Is Your Supply Management Organization Ready for Convergence?

According to this recent web exclusive over on CPO Agenda on how “technology creates ever-changing leadership challenges”, 70% of top executives from multinational companies agree that there is a danger in being overwhelmed by the complexity of change as whole industries are transformed by a trend called ‘convergence’.

So what is this convergence? According to wikipedia, it could be technological convergence which is defined as the tendency for different technological systems to evolve towards performing similar tasks. Today’s smart phone is one example. We had a phone, we had a PDA, we had a gaming system, and we had a wifi laptop for browsing the web. Now we have one device that does it all (and, in the case of Apple, an iPhone that puts the one ring to shame).

And it’s happening across the board. Automotive has to build hybrid cars with integrated GPS and satellite internet connectivity. Fashion and Medicine both have to deal with personalization and custom-fit (in the former, the shoe has to be printed exactly to your foot and in the latter, the drug has to be optimized to your DNA). And technology has to adapt to the other systems you have in place. Gone is the time where you could be a master of one thing. Now you have to be a jack-of-all-trades and a master of one. It’s a daunting task, and one you’re probably not ready for as it’s a requirement most of your people probably are not ready for.

But one thing is for certain, the next few decades will prove whether or not we are the most adaptive species on the planet, because if we’re not, the impending global economic collapse could end all of civilization as we know it. Either way, we will live in interesting times and China, which once upon a time was the most powerful civilization in the world, will have its revenge.

Common Negotiation Ploys – Are You Falling for Them?

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. But whereas you have to split 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, they’ll get it by a con man’s crook. Not only does your average sales professional get weeks of training before they’re even let out into the field, filled with “tactics that work”, but they spend every day figuring out how to improve these “tactics that work” and add more to the arsenal. Meanwhile, if you get a 2-hour crash course in “negotiations”, you’re lucky.

So what can you do? Since you can’t become a negotiations expert overnight, and will never have the time to invest in negotiations training that your counterparts will, the best thing you can do is lean to spot the ploys the sales people will try to use on you and your organization. This deprives them of a significant amount of their arsenal and makes it much harder for them to justify unfair markups in negotiations.

The following are 16 common ploys that sales people will use to try and take you for a ride:

  1. Pop-Tart
  2. Surprise!
  3. Getting to Know You
  4. Misdirection
  5. Making an Impression
  6. Mirroring
  7. Wait!
  8. Hurry Up!
  9. Resources, Not Results
  10. That Would Set a Precedent
  11. Bracketing
  12. The Only Game in Town
  13. That Would Violate GSA
  14. That Would Violate SOX
  15. Evil Eval
  16. Divide & Conquer

And while some of them, like:

  • Surprise!,
  • That Would Set a Precedent,
  • That Would Violate GSA, and
  • That Would Violate SOX

are easy to spot, because it’s hard to miss a sales person showing up unannounced or making some outright, often ridiculous claim, that something can’t be done for some specific, probably irrelevant, reason, others, like:

  • Getting to Know You,
  • Misdirection,
  • Mirroring, and
  • Divide & Conquer

can be almost impossible to spot. A really good con artist err sales person won’t make it obvious when he or she is trying hard to get to know you, will make misdirection so subtle that it will seem like the conversation is going where you want it to go, will not change his or her outward mannerisms quickly, and will be very careful not to do anything that would alert you to the fact that he is simultaneously charming your internal customer.

So how can you spot these ploys and what can you do to make sure they don’t happen to you? First of all, you buy a copy of Stephen Guth’s Contract Negotiation Handbook and you read the chapter on ploys very carefully. Then you observe your supplier’s sales people very carefully and, over time, one by one, you’ll see them using these ploys on you.

The book is also filled with negotiation tactics; tips, tricks, and traps of contracts; and subtleties of terms and conditions negotiations; but the description of the ploys is key. Because if you don’t spot them, nothing else really matters as it’s impossible to negotiate the best deal once you, or your internal customer, has fallen for a ploy. There are lots of books out there on negotiations, but this is the first book I’ve found that does a superb job of not only identifying all of the common ploys, but providing you with great advice on how to spot the ploys and counter them (in addition to telling you why they so often work).

And once you’ve mastered the ploys and are ready to take your negotiations to the next level, you can attend a seminar. There’s an upcoming NAPM seminar on the 26th in the D.C. area. For more details, see the VMO blog.

How to Tell the CEO that Your Legacy ERP is a Disaster Waiting To Happen

This recent post over on the HBR blogs about “a system for speaking IT truths to CEOs” is a must read for every CIO and CPO alike. Both the CIO and CPO know that every IT purchase has a life-span and that every piece of legacy software is a ticking time-bomb waiting to detonate and cost the company millions of dollars in a matter of days (or hours, as Comair found out in 2004) if it is not safely disposed of before the clock runs out, but both often have problems conveying the message.

According to the author, who modified a methodology used by medical doctors who often have to deliver bad news on a regular basis, the following seven-step process will often make the process easier.

