Monthly Archives: August 2007

Timeless Principles To Steer You Through Negotiations

Over on The Negotiator Magazine, Eric Garner recently had a great article on Timeless Principles To Steer You Through Negotiations that listed seven principles of negotiations that define a sure-fire way to succeed.

The list, which also included 7 timeless quotes, one per principle, is as follows:

  1. Negotiating is an essentially human way of interacting.
  2. Negotiating is not about dividing up a limited cake in ways that are divisive. It is about making a bigger and better cake.
  3. Conflict is at the heart of negotiation but only a positive view of conflict will result in a successful outcome.
  4. There is a time to speak and a time to shut up in negotiations. When you do more listening than speaking, you actually increase your power.
  5. In power negotiations, when the stakes are high, let the other side believe what you want them to believe. But don’t lie or be dishonest.
  6. Recognize that you will only reach agreement by understanding the deeply-held needs of the other side.
  7. You can only succeed in negotiations with a win-win attitude.

Essentially, you’re dealing with a person, and you’re only going to succeed if you approach the negotiations with integrity, listen to the other person, and reach an outcome that both parties view as a success. Strategy, tactics, and textbook methodologies will be useless if you forget these basic points. Writing anything further would just miss the point.

The “When and Why” of Incumbent Negotiations

I recently came across a recent edition of Procurement Insight from CGI by Denise Dattomo and Chuks Amajor entitled Incumbent Negotiations: When and Why that reviewed 7 situations where incumbent negotiations may be more attractive than competitive procurement which was quite good. Although comprehensive competitive bidding approaches are typically the right way to go, direct negotiations with incumbents might be the the right choice under certain circumstances. CGI has found that, based on their experience, incumbent negotiations yield an average savings of 9%, and sometimes the savings can be (much) higher. Furthermore the effort, and cost, involved in incumbent negotiations is usually lower. The seven situations that are often appropriate for incumbent negotiations are:

  • Urgent need for quick results
    An incumbent negotiation can often be accomplished in as little as six weeks.
  • Small spend, but high potential ROI
    There are often “quick hit” opportunities in categories with lower spend, especially those that are straightforward goods and services.
  • Strategic Vendor Relationship
    For example, if the vendor is also a client.
  • Strong end user preference
    An influential end user with a strong preference for an incumbent vendor may refuse to consider switching to a new vendor.
  • Significant Market Changes
    If a new, alternative, product is introduced by a competitor, and such product is cheaper, the current vendor may be quite willing to offer concessions in negotiations.
  • Prohibitive Switching Costs
    If the savings generated from a new, more competitive, contract could be outweighed by the cost of switching, renegotiation may be the most attractive option.
  • Limited Vendor Pool
    If the vendor pool is limited, a competitive bidding event could turn out to be a fruitless endeavor. In such a situation, going directly to an incumbent negotiation might be the best thing to do.

What You Can’t Afford Not to Know About Your Suppliers

Supply & Demand Executive recently published an article on What You Can’t Afford Not to Know About Your Suppliers by Jim Lawton of Open Ratings, who guest-posted Five Types of Supply Risk, and How to Mitigate Them and Winning the Battle on Risk: Information and Technology back in February.

In the article, Jim states that although no one disputes that the procurement and supply chain function across multiple industries has taken on a far more strategic role today. Despite this rise – even with the introduction of new business processes and programs, skills and staff development initiatives, and new technology and systems – few organizations are equipped with the global insight necessary to operate at a world-class level on a new stage. I’d have to agree. The recent rise of China-related fiascos is just one example. More can be found in the article on Worst Supply Chain Disasters or in various headlines over on

Jim goes on to note that from regional supplier directories to detailed and current performance, risk and capability intelligence, global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor. It can also help organizations understand on a total landed cost basis – quantifying price, performance and risk – the difference between regional suppliers and those from emerging markets such as Mexico and China and that companies need global supplier insight and content that focuses on three key areas to maximize their supply management results. These three areas are:

  • Supplier performance and quality management
  • Supply risk management
  • Supplier content and connectivity

Furthermore, to provide insight and connectivity into these three areas, global supplier insight solutions also need to deliver real-time content, analytics, risk management and supplier enablement capabilities. These solutions also need to be offered in a platform-agnostic environment, leveraging existing processes, systems and investments. Like Bloomberg’s financial information, which traders and financial managers use to improve their decision-making in the capital markets, purchasing and commodity managers must receive this type of content they way they prefer to digest it, whether pushed to their own desktop or through a specific application or even a designated terminal. After all, global supplier insight solutions can enable procurement organizations to take their supply performance to the next level. By empowering individuals with insight and connectivity, they bridge the gap between the internal and external, proving invaluable for strategic and tactical decisions alike.

Outsourcing and Procurement Mastery

Accenture recently released the results of their recent study on procurement outsourcing on how procurement masters leverage outsourcing on the path to high performance which found that on 1B of controlled, normalized spend, procurement masters achieve 30% higher savings with costs that are 50% lower. Furthermore, the organizational challenges faced by procurement masters are often less constrictive or severe than those faced by midrange or low performers who often face functional silos, a scarcity of resources and / or talent, and a lack of authority, among other organizational barriers.

