Negotiate your way to success!

Being a smart negotiator is a critical skill for Procurement and Supply Management professionals. Most people think of the ability to negotiate as a highly specialized skill that only a few possess. Nothing can be further from the truth – good negotiators become one by being smart and preparing hard.

Right from when we’re young, we have all been negotiating with varying degrees of success. As kids, we negotiated with our parents for more play time. At college, we’ve negotiated and convinced our friends to go for a movie that we liked to see. We negotiate with our bosses for vacation and pay raises. We negotiate with the auto-rickshaw driver to get to our destination at a lower rate. And more pertinently, in our jobs as Supply Managers, we negotiate with suppliers every day!

Let us never negotiate out of fear. But let us never fear to negotiate – John F. Kennedy

But how do we become skilled negotiators?

Preparation is Key:

Over 50% of the success of a negotiation is down to being ready and prepared to discuss anything that’s thrown at you. The amount of time you devote for preparation depends on the criticality of what’s being negotiated, but the process remains the same. Before a meeting, you have to:

Preparation is Key!

It’s all about being prepared!

  • Understand all aspects of the category that is being negotiated. Spend, key suppliers, their performance etc.Find out more about the supplier’s company – read their earnings statements, press releases and find out if there’s anything out of the ordinary.
  • Speak to other functions like Engineering, Sales and Finance to get their inputs on the category so that you have a well-rounded idea of the product/service.
  • Try and pre-meditate the various points you expect the supplier to raise and prepare a counter for each.
  • Set limits for each criterion that is being negotiated. For example, the highest cost increase that you will accept is 5%; the maximum lead time you will allow is 3 days and so on.
  • Prepare alternate options if you are unable to make progress on price

Sound preparation will help you stay in control of the negotiation process from the moment your supplier walks in through the door.

Negotiation doesn’t have to focus only on cost:

Always approach a negotiation with the intention of maximizing value to your organization. For example, if the supplier is not willing to budge on price, you can try negotiating on lengthening payment terms; or increasing the number of deliveries per week; or adopt for eco-friendly returnable packaging so you save on packaging costs. Understand the difference between cost savings (which is great) and cost avoidance; quantify it correctly with the help of finance and convince your boss how you were able to make the most of a tough negotiation.

Be Reasonable:

Nothing can derail a negotiation better than an unreasonable demand first up. It is important that we stay within the limits of reason. For example, if we know that the price of steel in the market has increased by over 20% in the past year, demanding a 5% cost reduction in a machined part made of steel is absurd. Even if that is what is expected from the management, once we make an unreasonable demand, the supplier automatically assumes an adversarial position. You will be able to succeed if you are more inclined to work with the supplier and identify alternate ways to maximize value if lowering costs is not an option. Never put your suppliers into a corner with a take-it-or-leave-it offer. That will serve only to undermine relationships and influence future negotiations.

Speak Less, Observe More:

Once you’ve stated what you want to say clearly and in unambiguous terms, there is no point talking excessively. Be succinct and talk only if you have to. Rather than rambling on, you will be surprised to find how much you can learn about a supplier by simply observing his body language and tone.Meeting

Eliminate ‘You’ from the process:

In order to succeed, you have to separate the individual from the process. This is because an individual can bring additional complexities to the problem. It is important that the negotiation process stays devoid of any individual emotion (which can’t be predicted) – pre-conceived notions, ego, fear and anger. Staying truthful to the task at hand and eliminating your personal characteristics will ensure that a meeting will lead to predictable outcomes.

Save the best for the middle:

If multiple items with varying levels of complexity are being negotiated, scheduling becomes important. Starting off with the most complex item first up will lead to a lack of progress and frustration. Pushing it out to the last can sometimes lead to unsuccessful ending and wipe away all the progress that was made prior to that. A good way to approach scheduling is to start off with a few easy items. Get the trust of your supplier and build a good vibe – throw in a complex item every now and then. By and large, make sure the talks are progressing. The most important item that is being negotiated should always be in the middle of the schedule.

Summarize, Clarify:

Never walk away from a meeting without summarizing the results of a negotiation. Having two parties, each with a different objective in mind can sometime distort perspectives. Always summarize the terms agreed upon during a negotiation and clarify if you are unclear. End the meeting on a good note and state the importance of a good long-term relationship.

