consider:

Escalate.  It’s probably the supplier’s accounts receivables department that’s coming after you and they’re likely the ones that boned up in the first place.  Don’t waste your time arguing your case with them.  Instead, contact your supplier's sales representative, tell him or her you’re unhappy and that you want to make sure the supplier’s management is aware of this screw-up.  Escalating the issue helps to set you up for most of the following recommendations.

Prove it.  Ask the supplier to prove that the goods or services were actually provided.  If you honestly can’t remember getting anything from the supplier, and the supplier can’t prove that you did get anything, it’s less likely that the supplier will come after you if you refuse to pay.

Push back.  If the supplier can prove that you did receive the goods or services, make a “good business sense” appeal to the supplier that you shouldn’t have to pay the invoice because it was submitted so late.

Negotiate a lower amount.  If the supplier refuses to forgive the invoice in its entirety, ask the supplier to reduce the amount of the invoice on the basis that it wasn’t budgeted for.

Push the payment out.  If the supplier is adamant that they be paid the full amount of the invoice, ask the supplier if payment can be pushed into your next budget year since you don’t have the amount of the invoice budgeted this year.

Threaten.  Yep, threaten.  But be reasonable first.  If the supplier provided the goods and services, you’re generally happy with the supplier, and paying the old invoice doesn’t constitute undue business hardship, then just grit your teeth and pay the invoice.  However, if you need to threaten that you’ll never, ever do business with the supplier again unless they make the old invoice go away, do it.  It may work.

Refuse to pay.  Even if the supplier is technically entitled to receive payment doesn’t mean—barring court order—that you will pay.  You can always tell the supplier that you refuse to pay and that they can come after you.  If the amount is small enough, they’ll likely write it off instead of spending money to sue you for it.

Circumvent state laws (legally).  As a preventative measure, you can contract around your state laws by including something similar to the following in your contracts with suppliers:

“Supplier acknowledges that it must submit invoices on a timely basis to Customer so as to avoid any unnecessary business hardship on Customer.  Notwithstanding the laws of the state of [insert state here] and Supplier’s rights to collect on debts, Supplier hereby agrees that Customer shall not be required to pay any invoices submitted by Supplier that are submitted by Supplier more than twelve (12) months following the date that the goods or services, as the case may be, were provided by Supplier.”

        

Here's a short white paper on vendor-managed inventory implementations I recently drafted and that I'm finally getting around to posting.  Happy reading!

Vendor-Managed Inventory Implementation Considerations.  It's Not a Panacea...

A vendor-managed inventory (VMI) is an inventory replenishment arrangement whereby the vendor monitors and manages the retailer's inventory—the vendor receives demand information electronically and then replenishes inventory based on, among other things, mutually agreed upon objectives for inventory levels, fill rates, and transaction costs.  The goal of VMI is to streamline supply chain operations for both vendor and retailer, as well as to reduce costs, time, and working capital, by moving the responsibility of inventory servicing and related decision-making further up the supply chain, i.e., to the vendor.

The benefits of VMI are clearly significant, as illustrated in a recent two-year study of VMI implementations conducted by Datalliance which included 65 location relationships spread across 12 distributors representing over 20,000 stock keeping units.  Over the two years, the study found that sales improved 47%, inventory turns increased by 38%, and stock-outs were reduced by 45%.

While VMIs were relatively new in practice during the mid- to late-1990s, many organizations jumped on the VMI band-wagon as a blanket panacea for their inventory management woes.  As time has progressed, inventory management professionals have come to realize that VMIs should be considered as a part of a tailored—and systematic—approach to inventory management.

VMI Implementation Considerations

The first threshold in considering VMI is whether or not VMI is even available as a supply chain strategy.  In many cases, vendors will only consider VMI for its higher-volume retailers.  The rationale is that while costs are reduced as a result of VMI, margins are reduced as well and VMI therefore can only be justified based on high-volume.  Once that threshold is met, subsequent implementation considerations typically center on three fundamental considerations: focus, trust, and patience.