  1. Understand the CEO’s perceptions
    Does the CEO grasp what a legacy systems issue is?
  2. Hold the calls
    Deliver the bad news in one, uninterrupted, focussed session.
  3. Enlist a business ally
    Make it a business problem, not just a technical one.
  4. Stick to the Facts
    Focus on the risk and the associated loss. CEOs are generally NOT technical.
  5. Don’t Improvise
    Have a set of best-, typical-, and worst-case scenarios prepared in advance and do not deviate.
  6. Insist on Immediate Action
    Infuse a sense of urgency and a time line for corrective action.
  7. Have a Clear Next Step
    Have a specific plan for getting to the goal.

It’s certainly worth a try if you don’t have a better option (and, chances are, you don’t).

Four Ideas to Make Your Procurement Department More Strategic

It’s a new year, and your Supply Management organization is again being asked to step up its game, which is getting harder and harder to do as there is only so much cost you can squeeze out of the supply chain. So what can you do? You can start by taking a fresh look at the strategic mission of your procurement department and look for ways to be the driver of change and value for your organization. As per our recent posts on Value Focussed Supply and High Definition Sourcing, the value in Next Generation Sourcing savings will come as much from Supply Management’s contribution to profit margins as it will from their contribution to cost reduction as Supply Management is in a unique position to bridge organizational silos and help the organization understand not only the drivers of cost, but the drivers of value and what value is available to be had, for little or no cost, in the supply base.

In an attempt to help your organization get started down the strategic path to Supply Management, BravoSolution has released a white-paper that provides 10 Ideas to Make Your Procurement Department More Strategic that is quite thought provoking. Containing great ideas on how to increase price, take better advantage of volume, and reduce fixed and variable costs, the white-paper is a must read for any Supply Management department struggling with how to improve value when there isn’t much cost left to take out of the equation.

For example, the white paper points out that you need to:

  • learn more about your company’s customers and what is really important to them
    as this will not only allow you to zero in on what they really need, and lower cost, but identify suppliers and products that could provide them with more value and allow them to increase price
  • learn about the markets you aren’t currently serving
    because maybe there is a profitable niche that you could easily serve with your current supply base and minor changes to product designs or pricing models
  • learn about technologies that could reduce your variable costs
    even if the technology is designed to be utilized in production and has to be utilized by your supplier because if it costs 100K and saves 1M a year, it should be a no-brainer
  • teach your organization about where it spends (too much) money
    because it really doesn’t know (and that’s why analysis has to be ubiquitous). It might not know that every department is buying its own toner off-contract at 2x the negotiated contract price. If you’re a large organization buying thousands of cartridges a year (because everyone is print-happy) that’s hundreds of thousands of dollars a year being flushed down the virtual toilet.

So check out these 10 Ideas to Make Your Procurement Department More Strategic. (They’re not vendor platform specific and will be more than worth your time.)

Always Put Function Before Specifications When Buying

It makes no difference whether your organization is in the public sector or private sector and no difference whether it’s a service, product, or piece of technology. It goes double if the buy requires a (long-term) contract. And it doesn’t matter if there are government, health-and-safety, or other regulatory requirements (as these can always be worded in functional terms or shifted over to manufacturing or raw material requirements).

The reality, and Stephen Guth of the Vendor Management Office will back me up on this, is that as soon as you create a specification, you (essentially) lock in a (small set of) vendor(s). And just like 80% of the cost is locked in during the design phase of new product development (NPD), 80% of the price is locked in as soon as you limit yourself to a vendor (or two). Just like raw materials, components, and machines have relatively stable prices in a narrow band, your average vendor, with stable overheads, supply, manufacturing, and/or service delivery costs, has a relatively stable price band that its sales representatives will not be allowed to deviate from, often because the vendor cannot afford to because of its overhead cost.

Plus, it’s never about the product or service, but the value received from the product or service. Consider a tablet manufacturer. The end customer doesn’t care about the CPU, they care about the performance it delivers. Most customers don’t care if it’s AMD or Intel, just that the performance is on par with best-in-class. Consider outsourced back office accounting. Does it really matter what packages are used or how many resources are assigned to the team? No. What matters is whether acceptable standards are followed, how fast the monthly reporting is completed, and how much the service costs. And consider technology. When one is buying a new e-Sourcing system, the specific 400 features on the drop down lists don’t matter. What matters is whether or not it supports RFX, e-Auction, “What-If” Decision Optimization, and Contract Management; whether or not the workflows can be tailored and/or integrated to your existing Supply Management Systems; and whether or not it’s the most cost-efficient delivery model for your organization. The minute you use a “vendor-supplied” RFx or think you need 20 specific features is the minute a single vendor locks you in and doubles the price because no one else will have their specific feature list, but yet, for an average organization, ten off-the-shelf packages will be equally as effective for the organization in its quest to achieve Supply Management Value.

So forget the specs and focus on the function. That’s the best way to maximize value (and minimize sales person power).