Monthly Archives: April 2011

How Relevant is Africa to the Purchasing Equation?

Quickly reviewing Next Level Purchasing’s 2011 Purchasing & Supply Management Career & Skills Report, one statistic jumped out at me — 37.5% of the respondents are from Africa. Considering that the GDP of Africa is only 2 Trillion, give or take a few hundred billion depending upon whether you prefer the IMF, World Bank, or CIA Factbook calculations, or about 3% of global GDP, as compared to the roughly 16 Trillion for North America, 18 Trillion for Asia, and 20 Trillion for Europe, the first question that jumped to my mind was relevancy. (And the fact that Europe only accounted for 6.7% of respondents didn’t help.)

It might be the case that Purchasing managers in developing areas are a lot more interested in surveys since they are trying to establish the importance of their profession, and it might be the case that most of Next Level Purchasing’s students and/or association members are from developing areas since they would be the least likely to have access to local training and eduction options (and Next Level Purchasing’s courses and certification is completely web based), which would account for a strong showing from these areas, but it makes one wonder how relevant the results are to Europe and North America, which are still the dominant locales for international purchasing (even though Asia is rising).

While it likely doesn’t affect the responses to skills, education, and certification related questions, as the top answers to the most important skills response are typical, the expected results from certification trend normally, and people who study for certification generally believe in its importance, it does put some suspicion on the applicability of the average annual cost savings & avoidance results. While I do agree that savings will increase by years of experience, annual hours of training, certification, and degree status, I’m not sure that I would trust the unweighted averages, especially since the average cost savings go from about 800K in Africa to 3.7M in Europe. It would be nice to see the savings and avoidance statistics broken down by continent, or at least weighted by continent, to clearly illustrate the impact of education and training.

Relevancy aside, it is nice to see interest in professional purchasing spreading through Africa and Asia.

MiniTrends: A Book Review, Part I

In a post late last fall, we asked how important are minitrends since they are, according to the author of Minitrends: How Innovators & Entrepreneurs Discover & Profit from Business & Technology Trends, often the leading indicators of emerging megatrends which can have a significant impact on business for decades. However, if the minitrend is, in actuality, a short-lived trend that is here-today and gone-tomorrow, then any attention paid to the matter might be a complete waste of time if you can’t adapt fast enough to take advantage of it.

In order to determine if a minitrend is important, we first have to detect it, and to do that, we have to better understand what a minitrend is. We start with a review of the book, which describes what a minitrend is; where to look for them; how to find them; what makes them attractive from an individual, small company and large company perspective; how to select one for exploitation, how to develop an exploitation scheme, and how to put the scheme into action.

According to the authors, John H. Vanston and Carrie Vanston, minitrends, which are emerging trends that promise to become significantly important within the next two to five years but which are not widely recognized or appreciated are important because, like precious gems, they have inherent value, require effort to uncover, entail processing to achieve their full value, and, can be very valuable to their discoverer.

In fact, a minitrend can be the basis of a billion dollar business. As an example, the authors explain how Dell and Southwest airlines took advantage of minitrends to establish new, successful, businesses that blossomed into billion dollar enterprises in a short time frame. They also explain how a number of other business, which are still growing, capitalized on minitrends to become multi-million dollar enterprises seemingly overnight.

A small to mid-sized company with low overhead and the flexibility and ability to move quickly is often in prime position to take advantage of an emerging mini-trend that relates to one of its areas of expertise. In comparison, large companies that have invested significant capital into certain markets and products are often in a poor position to take advantage of short-term trends and may feel motivated to ignore the trends in an effort to capitalize on their current investment, even though this can be a bad idea. For example, it was likely a failure to recognize emerging minitrends that brought down The Sharper Image and Circuit City and that led to recent hardships at Starbucks (which had to do significant layoffs a couple of years back) and General Motors.