Focus

The first consideration, and perhaps it is almost an admonition, is that a VMI implementation requires and involves significant focus.  Not all commodities are necessarily appropriate for VMI.  For example, if demand for a particular commodity cannot be forecasted with any greater of a degree of accuracy by the vendor than the retailer, the benefits of VMI are diminished.  Another aspect of focus is whether or not the vendor can adequately support a VMI implementation.  Thus, VMI implementations should be confined to those commodities that make sense, such as high-volume / low-variation commodities, and where the vendors of those commodities are sophisticated enough in their own supply chain practices to support VMI.

Trust

Another critical consideration for a successful VMI implementation is trust.  Buyers new to VMI sometimes distrust the effectiveness of VMI programs, and, fearful of stock-outs, become overly involved in monitoring the program—ultimately resulting in the program’s failure.  To this end, mutually-agreed upon contractual commitments are a critical basis for a trusting business relationship.  Generally speaking, such contractual commitments in the context of VMI should include commodities to be managed, locations to be managed, maximum and minimum inventory levels, frequency of replenishment, service level objectives with associated liquidated damages, and procedures for administrative activities such as determining demand forecasts, handling returns, and invoice processing.

Patience

A VMI implementation can be complex, initially fraught with missteps, and require collaboration that is atypical between vendors and retailers: the vendor / retailer relationship must be fostered, trust built, processes and procedures developed, information systems integrated, and myriad other activities accomplished.  All of these activities take time and do not even consider all of the various implementation problems that are likely to occur.  Thus, patience from both vendor and retailer is demanded by the long-term effort that is inherent to VMI implementations.  Even beyond the phase of implementation, patience is required in terms of results expectations.  While articles and white papers describing dramatic VMI successes—predominately from consultants who implement VMI solutions—abound on the Internet, more scholarly and pragmatic articles require somewhat more diligence to research.  In reviewing these more realistic perspectives, it becomes clear that the beneficial results from a VMI implementation take time and effort…and require patience from all involved stakeholders.

Conclusion

While this note is by no means complete in a thorough discussion of VMI—nor was it intended to be—the thrust is that focus, trust, and patience are broad yet critical considerations in terms of a VMI implementation.  Beyond that, the “devil is in the details” for any VMI implementation to be successful.

        

Every now and then, especially when I'm traveling, I like to do a crossword puzzle.  A few years ago, a co-worker's family member made a documentary on crossword puzzles, called Wordplay , that I found to be extremely entertaining and interesting.  Part of the documentary was about how crossword puzzles are created.  So, on a recent vacation to my hometown of St. Petersburg, Florida, I decided to make my own crossword puzzle--using my favorite subject of procurement--while sitting on the beach and further damaging my already sun-damaged skin.

Just to make my exciting crossword puzzle even more exciting, I decided to throw in a little prize: The first person that completes the crossword puzzle correctly by the end of June 2010 will get a FREE, SIGNED copy of my Contract Negotiation Handbook!  Yes, I know it's hard to believe and you're probably on the verge of fainting, but it's true--you will get a FREE, SIGNED copy.  To win, you have to send me a scanned image of the completed (and completely correct) crossword puzzle by the end of June.  I will announce the winner, if any.

If you have any comments on my crossword puzzle, feel free to post them but be nice.

Have fun!


Procurement Crossword Puzzle

        

Here's an actual disclaimer provision added by a supplier, which immediately followed a representation and warranties section containing, e.g., a warranty against infringement.  I felt all warm and fuzzy when I saw the opening clause in the disclaimer ("Other than as expressly provided for herein..."), believing that my express reps and warranties in the prior section weren't disclaimed and were still valid.  So--specifically in reference to my express reps and warranties--should I feel warm and fuzzy or should I feel cold and prickly?