Accenture found that procurement masters approach the function more strategically and holistically and more, thus, more capable of effectively tapping the the depth and breadth of skills, capabilities, and expertise offered by a service provider. They also found that procurement masters engage their suppliers to a larger degree, frequently collaborating to create value versus blindly seeking the lowest price. Procurement masters are also technology leaders who utilize the outsourcing provider’s processing power to increase efficiency, make faster decisions, leverage and focus internal skills, and connect with suppliers and third parties. In short, they excel in procurement strategy, sourcing and category management, requisition to pay, supplier relationship management, workforce and organization, and technology and know how to seamlessly combine the various processes to achieve the maximum benefit.

Some of the more enlightening points made by the study are the following:

  • Procurement masters, who approach the function more strategically, look and think three to five years out when planning purchases for critical categories.
  • Procurement masters make widespread use of cross-functional sourcing teams for managing projects, formulating strategies, managing supplier selection, and implementing contracts.
  • Procurement masters excel at providing clear and documented buying channels to the end user (83%), whereas low performers do not (8%), and carefully define and consolidate their category-specific processes through buying portals.
  • Procurement masters often use outsourcing as a means of reengineering processes, ensuring that logistics, purchasing, and engineering all cooperate effectively.
  • Procurement masters leverage a world class provider’s investments in category research, innovation generation, new technologies and improved approaches.
  • Procurement masters take an intelligent and aggressive active approach to supplier relationship management.
  • Procurement masters excel in active workforce management (78%) whereas low performers do not (3%). They objectively measure existing competencies, make frequent adjustments to organizational skills to insure continual alignment with procurement strategy, emphasize ongoing training and linkages to performance metrics, and blanket competency development strategies across the procurement user network.

The Benefits and Risks of Global Product Development

A few weeks ago, AMR published a thought-provoking piece by Jeffrey Hojlo, Michael Burkett, and Nigel Montgomery titled Driving Global Product Development Excellence: A Guide To Balancing Benefits and Risks in their free research section. (It will likely be locked to members only by the time this post goes up, so I will try to capture the most significant highlights.) In the article, the authors note that although it’s no surprise that the offshoring of Global Product Development (GPD) has become a $13B market, it is surprising that companies that consider New Product Development and Launch (NPDL) core to their businesses still outsource in developing regions despite the inherent risks, which include security, supplier qualification, low compliance standards, product quality, slow time to market, geopolitical unrest, and lack of regulation.

In a recent AMR survey, they found that 30% of organizations are outsourcing some aspect of their New Product Development and Launch (NPDL) processes, 40% plan to outsource some aspect of their NPDL processes over the next 12-24 months, and another 27% have captive development centers in place. The primary reason given is the shortage of affordable engineering talent in developed markets and, thus, despite the risks, the business demands it.

Most of these companies still keep the actual product design process within the four walls of the corporation, but are increasingly looking to outside partners and captive development centers to help with the front end (ideation) and back end (product launch). This can be good news for vendors in developing economies with the skill sets to assist in these processes.

The research brief points out that many of the risks – including product quality, supplier qualification, security, brand equity, slow time to market, disparate data, the right people, compliance, and geopolitical – can be mitigated, or at least managed, by way of appropriate strategies. To this end, it recommends starting with the following six strategies:

  • Product Road-Mapping and Portfolio Management
  • Iterative Product Development and Validation
  • Product Architecture and System Design across the Value Chain
  • Knowledge Management on the Front End of Innovation;
    Content Management, Product Data Management, and Search
  • Intellectual Property (IP) Security & Management, Authentication, and Authorization
  • Talent Management

And I would add the following:

  • The right Product Lifecycle Management – Sourcing Platform
    Since the goal is to lower costs while lowering risks and increasing quality and value. The right, integrated, platform will go a long way towards helping you implement the strategies above.

The brief concludes with an overview of the GPD opportunity, based on three technology gaps in GPD environments cited by end-users in the AMR study:

  • Concept Testing
  • Design Engineering and Prototyping
  • Needs Assessment / Idea Generation

It goes on to note that these are all areas that require robust decision support and notes some typical questions in a GPD scenario that developers and managers need to answer:

  • What are the risks I need to be aware of?
  • Open innovation: how open should I be with offshore partners?
  • Will my ideas resonate with my target audience in this particular market?
  • What are the operational cost tradeoffs to expanding the design performance or increasing the number of SKUs when offering additional product features?
  • How do the results of alpha-beta tests or recent market data affect a new product launch?
  • Do I have the right people working on the right projects?
  • How do local regulations and requirements affect the materials I need to source and the proof of compliance I need to provide to local officials?
  • What learning experience from past experimentation or failures (such as product or supplier quality issues) can be reused in future product development efforts?

It then concludes with some wrap-up recommendations for vendors of NPD(L) and Product Lifecycle Management (PLM) solutions and technologies.

  • Expand Your Services Practice
    There is a huge need for business process engineering, risk mitigation consulting, and training in developing countries.
  • Enable Postponement Strategies
    Extend postponement strategies from simply delaying the final assembly from sourced components to include sales configuration and design for supply.
  • PLM and Sourcing Unite
    One of the major risks with global sourcing is the variability due to inconsistent lead times and product quality. Tight integration between PLM technologies for Product Development and Sourcing technologies will help minimize the variability.
  • Don’t Forget About the People Component of GPD
    People Management is not a strong focus of PLM vendors. But why not incorporate more in-depth skill requirement, training, and talent management functionality in PLM technology for quick decision making on the right resources for a project?
  • Extend PLM to be a Risk Decision Support Platform
    There’s currently no platform to manage the various types of risk in GPD.