Big Ideas: How to Deal with Monopoly Suppliers

How to Deal with Monopoly Suppliers

I feel like I’ve written a lot about Chris Lynch’s speech at the Big Ideas Summit, but the Rio Tinto CFO’s keynote was packed with useful information and provided some great ‘outsiders’ perspectives on what procurement, as a function, is capable of.

So… I’m going to bring up one more point he raised (I promise this will be the last).

Chris recounts the story of when his company was faced with the challenging situation of a monopoly supplier. The supplier was critical to his organisation’s operations and ultimately, its success. There was no one else in the market that could possibly do the job this supplier did and the supplier knew this. A competitive bid was impossible, the price was set high and the room to negotiate was almost non-existent.

If you can’t beat them, be them

That was until the procurement team came up with the innovative idea of creating what Chris called a virtual competitor.

Chris goes on to detail the steps the team took to drive this initiative; an initiative Chris stresses, was conceived and driven by ‘procurement and procurement only’.

Essentially, Rio Tinto called the monopoly supplier’s bluff. Rio Tinto’s procurement operations put together a team and tasked them with determining the cost of creating a new business that could produce the exact product the monopoly supplier was providing them.

Their efforts were meticulous from end-to-end. Raw materials costs were calculated, as was the cost of fabrication and warehousing. The team built a full end-to-end supply chain and cost structure for this good (all conceptual of course).

Now you know where you stand

By undertaking this process, Rio Tinto got a real understanding of what a ‘fair price’ might be for the product they required. But more than that, they sent a stern message to the monopoly supplier that they’d done their research and if need’s be, they could make arrangements to begin producing the product themselves.

This obviously brought the supplier back to the negotiating table and put some real competitive tension back into a relationship that had previously been very one sided.

Obviously, this is not a move that can be done by every business. Rio’s size, access to resources and the strategic importance of this particular contract made the project possible. But it does highlight that when faced with a seemingly unsolvable situation, empowering your people to think outside the box can produce real tangible results for your business. These are the sorts of innovative approaches I’d love to see more of in the procurement space.

And here end my tributes to Chris Lynch’s Big Ideas speech.

Correct Pronunciation Matters

Correct Pronunciation Matters

How often do you meet a new person and have difficulty remembering their name?

What do you do when you can’t pronounce a name?

How do you ask a person how to pronounce their name without coming across as rude?

These questions came to mind as I was working with a mining organisation last week. I met a South African person who came to Australia a few years ago to work on a Queensland mine.  His name is spelt as ‘Dawid’ and pronounced as ‘Dahwid’.  Shortly after arriving in Australia Dawid realised that his colleagues were referring to him as ‘David’ in their verbal and more formal communications.  Dawid gave his name great thought, questioning whether he should simply change his name to David to make life easier for those around him and to assist him to ‘fit in’ to life in Australia.

As our lives become more globalised we find ourselves encountering people with unfamiliar names more and more.  Correct pronunciation and remembering unfamiliar names can be both challenging and anxiety provoking; it isn’t as though we can turn to a dictionary or ask others for help when we are ‘in the moment’.

Correct pronunciation of names demonstrates respect and cultural awareness, it can guide our first impressions, judgements and biases.  Foreign names, differing order of names, multiple family names, accents and dialects are just some of the name challenges that we need to successfully navigate.

Some name pronunciation tips are:

  • When you are initially introduced, try to use the name within the first few minutes of your meeting.  Ask the person to correct you if you mispronounce their name.
  • Keep your tone casual and friendly if you are making corrections.
  • When you find yourself wanting to correct a mispronunciation, try simply restating your name. It will assist the other party to remember and correct any mistakes on their behalf.
  • Remember that your name is possibly equally as difficult for them to pronounce, so help them. Give your name phonetically, as well as the spelling and remind them that they should feel free to ask you for any help remembering or pronouncing your name.
  • Show curiosity.  Ask people the story of their names.  In many cultures names have a meaningful background and are steeped in tradition. Not only does this create a dialogue but it will also help you to recall their name in the future.
  • Speak up early if you have trouble.  If you can’t pronounce or remember a name don’t let time pass; remember it becomes even more difficult as time goes on.

