Archive for Supply Management

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

Leave a Comment (0) →

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

Leave a Comment (0) →