 

 

 

Posted in: Negotiation, People, Procurement, Strategy, Supply Management

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The curious case of using Technology in Supply Management

I recently participated in a Roundtable to discuss the future of technology in Supply Management. The participants included CPO’s, Procurement Heads and Consultants/Service providers. The discussion focused on several aspects of technology – scope, cost, effectiveness and innovation just to name a few.

In my opinion, the case of technology in Supply Management is a curious one.

The advent of modern cloud-based tools has seemingly made the tasks of professionals easier – they are now able to instantly react to new information and make faster and more accurate decisions. These tools have also improved the quality of internal communication within an organization. There now exist a plethora of tools in the market that support one, or all of the processes within Supply Management:

  1. Spend AnalysisTouching Technology
  2. Sourcing Execution
  3. Procure-to-pay
  4. Contract Lifecycle Management
  5. Supplier Relationship Management
  6. Supplier Performance Management
  7. Transportation Management
  8. Benefits Tracking…..and much more!

These tools are very powerful and are capable of drawing from disparate sources of information, consolidating and cleansing data and presenting it in a format that facilitates decision-making.

Sounds great, right – so where’s the hitch?

As rosy as everything seems, there are deterrents that prevent organizations from reaping the full benefits of technology. Enterprise-wide tools are still very expensive and their implementation may take several years. Even after a long implementation process, companies may not end up with a perfect install. Most organizations will not be able to afford such tools as the return on their investment might not justify such an expensive purchase. On the other hand, independent tools are relatively inexpensive and get the job done – but how many of them can you have? Companies that have multiple tools, each managing a portion of their Supply Chain will face a major problem in integrating these tools in order to function efficiently.

So, which way do we go? This presents a conundrum that very few organizations are able to solve.

I am constantly reminded of a case study at Business school several years ago – the Spanish garments retailer Zara, and their use of technology. Businesswoman drawing diagram on a natural background.Zara was able to run a dynamic and responsive Supply Chain with a minimal investment in technology. If I remember right, they did not have an ERP system, much less even a modern software system that their competitors had at that time (they used a Point-Of-Sale system based on MS-DOS). Zara had a fabulous vertically integrated technology system that enabled them to place the latest designs in any store across the world within 2-3 weeks of a garment being introduced at a fashion show. They were able to gain a significant competitive advantage over other fashion retailers who took anywhere between 3-6 months to place their product on the shelves of retail stores. What set Zara apart was that they had a clear understanding of the role of technology in their Supply Chain.

 

The larger point I am trying to make is this: Ultimately, technology is an enabler.

 

Firms that invest in technology just for the sake of investing, end up being constrained by the very same tools and software they implemented. It is imperative that firms spend a lot of time on introspection before investing.

Back at the roundtable, there was a debate on most topics within Procurement. But one area where everyone universally agreed was the importance of processes over technology. Business processes are the lifeblood of organizations and should dictate the scope of technology – not the other way round.

Posted in: Procurement, Strategy, Supply Management, Technology

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Tail-Spend Management: There’s always money in the banana stand!

For a Procurement professional, the search for cost savings is a journey that never ends. Be it at a Fortune 500 firm that has mature Procurement processes and tools or at a recently established firm that just started down the path of Strategic Sourcing, one thing is a constant – The Pressure to Deliver Cost Savings!

What is Tail-Spend?

As we all know, Spend Analysis is an excellent means to identify potential opportunities. Most companies have already begun tapping into their Indirect Spend – supplier consolidation, improving contract

The costs add up!

The costs add up!

administration and compliance, identifying new spend areas from other departments and so on. But as we dig deeper and deeper, we will find that the avenues for cost savings are shrinking. After a certain level, it defies conventional wisdom to analyze 10,000 line items spread over 500 suppliers that comprise 1-2% of your spend – these are simply not worth your time and effort.