As Dawid decided to keep his birth name, he highlighted to me the impact that the mispronunciation of his name had for him.  Mispronunciation can appear insignificant on the surface, but can have far reaching consequences that you may never be aware of.  Be mindful that expectations, bias and credibility can all be damaged by name mispronunciation. The reality is that we are never going to pronounce names correctly all of the time, and occasionally we will forget a person’s name; but by demonstrating our efforts through some simple questions and behaviours we have a better chance of succeeding.  This can go a long way to improving first impressions and long-term relations.

ISM2015: The human factor in Total Cost of Ownership

This article is part of a series about Hugo’s visit to ISM2015 in Phoenix, Arizona. Today Hugo listened to Thomas J. Kull, Associate Professor of Supply Chain Management (Arizona State University) discuss behaviour under uncertainty with the Total Cost of Ownership (TCO) model.

Total cost of ownership

I attended this session for two reasons – a) this talk was marked as “essential” level, and b) I’d pretended to know what TCO was recently in a discussion with a senior consultant at the office, so this was my chance to find out.

Thomas Kull researchers behavioural and risk issues in the supply chain, and has recently turned his attention to minimising uncertainty in the TCO model. In other words, he’s interested in the human side. And there’s a big human side – due to the estimation involved, there are a number of points of subjectivity that are necessarily part of this process.

Kull structured his presentation around a typical TCO model before exploring modes of socio-psychological influences and their implications for practising TCO.

The typical TCO methodology is to try to boil down all the ramifications that go along with a certain spend item to a hard dollar figure. It is then used to determine and compare alternatives. This figure should be captured before you acquire the spend item or venture into a relationship with the supplier. To capture the ramifications of using the item, purchase price, acquisition costs, usage costs and end-of-life costs are estimated using the following steps:

  1. Process mapping and TCO categories
  2. Subcategory elements identification
  3. Cost element measurement
  4. Data gathering and cost estimation
  5. Cost timeline mapping
  6. Present value determination.

There are costs involved before the item is acquired: the costs of the negotiation process, the system necessary to put in place, extensive contract review processes, the management structure needed for managing the relationship. There are a lot of estimates here, and Kull notes that we don’t usually bring crystal balls to the office with us, so judgement, experience and knowledge are essential.

Kull presented a typical TCO Model example for buying computers that has a dollar figure down to a very exact number (two decimal places), and demonstrated how full it is of values and judgements. He advised that CPOs should be suspicious of an exact dollar figure and always ask to be shown where the guesses are. Some systems give ranges because they know there’s a lot of uncertainty. He noted that of all the cost categories, Usage Costs are often the bulk of the pricing and also the bulk of the subjectivity.

Kull then took us through a brief run-down of social psychology at different levels with some fascinating examples for each – person-centric, team-centric, organisation-centric and society-centric. Each level had uncertainty or ambiguity that can potentially result in inaccurate estimates and inappropriate actions. Some of the behaviour included:

  • Evaluability bias – the tendency to weight the importance of an attribute in proportion to its ease of evaluation, meaning people devalue certain elements because they are too hard to evaluate. Also leads to higher risk perception and risk avoidance.
  • Group polarisation. Kull ran through studies that demonstrated the dangers of “group think” – people in a group tend to get carried away and take a decision to the extreme, resulting in a very high or very low cost estimate, but never the middle-ground.
  • Decision norm. Managers will often prefer to use their gut feeling despite evidence presented to them, and 50% of companies are structured to prevent the effective use of analytics to manage this. Decisions can be made on an intuitive versus a rational basis.
  • Dimensions of culture. Some cultures have a high level of assertiveness (take the “just do it” US stereotype) while others have a high tendency towards uncertainty avoidance. High assertiveness has the benefit of giving people greater control over an outcome, while high uncertainty avoidance leads more collective responsibility, system and tools.