So how do you find a minitrend? You apply a mix of the following strategies:

  • Follow the Money
    who will make money, who will lose money, and who will pay money — those who will pay are the customers, those who will make money are the crusaders (for the cause), and those who will lose are the defenders (of the old regime)
  • Follow the Leaders
    look for those who have non-conventional vision, who have influence, who move and shake, and who look to the future; Time’s 100 most important and Fortune’s most powerful, the Warren Buffets and T. Boone Pickens’ of the world, and the futurists like Raymond Kurzweil and Lawrence Vanston are prime candidates to identify emerging minitrends
  • Examine Limits
    there are three types of limits: physical, perceptual, and practical; the latter two are most important for minitrends (and any redefinition of the former would likely indicate the emergence of a megatrend) — when circumstances, public opinion, or driving forces alter a perceptive or practical limit, a minitrend can emerge
  • Consider Human Nature
    people want to establish meaningful long-term relationships, improve the lives of their children, and have top quality medical care — if different opportunities to satisfy these needs arise, minitrends often emerge
  • Watch the Demographics
    immigration, population shift, and birth rate all impact what may or may not emerge as a minitrend as differences in goals, expectations, and viewpoints exist between the various age groups
  • Analyze Frustrations
    anything that bothers a large group of people — like waiting in line at a bank, paying huge late fees on returns, or not getting value for their money — that can be improved offers a great opportunity for a minitrend to develop
  • Search for Convergence
    anywhere two distinct fields or technologies can meet presents an opportunity for a minitrend to emerge

Then, once you find identify a set of minitrends, you need to select one for exploitation, develop an exploitation strategy, put it into action, and capitalize on it. But before we get to that, we will discuss how to search for minitrends and present three minitrend examples to help you understand what you should look for as an individual, a small company, and a large company.

Key Questions When Assessing Supplier Health

A recent article over on Industry Week that indicated that it is time for a supplier health check made a good point — Tier 1 suppliers may need to expand globally in the high-growth markets more quickly than they had originally anticipated, and manufacturers need to know if their Tier 1s are up to this challenge. In order to make this assessment, they have to do a detailed supplier assessment of their current Tier 1 suppliers, which should ask, at a minimum, these questions:

  • Does the supplier have access to capital to retool and meet an increase in demand?
  • Does the supplier have the talent to support a ramp up? Or did they do significant layoffs?
  • Does the supplier have the leadership to accomplish a ramp up? Or was the management team significantly reduced by layoffs or attrition?
  • Does the supplier have the right techology to support new systems and processes?
  • Does the supplier have the right financial controls in place to support a larger operation?
  • Is the organizational structure suitable to expansion?
  • Does the supplier have a viable business plan to support an expanded operation? Has it been executing against the plan?

If any of these questions yield negative answers, the supplier might need to be replaced. The alternative, if the supplier is critical, is for the organization to take an ownership position in the supplier and get it back on track. Either way, the supplier base needs to change.

Negotiation Tactics with Naughty Vendors

As discussed in Common Negotiation Ploys, while your goal as a procurement and contract professional is to get the best deal you can, the sales people at each and every vendor that you deal with have the same goal. And while you’re splitting your time between determining internal customer requirements, writing RFXs, negotiating contracts, managing contracts, and educating and managing your internal customers, your sales counterparts get 100% of their time dedicated to sales — and they’re spending all of that time trying to figure out ways to get more money from you.

And if they can’t get it from an honest day’s hook, the vast majority have no problems getting it by a con man’s crook. Your average sales professional has a dozen ploys ready to go before they even contact their first customer, because they get weeks of training before they’re let out into the field while you get a 2-hour crash course in negotiations, if you’re lucky.

So what can you do? First, you can learn what the common ploys are (as discussed in Common Negotiation Ploys and Some Basic Counter Tactics) and how to spot them, then you implement basic counter-tactics, as described in Stephen Guth’s Contract Negotiation Handbook, and, finally, you take the offensive using some negotiation tactics of your own.

There are at least eight solid counter tactics that you can use to counter the sixteen plus ploys an average vendor will throw at you. This post will discuss three of my favorites.