15. Disclaimer of Warranty.  OTHER THAN AS EXPRESSLY PROVIDED FOR HEREIN, SUPPLIER AND ITS LICENSORS MAKE NO REPRESENTATION, WARRANTY, OR GUARANTY AS TO THE RELIABILITY, TIMELINESS, QUALITY, SUITABILITY, TRUTH, AVAILABILITY, ACCURACY OR COMPLETENESS OF THE SOFTWARE. SUPPLIER AND ITS LICENSORS DO NOT REPRESENT OR WARRANT THAT (A) THE USE OF THE SOFTWARE WILL BE SECURE, UNINTERRUPTED OR ERROR FREE, OR (B) THE SOFTWARE OR THE SERVERS THAT MAKE THE SERVICES AVAILABLE ARE FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS. ALL CONDITIONS, REPRESENTATIONS, AND WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, ARE HEREBY DISCLAIMED TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW BY SUPPLIER AND ITS LICENSORS. THE SOFTWARE HEREUNDER IS BEING DELIVERED OVER THE INTERNET, AND ACCORDINGLY, IS SUBJECT TO LIMITATIONS, DELAYS, AND OTHER PROBLEMS INHERENT IN THE USE OF THE INTERNET AND ELECTRONIC COMMUNICATIONS. SUPPLIER IS NOT RESPONSIBLE FOR ANY DELAYS, DELIVERY FAILURES, VIRUSES, HACKER INTRUSIONS OR OTHER DAMAGE RESULTING FROM SUCH PROBLEMS.

        

On May 18th, NRECA 's Vendor Management Office and Theresa Polzin, C.P.M., a distinguished NRECA employee, received a number of prestigious awards from NAPM-NCA , the greater D.C. area Institute for Supply Management affiliate.  NAPM-NCA is one of the oldest ISM affiliates, having been first established in 1942.

NRECA received an appreciation award for its service to the supply management profession and Ms. Polzin received an appreciation award for her contributions to the affiliate.  She also received the D.A. Cook Award, one of NAPM-NCA's highest honors, for her commitment to the affiliate and for her continuing work in advancement of the supply management profession.   In addition to receiving these awards, Ms. Polzin was appointed as the Director of Education, NAPM-NCA board.  In response, Ms. Polzin commented, "I'm extremely honored by these awards and my appointment.  I am proud to be recognized as a contributor to the supply management profession and I look forward to further enhancing educational opportunities for my peers and the next generation entering the profession."

        

Some of you asked if I had any specific study tips for the CPSM Bridge Exam beyond my general admonition to put in plenty of study time.  Yes, I do have some "super secret" tips and here they are...

First, remember that the Bridge Exam tests you on the entire supply chain and not just purchasing / procurement.  The C.P.M. exams were mainly purchasing-oriented (the "P" part of C.P.M.) and the Bridge Exam is now testing you to see if you understand supply management beyond just procurement.  So don't expect a bunch of purchasing-type of questions on the Bridge Exam.  You also need to throw your personal experience and opinions to the side and forget what you know (or at least what conflicts with an opposing ISM view).  So what if you don't agree with what ISM states about a particular topic in one of their Study Guides?  You're trying to pass an exam, not have a debate, so memorize the ISM view and forget your view for purposes of the Bridge Exam.

The three CPSM Study Guides (the spiral bound books, not the hardcover ones) are critical--I predict you will fail without studying these as your primary reference.  For purposes of organizing your study focus, you should refer to the following two sections that are contained in the preamble to each of the Study Guides:  "Distribution of Questions Within the CPSM Bridge Exam" and "Overview of CPSM Bridge Examination".  It doesn't matter which Study Guide you look at for these sections because they're the same in all three books.  ISM provides you with critical information and input in these sections.

In the "Distributions..." section, ISM impliedly (but not expressly)provides a weighting of what are the most important topics (what ISM calls a "Component Area") to study.  For example, the "Sourcing" Component Area found in Study Guide 1 has two exam questions associated with it.  In contrast, the "Leadership" Component Area found in Study Guide 3 has thirty questions exam questions associated with it.  With this information and knowing that there are a total of 180 questions on the Bridge Exam, you would come to the correct conclusion that most of your study time relating to these two components should be devoted to the "Leadership" Component Area.  If you have limited time to devote to studying, I would recommend studying for the following heavily-weighted Component Areas to the exclusion of the others.  [Brackets contain the total number of questions, and these Component Areas represent over 150 of the 180 questions on the Bridge Exam.]