Kull also pointed out that while we do a TCO for comparisons’ sake, people often “have a decision made before they have to make a decision”. Perhaps unintentionally, they add bias because they want a certain result.

So, what’s the solution? Kull had some ideas but also put out a call for procurement organisations to help advance his research into this topic. He suggested:

  • When using TCO, be relative and comparative – not absolute.
  • Smart global players adapt to local culture, let their systems adapt and don’t try to take a generic approach.
  • To fix group-think, ensure you have diversity of opinion within your TCO team – this is where a devil’s advocate (contrarian) plays an important role.
  • Use 3rd party or secondary data for triangulation.
  • Get to know the potential biases in your TCO and embrace them.

Kull concluded by stressing the importance of people in the TCO process. By its nature, TCO makes the people who are part of it very valuable. If we were just evaluating quotes, we wouldn’t need supply chain professionals with MBAs – it’s the judgement, experience and knowledge that are critical to making those subjective estimates.

Well, that’s it from me for today. As I mentioned above, tomorrow is looking to be a massive day for ISM2015 – I’ll be meeting my fellow members of the press, joining a media conference, and of course attending some more of the fascinating conference sessions.

YOUR Big Ideas: eSourcing For Everyone

We’re putting Big Ideas from the Procurious community in the spotlight… Here’s a particularly creative effort from Anya McKenna of Market Dojo. Great job!

Market Dojo want to make eSourcing for everyone, following on from a TED lecture about the 4 stages of technology. In Anya’s view, eSourcing is yet to reach a commodity level, but it’s just a matter of time… Who will be the first?!

Connect with Anya on Procurious

Want to add your voice to the conversation? We want you to share your point of view and ideas with the community by creating a video no more than 60 seconds long. What’s your Big Idea?

Big Ideas? I’m sick of hearing about organisational silos

Free yourself (and your team) from organisational silos

If there is one comment at conferences that kills me it’s the old “we work in siloed organisations” argument. How many times have we heard this? Your boss, conference speakers, the pages of the Harvard Business Review and countless business ‘self help’ books have discussed and debated this phrase ad nauseum.

To be honest, I’m over it. Someone mentions silos, everyone agrees they are bad, then, in the same gasp of breath, we move back into talking about how we can strengthen procurement’s image within the business (often at the expense of another function) or we start a debate over which metrics best represent our existence as a function and the silos we just outlined as problematic are further reinforced.

Hopefully procurement will be gone in 2030

My cynicism aside, I did hear something at the Procurious Big Ideas Summit last week that gave me some hope. When asked about where he thought procurement would be in 2030, Chris Lynch, the CFO of Rio Tinto said… Gone (as in it will no longer exist). The crowd of largely procurement professionals raised a collective eyebrow.

Chris went on to highlight that functions (or silos as we so often refer to them as) are not necessarily be the ideal way to drive change and innovation in an organisation (particularly one as large as Rio Tinto). He even went so far as to suggest that large organisation may even stifle innovation and stressed the need for intrapenuers to break down these barriers.

Chris’s comments, along with a few other sound bites I took away from the day got me thinking about traditional organisational structures and how unproductive they are.

It’s not about delivering procurement value. It’s about getting stuff done

We’ve all had that feeling at work when know something could be done better, a process improved, a step removed, whatever it may be. But more often than not, internal bureaucracy and politics end up shutting these ideas down before they ever get legs.

Our current organisational structures require workers with improvement ideas to first speak to their manager (who is normally busy with myriad other tasks) about the problem. Once the manager is convinced it’s a good idea, we proceed up the chain to achieve the required consensus. This process is slow, time consuming and ultimately disengaging, it’s easier just to let the idea die than to jump through the requisite hoops.