Power of No

If the vendor won’t budge on price or terms at all, and you know there is considerable margin in the deal, just say “the deal is off” (and give reasons such as the internal customer changed their minds, budget was not approved, etc.) and wait. The vendor will then start e-mailing / calling everyone looking for a chink in the armour to exploit and revive the deal, but if everyone holds fast, and the deal is for a significant amount of money, the vendor will eventually make concessions to save the deal.

You may have to “burn” yourself with the vendor to make it work, where the customer becomes the primary negotiator and you work behind the scenes, but it almost always works, as long as everyone holds fast and provides a unified front of “no deal” because vendors panic when they think they have lost a (big) deal, especially if they thought it was “in the bag”.

Columbo

If you’re willing to become the slow-witted police detective that uses his shabby appearance and absent-minded persona to lull suspects into a false sense of security, and wait until the deal is done to try for “one more concession”, and the concession isn’t ridiculous, it’s often an easy way to get one more concession from the vendor.

Columbo was successful because he always started out by pestering suspects with seemingly trivial questions, which wore them down, and then he was able to pop his signature tactic of exiting the scene of a conversation but then stopping in a doorway or returning one moment later with a “just one more thing” on the unwitting suspect who then went berserk and confessed. It worked because the subject had already mentally closed the door on the conversation and dropped his or her guard.

In the same way, if you wait until the vendor thinks the deal is done and all that is left is getting the contract executed, and you ask for just “one more thing” that is reasonable, you can take advantage of the vendor’s strong desire to close the deal quickly to get the contract signed. For example, a few days of free training, an extra few months free before maintenance fees, better on-site service guarantees, which don’t cost the vendor much but cost you dearly because of their mark-ups, can often be acquired at the last minute with no negotiation effort on your part if your customer is willing to sign tomorrow.

Price Slice and Dice

This requires some mathematical and technical skill on your part, but if you’re willing to dive into the data, you can often reverse engineer the vendor’s pricing to determine how much you really should be paying. If you can get a variety of pricing scenarios from the data, not only can you attempt to interpolate or curve fit them to various models until you find one that works. However, if you get enough data, you also increase the chances the vendor will slip up and provide you with additional data that is favourable to you (such as formulas in spreadsheets, etc.) that maybe the vendor didn’t want you to see.

The great thing about this negotiation tactic is that it’s easy to get a variety of pricing scenarios from a vendor that wants your business. First of all, the vendor wants to seem helpful and will, thus, have no problem answering innocous requests for various pricing scenarios and, secondly, because the average sales person doesn’t have a lot of mathematical skills (and knows basic math skills are approaching an all time low in North America where less than 1 in 7 American adults are “proficient” at math), he will see no harm in providing different pricing scenarios.

For a deeper discussion of these tactics, and five others (good negotiatior / bad negotiator, silence is golden, signature limit lasso, endless BAFO, and school zone), I strongly recommend picking up a copy of Stephen Guth’s Contract Negotiation Handbook. In addition to a deep dive into common ploys, counter-tactics, and negotiation tactics of your own, it outlines five tactic-killers that your internal customers could unwittingly use to pull the rug out from under your feet and some tips that can make the difference between a great result and a good one.

Sustainability is a Long Term Goal

I enjoyed a recent post over on the HBR Blogs on Ford’s Impressive Sustainability Strategy that noted that a real sustainability effort requires both a short term and a long term sustainability challenge.

As the article notes, if we are running out of resources at less than 7 Billion people, imagine the situation when we get to 9 Billion people in less than 40 years. Sustainability can no longer be a fad, it must be a way of doing business. And it’s not going to be obtained with short-term quick fixes. And even if you eliminate 90% of waste from the production process, that still leaves one tenth the waste to be eliminated and, most importantly, the process is probably still using too much energy and water, which are becoming increasingly scarce resources.

Plus, market saturation is not always sustainable. Sometimes the right level of market penetration is less, not more, and sometimes users should pay a premium for the privilege of the product, or a penalty for overusing a product or service.

And, most importantly, sustainability is more than strategy. As the post points out, it’s execution.