This bottom 10% of your Indirect Spend is what is known as a company’s Tail-Spend. This is often categorized by:
1. One-off purchases below a certain threshold (say $100,000)
2. Purchasing done at the plant level by engineers or other departments that don’t fall under the purview of Procurement

The Tail-Spend Opportunity

It is estimated that within this bottom 10% of your Indirect Spend, lies a lot of waste – sometimes to the tune of 15-20%. Imagine for a company that spends $100 million in Indirect Spend, the savings opportunity within Tail-Spend (10 million) can be between $1.5 – 2 million! This is a significant number that cannot be ignored.

Managing Tail-Spend

Given the nature of the tail-spend beast, it becomes counter-productive for companies to focus on smaller ticket items and instead they focus their attentions (and rightly so!) towards large-scale purchases. And given the cost of hiring an exclusive resource, the numbers don’t work out in favor of managing tail-spend internally. Companies that want to stop the drain of savings in their tail-spend and manage it in a cost effective manner have created outsourced tail-spend management teams, often in lower cost countries. These outsourced teams at third party providers are able to provide the necessary expertise at a significantly lower cost.

In summary, while the pressure to deliver cost-savings does not look like relenting, tail-spend provides a hitherto new area of focus for companies in their quest to deliver savings. In order to balance the cost vs benefits equation, it becomes incumbent on companies to explore outsourcing tail-spend management to lower cost countries. For more information, visit our website http://www.bcubeglobal.com/ or write to me ram@bcubleglobal.com

Posted in: Analytics, Indirect Spend, Outsourcing, Procurement, Strategy

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The Art of Sourcing effectively – It’s all about the process!

I often get asked how best-in-class sourcing organizations are able to identify and work with the right suppliers. What sets them apart from the rest, who seem forever fighting with suppliers over quality and delivery issues? While the answer is simple, its implementation is not – Discipline!

It comes from years of practice and a culture of discipline – discipline to adhere to processes and frameworks that have been painstakingly created.

 

Business team

A happy Supply Chain

Most purchasing teams are stuck with a few suppliers who constantly give them headaches with poor quality products, late deliveries and non-existent customer support. This small minority, ensure that the buyers’ time is spent chasing down suppliers and perform what is largely non-value adding work. Given a chance, companies would happily love to turn back time and partner with a different supplier, even at a higher cost.

 

Strategic sourcing organizations invest heavily on empowering their teams with the right tools and processes. In an ideal world, these would work like a charm. But the world we function in, is far from ideal. It is a world beset with problems arising from unpredictable demand, rising costs, schedule changes, so on and so forth. These call for an adaptive response which makes teams take quick, intuitive decisions that affect the Supply Chain. For example, we may choose a high-risk, high reward supplier at a lower cost over a stable, relatively higher-cost supplier to meet our savings goals. Or, we may skip the due diligence step during the supplier screening process while performing a quick-hit sourcing event for a relatively unimportant SKU. These are things that hurt organizations later. Happens 100% of the time – Murphy’s law, anyone?

 

The solution lies in giving equal importance to framework-adherence, and building a culture of process-discipline. Also, ensuring that adopted processes have the requisite number of stage-gate reviews, and require commitment and approval from senior management will help.

If you are interested in implementing a strategic sourcing process in your organization, read more about our Five Step Sourcing process here – http://www.bcubeglobal.com/solutions/sourcing/

 

Posted in: Process Control, Sourcing, Strategy

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Spend Analytics – There’s always more to save!

Spend Analytics has emerged as a powerful tool in Supply Management since the turn of the 21st century. Most companies have invested on a customized tool that helps categorize their spending and presents their data in neat dashboards that provide amazing insight. Small and Medium Enterprises (SME’s) that cannot afford the cost and resources to implement such tools also have some form of spend categorization and analysis in their system.

The main benefit/target of Spend Analytics is obviously to generate cost savings for the company. The first thing most companies do in their quest to be more strategic is to set up a Spend Management System. However, when done right, spend analytics can also lead to:

Decisions  Better Decision-Making:

You can make fact based decisions rather than shooting in the dark. While it is important to trust your instincts, sound decisions are based on solid facts.

Pie  Identification of Additional Areas of Opportunity:

Most organizations take the insights from spend analysis tools and take it one step (or possibly many steps) further to identify more areas for savings.