The ideas that actually make it through this arduous process are not necessarily the best business ideas either. They tend to be the best procurement/<insert function here> ideas. Our consensus gathering and approval processes mean that ideas are reviewed and processed through a procurement lens. We ask ourselves ‘will this initiative be good for the procurement function?’ (or more cynically, will this initiative help me achieve my KPIs) rather than ‘are we fixing something that IS broken or are we developing a revolutionary new idea?’

How often have good business ideas been stifled because it’s “not within procurement’s remit” or “this is going to shake the boat with the finance team”?

I’ve been going to procurement conferences for more than a decade now and I’ve heard the endless argument about how everyone forgets about procurement’s value and how no one understands how good we can be. But are we creating a rod for our own back? When will procurement stop solving ‘procurement problems’ and start getting stuff done?

Who cares where good ideas come from?

Chris Lynch’s insights hint that there is hope in this sphere, he said, he doesn’t care where good ideas come from, procurement, finance, operations, who cares? A good idea is a good idea and we should act on good ideas.

Perhaps a flatter organisation structure (not dissimilar to what we’re seeing in the tech and start-up space) is the answer.

To me, a flatter functionless business (or least a business with less functional hierarchy) could empower staff by giving them more autonomy to act decisively. Autonomy to act spreads leadership throughout the business and removes the culture of protecting your (or procurement’s) patch from a business.

We need to remember we ARE working towards company goals, not procurement goals and ultimately the way we serve our customers, not our bosses, is the mark of a strong business. Maybe cross-functional teams are the answer today but, in support of Chris Lynch’s idea, I’d like to hope that no-functional teams are not too far off.

Sigi Osagie: The Chefs in Your Procurement Kitchen

“We are born with the capacity to do extraordinary things.” 

Watch our first Big Ideas Summit keynote (part 1 of 4)

Watch Sigi’s keynote in FULL here

Sigi originally arrived in the UK as an African immigrant with holes in his shoes, penniless and no address book. Fourteen years later, he was a global director in a FTSE250 blue-chip multinational.

Today he works as a writer, speaker, business adviser and coach, drawing on insights from his atypical life journey and career success to inform and inspire others.

Procurious members can find Sigi’s full keynote here. Not a member yet? Register for free.

Watch: See more Big Ideas from our 40 influencers

What’s your Big Idea? Film it in 60 seconds or less

We’re on the hunt for YOUR Big Ideas – what are the things only you can say? 

Big Ideas Pics1

We believe everyone has a unique vantage point in the industries, communities and businesses they work in. At the Big Ideas Summit we asked our 40 thought-leaders to record their ‘Big Ideas’ live on camera for the world to see. Whether that be Tania Seary’s vision for the future of procurement networking, or Andrew MacAskill’s desire to turn the profession’s recruitment upside down – the scope for truly revolutionary ideas is almost unlimited.

We want to build on this groundswell, so now it’s over to you. We want you to share your point of view and ideas with the community by creating a video no more than 60 seconds long.

It’s really easy to create a video using your computer, phone or using Skype or YouTube. We’ve recommended the best ways to create and share your video with us below.

But why, we hear you ask.

Procurious wants you to make the most of your unique position and tell us what you think is the next Big Idea that will change the face of the procurement profession, based on some of the amazing learning and insights you have.

These videos will help to generate interest and discussion on your Big Idea, give you the chance to share your wisdom with a global procurement community and provide you with a platform to amplify your thoughts, and turn you into an influencer.

If you need inspiration our competition winner (and great Big Idea to boot) why not listen to Bertrand Maltaverne’s submission?

View videos from our 40 influencers at the Big Ideas Summit here.

How to submit your Big Idea

It doesn’t matter whether you film your submission on your phone, tablet, laptop or PC. We’ve put together a list of some of our recommended methods for reaching out.

Once you’ve completed your film, you can reach us by email (Procurious@Procurious.com); on Twitter (@procurious_) or via Skype (Procurious.HQ).

Skype

MattSkype

For an easy and painless experience, we’d recommend you record and share your Big Ideas video with us using a Skype video message.