• Cost and Finance [12Q]
• International [8Q]
• Logistics [12Q]
• Materials and Inventory Management [12Q]
• Organizational/Department Assessment [10Q]
• Planning [9Q]
• Project Management [8Q]
• Leadership [30Q]
• Risk and Compliance [15Q]
• Strategic Sourcing [35Q]

In the "Overview..." section, ISM has essentially provided you with the beginnings of a study outline should you decide to create one.  I did decide to create one because that's what works well for me as a study method.  You can find an incomplete version of the study outline I created here (incomplete because you learn the most when you're completing the study outline not just studying from it).  Use my study outline as a basis for yours at your own risk!  Review the Study Guides and populate your study outline based on what you think you'll most likely see on the exam.

ISM also made studying easy for those taking the Bridge Exam by indicating the material in the Study Guides that is directly relevant.  Within each Component Area's Task, ISM has put the Bridge Exam material the Study Guides in brackets.  There's no way to miss it.  If you study material outside of the brackets, that might be interesting for you but it's a total waste of your time for exam studying purposes.

ISM's CPSM Diagnostic Kit (i.e., the practice exams) is critical for studying.  I used the hardcopy version only (you'll understand why a few sentences from now).  Take the exam(s) first to find your weak areas, study those weak areas, and then re-test.  I recommend taking the practice exams at least three times because the actual exam questions are very similar (not exactly the same, of course).  The problem with the CPSM Diagnostic Kit is that it prepares you for all three exams--there is no CPSM Bridge Exam Diagnostic Kit.  So, if you take each of the three practice exams, you'll be testing yourself on Component Areas that you don't need to study for (i.e., you're wasting time).  However, you can create your own practice Bridge Exam using the CPSM Diagnostic Kit and study only what's relevant.  At the end of each practice exam is a section entitled "Answer Key and Scoring Table".  It contains the number of each exam question using a tabular format and ties each question to a Task Area (enumerated as N-X-N) that comprises each Component Area.  Using the "Distribution..." section  that I mentioned earlier (contained in the Study Guides), I determined which Component Areas that I would not be tested on.  Then, in the CPSM Diagnostic Kit "Answer Key..." section, I put a slash through the table of each Component Area that I would not be tested on.  That way, I knew exactly which questions weren't relevant to the Bridge Exam.  Then, I went through each exam and crossed through each question I knew I wouldn't be tested on--that left me with all of the questions I would be tested on as a part of the Bridge Exam.  This is why I used the hardcopy of the CPSM Diagnostic Kit versus the online version.  It sounds a lot more involved here than it really is.  It took me under ten minutes to do the cross-referencing / crossing-out and saved me from testing myself on questions that just didn't matter.

CORRECTION:  One of my readers pointed out that ISM just came out with a hardcopy diagnostic kit specifically for the Bridge Exam.  ISM will have a softcopy available in late 2010.  My opinion, even without having seen it, is to buy it.

ISM uses scaled scores (and ISM explains why in the CPSM Diagnostic Kit) which makes it a little difficult to determine whether you're doing well on the practice exams when you remove all of the non-Bridge Exam questions.  Roughly speaking, and based on my calculations, 55% correct is passing for the CPSM Bridge Exam, but you really want to be shooting for around a 70% average on your practice exams.

Best of luck and I hope you found these tips helpful!

P.S.  I did not take an ISM-led Bridge Exam review course because that's not one of the best ways that I learn, but I've heard that they're good.  I also don't do study groups.  For me, it's grinding through the materials, building a study outline, and doing practice questions over and over and over.  ISM has given you the ammo you need to pass, you just need to put in the time and study smart.