ProductivityIncreased Productivity and Efficiency of Supply Management staff:

Time is no longer wasted on performing mundane tasks on Excel. Spend Analytics helps bring greater focus to your key deliverables and increase the productivity of Analysts and Managers.

RelationshipsImproved Relationships:

With greater accuracy of data, you can improve your 360 degree relationships: With your suppliers, with your customers and internal stakeholders.

VisibilityGreater Visibility:

You can track every single dollar that you spend and understand how it may (or may not) add value to your company. Indirect Spend is a huge, untapped area for cost savings.

 

With a structured spend management system in place, you can go after hitherto untapped areas like VAT, Warranty costs, Payment Terms, Bracket Pricing etc. and generate additional savings for your company –  the possibilities are endless!

Have a question about Spend Analytics? Write to me here

Posted in: Analytics, Strategy, Technology

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Procurement Operating Model

In recent years, with Procurement emerging as one of the most strategic pieces in the corporate jigsaw, companies are increasingly concerned about structuring their Procurement teams for maximum impact.

There are 3 main facets to an Operating Model – Strategy, People and Execution Methodology.

 

A vital piece of the jigsaw

The Strategy governs how an organization’s Procurement activity is conducted. This may differ from company to company and is typically in synergy with the parent Organization’s mission. For example, a manufacturing company that operates on a just-in-time basis places a higher emphasis on lead time. A pharmaceutical company that makes drugs with very little differentiation from its competitors would consider cost as very important. Compliance and governance issues have to be carefully considered while drawing up product specifications or developing supplier selection criteria. Specific metrics and performance indicators would have to be identified to analyse the performance of the in-house teams and provide feedback.

People form the backbone of any organization, and it is no different in the world of Procurement. With time, the role of a Procurement professional has greatly expanded and he/she is now required to wear many hats. It is virtually impossible for a Procurement professional to research the market, identify suppliers, conduct sourcing events, sign contracts, issue PO’s, co-ordinate deliveries and manage suppliers all by themselves. Best-in class organizations have understood this constraint and have mitigated it by setting up twin teams whose tasks and objectives differ. A Strategic Procurement team that is tasked with developing and maintaining the supply base and a Tactical Purchasing team that is responsible for execution. The typical responsibilities of a Procurement employee would include Spend Analysis, Category Management, Strategic Sourcing, NPD, Risk Management and Supplier Relationship Management. On the other hand, a Purchasing employee would concern himself/herself with Scheduling, Issuing PO’s, managing deliveries and expediting.

Methodology refers to the processes and tools that the organization adopts to support their Procurement teams. Cloud based tools for spend analytics, conducting sourcing events and reverse auctions, vendor management have proved to be very popular. In addition, it is vital for organizations to adopt a formal process that defines workflows and hand-offs within their team. This greatly reduces the chances of redundancy and exponentially improves efficiency.

At BCube, we understand that various companies exist along the wide spectrum of Procurement Model adoption. Our process frameworks, tools and people are designed to take you to the next level – wherever you may be. Learn more about our Solutions

Posted in: Performance Management, Process Control, Procurement, Strategy, Supplier Management

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Requisition To Pay: What is it? Why is it Important?

What is Requisition-to-Pay?

Requisition-to-Pay (R2P) also referred to as Procure-to-Pay (P2P) is the end-to-end process of how an organisation purchases and pays for goods or services. At a high level, every organisation has to carry out the R2P process as it is imperative to operate a business. However, the excellence in executing the process underpinned by efficient use of people, process and technology has proven to be the difference between successful and unsuccessful procurement organisations.

What are the steps involved?

The end-to-end R2P process has been provided below.

 

Sequential steps involved in the R2P process

Sequence of steps involved in the R2P process

The important thing to note is that the process has a significant level of interaction/dependence on other areas of the business including logistics, finance and accounts payable as they all have a stake in the process.

What challenges do companies face with an inefficient R2P process?

Without a well-structured R2P process, organisations typically face the following key challenges:

  • Lack of visibility of spend against contracts, vendors, types of goods/services
  • Late supplier payments
  • Inability to take advantage of early payment discounts
  • High operating costs to resolve issues/disputes

 

Benefits of having a well-structured R2P process

Through a well governed and structured R2P process, organisations can deliver significant sustainable benefits to the organisations such as:

  • Strong business intelligence through classification and coding at the point of purchase
  • Increased compliance by including clearly defined steps required before raising a PO
  • Ability to set-up long term agreements with vendors at better rates based on visibility of vendor spend
  • Improved process efficiency by removing redundant approvals
  • Streamlined payments control and ability to take advantage of all early payment discounts

It is clearly evident that the integration of the procurement and accounts payable process/technology is crucial to the success of an organisation to reap the much needed benefits that organisations are after.

 
Want to learn more about R2P and how we can help your organisation? Please send an e-mail to ram@bcubeglobal.com and we will be happy to help you save money!
 

 

Posted in: Process Control, Procure to Pay, Procurement, Requisition to Pay

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Leveraging technology in your Supply Chain

Gone are the days when technology was viewed strictly as an enabler for making things easier. Gradually, the use of technology has enveloped us – we now live in an age where technology has become our master. The decisions we make and the actions we take are all governed by millions of lines of code.

Technology has emerged as one of the critical differentiators between winners and also-rans.

Recent developments in the electronic devices industry have shown that products are becoming smaller, flexible and are capable of supporting different functions. Mobile phones for example are capable of acting as a GPS device, a communication device, data storage device and come with a plethora of other features. Technology providers are focusing their efforts solely on the mobile platform – we need access to information wherever we go, and we need it now! Companies are choosing between providers based on their ability to deliver the same performance across a computer, a mobile phone or a tablet.

Business needs for security, real-time visibility, and up-to-date information don’t stop at the office door. These needs extend throughout supply chain operations, so reliable information systems must extend just as far. Developments in mobile computing, wireless communication, Radio Frequency Identification (RFID), bar code and other data collection and communications technologies are helping businesses extend visibility and control over more areas of their operations. Aspire, Cloud-based solutionsHowever RFID, Bar Coding and other such tools are now a standard part of most companies’ inventory management tool set. Market leaders have since moved on to Voice enabled picking systems, Portable printers, Digital Imaging devices etc.

Modern tools have also become enablers for understanding performance and in forecasting future needs. In recent years, companies have focused more on the storage of data collected than the process of data collection itself. The process of analyzing data has become exponentially easier thanks to BI tools that delve through thousands of terabytes of seemingly unconnected data, and unearth amazing insights. As a result, cloud-based solutions have grown exponentially. Companies store their entire data onto clouds in their native format – cloud-based solutions interact with this data inside your cloud and deliver solutions onto your laptop or mobile device. These solutions are easily scalable and deliver amazing performance even at ostensibly high capacity. Cloud-based solutions offer so much win-win that it is hard to see beyond them in the near-term. We predict that the immediate future is cloudy with a heavy chance of showers.

The key lies in leveraging this technology to help your business grow further. Of course, it is easier said than done.

Posted in: Analytics, Technology

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Big Data = Big Money!

Suddenly “Big Data” seems to be the next big thing in business. Every street in Silicon Valley has at least one start-up focused on big data. Corporations have collected millions of terabytes of data and have little to no clue how to make sense of it. Enter Big Data experts. Problem solved?

The biggest questions that revolve around data are always: What to track? How to track? How to use what we measure? Companies are no longer limited by the analytical capabilities of their ERP system. They either use external tools to leverage the data captured by their ERP. Or better yet, adopt an analytics solution that does everything from independently collecting, storing, sorting and cleansing to providing insight.

THE WHAT?

Most companies lack clarity on what metrics to measure. Data in the supply chain can be bucketed into two broad categories. Backward looking data enables the company to learn about their strengths, weaknesses,

Big Data, Network, Server Room, Storage

Big Data, Network, Server Room, Storage

opportunities and threats. Forward looking data helps them analyze the trend and forecast the need. More often than not, the use of forward looking data plays a key role in maintaining competitive advantage. It is imperative to understand this difference before we proceed to measure and utilize data.

THE HOW?

Modern tools and technologies help us track and store data like never before. A retail chain in the United States uses eye ball tracking cameras to understand what items the customers look at and for how long, during their visit to the retail store. Combine this with data about their past purchases, relevant to their demographics; you are sitting on a gold mine. Sounds easy, doesn’t it? But the hard part is identifying the right models and mapping algorithms that translate the numbers into making an actual sale.

HOW TO USE WHAT WE MEASURE?

As stated earlier, this is often the hardest part. Reason: It involves logic, intuition and common sense – things that are fairly uncommon. The tools of our age help facilitate this decision-making by offering readable dashboards to display relevant information. They also offer insightful recommendations based on benchmarking the data to peers and industry standards. While the importance of human intervention can’t be marginalized overall, current tools are increasingly making our job almost redundant; sometimes dumbing down the data to one obvious conclusion.

While most of this is subjective and industry-dependent, what cannot be debated is that Big Data analytics remains essential for a company’s success. And probably will remain so, over the next few years.

Our analytics team understands the power of data and is capable of effectively harnessing insights from it to enable you to excel. Our tools interface with most ERP systems and provide a variety of customizable reports that drive decisions. Reach out to us for more information about data analytics and predictive analysis tools. We are here to make your company agile!

Read more about BCube’s Analytics solutions at: http://www.bcubeglobal.com/solutions/analytic/

Photo credit: torkildr / Foter.com / CC BY-SA

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Adding Value by Understanding your Supplier Better

Everything in this world has to add value. This value addition is what defines you as an individual or you as an enterprise. In the course of time we have realized that quality value addition leads to making money. So as a result, we try to provide more value in terms of producing a product or providing a service. But there is a caveat; everyone knows this information and what defines you is your ability to provide this value in an innovative manner to the client.

Providing value addition through client satisfaction is something that every company in this world is striving for. UPS for instance goes to the extent of having only right turns in their delivery run in the United States, so that they can reduce the time elapsed while transportation. This is the level of detail the company endures so that the service that the company provides becomes absolutely worth it. The savings are huge and the value that I mentioned earlier is added at literally every single stage of their supply chain. The customer is satisfied and returns to you for more business.

In the hullabaloo of value addition, companies often forget another side of doing business, The Supplier. We have always been looking downstream for value addition and forget that we are downstream for an entire bunch of companies. Suppliers are the lifeline for any company. It can be a conglomerate like P&G., or a startup that is trying to find its way, their suppliers are very important for their business to perform.

Managing the supplier base is critical and there have been countless measures to improve a company’s supply chain. One such improvement measure is setting up a supplier performance ranking framework. Companies know when a supplier performs, but often these are just speculations and these speculations are based on impressions created by the supplier. There is no real quantitative reasoning behind all this.

Today in India, most of the companies do not possess an analytical framework to manage their supplier base. This is where the supplier performance ranking framework comes into play. Supplier Performance Framework (SPF) or in other words Supplier Evaluation is a quantitative initiative undertaken by a company to evaluate and approve potential suppliers, ensure best in class suppliers and monitor supplier performance in order to reduce cost, mitigate risk and improve performance of their operations. (1) It involves communicating with the suppliers and the purchasing team and trying to figure out how a supplier is performing. This evaluation gives a company the ability to identify areas of improvement and chinks in their armor. By understanding the supplier’s performance, a company can provide better results to their clients and would be able to reduce the variability in their delivery of their product or service. This framework would reduce the forecasting errors in inventory planning and improve both company and supplier lead times. Apart from this, it provides better knowledge to both supplier as well as the business as they know more about their own company. This knowledge provides opportunities to improve and in the end helps you provide more value to your client.

SPF is one of the many initiatives a company can take in order to improve their supply chain. We at BCube Global provide our understanding of this framework to help your company perform better. Reach out to us for more information on Supplier Performance Ranking and many other initiatives to improve your supply chain. We are here to add value to your company!

To read in detail about BCube’s SPF Solution, please visit: http://www.bcubeglobal.com/solutions/procurement/

References:

(1)    Sherry R. Gordon (2008). Supplier evaluation and performance excellence: a guide to meaningful metrics and successful results. J. Ross Publishing. p. 232. ISBN 978-1-932159-80-6.

Posted in: Performance Management, Risk Management, Supplier Management

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