It’s really easy to send a video message on Skype and you don’t need to be sat in front of your computer, as Skype is also available for iPhone, Android and Windows Phone.

  • Add Procurious.HQ as a contact
  • Right-click and choose the ‘Send Video Message’ option. As much as we’d love to Skype with all of you, Procurious keeps us very busy so make sure you don’t call us by mistake!
  • Skype provides you with 3 minutes to record your Big Idea: press the red ‘record’ button to begin your video message, when done hit the red button once more to stop recording.
  • Submit your video to us using the ‘send’ button next to it.

You shouldn’t need any help, but if you do refer to Skype’s step-by-step instructions on its help pages: https://support.skype.com/en/category/VIDEO_MESSAGING/

YouTube

SigiVid

Alternatively, if you have always dreamed of being an Internet star, then YouTube is for you. YouTube appeals to those of us who get a kick out of seeing how many people have watched our video.

  • Head over to https://www.youtube.com/upload and either select a readymade video to upload, or hit ‘Webcam capture’ to film your piece on the spot.
  • Select ‘Start recording’ to get the camera rolling (remembering to tick ‘Allow’ should you be prompted by YouTube’s Privacy Settings)
  • When done press ‘Stop recording’ followed by ‘Continue’.

Don’t be daunted by filling-out the ‘Basic info’ – all that’s required is a title, short description, and some tags. For your title we’d suggest using something along the lines of: My Big Idea is… [insert here]

In order to make your video easy to find, we’d recommend using the #BigIdeas2015 and Procurious tags – but feel free to add more!

Click ‘Publish’ when you’re happy and remember to send us the YouTube URL when it’s live.

Email and phone

Want to submit your video using good old-fashioned email? We’ll accept that too!

Attach your video to an email with the subject line ‘My Big Ideas Video’ and send to Procurious@Procurious.com.

If you’re using an iPhone or iPad you can also record your video using iMessage. Android and Windows Phone users can choose to use Skype (Windows Phone has Skype already built-in)

We look forward to watching all of your submissions and sharing them with the wider Procurious community!

Robert Gates summarises the state of the world at ISM2015

This article is part of a series about Hugo’s visit to ISM2015 in Phoenix, Arizona. Today he tells the memoirs of a secretary at war…

Robert Gates talked at ISM2015

Robert Gates is undoubtedly the most high-profile speaker I’ve had the chance to listen to in the flesh. Former Director of the CIA and Secretary of Defence under two very different US presidents, George W Bush and Barack Obama, Gates made the point that over his career in Washington he actually worked for no fewer than eight presidents.

He began by putting out a request to the assembled businesspeople to hire some of the million soldiers, sailors and airmen leaving military service over the next few years who will be looking for fulfilling careers, saying that they will be some of the most resourceful candidates available for hire. Gates comes across as somewhat pessimistic throughout most of his speech, except when he touches on the subject of servicemen and servicewomen, speaking optimistically and warmly of the great potential of America’s youth.

He’s scathing about Washington DC, referring to it as the “city of egos” and he is no fan of LBJ, a big fan of Reagan, and speaks of the surprising similarities in the leadership styles and strategic choices made by George Bush and Barack Obama. The continuity of security policy across the last two years of Bush’s presidency and the first two years of Obama’s was in no small part due to Gate’s presence, with fundamental national interests and strategic choices remaining steady. He notes, however, that the current situation in Iraq and Afghanistan is blamed equally on Bush for invading, and Obama for withdrawing too soon.

After this brief introduction including some jokes about stupidity in Washington DC and LBJ’s stupendous ego, Gates launches on an absolutely fascinating summary of the state of the world’s security situation. He begins with the consequences and message sent by Obama’s withdrawal from Iraq and Afghanistan, widens his focus to the whole of the Middle East; ISIS, Syria, Libya, Saudi Arabia, Iran and his grave concerns about the recent nuclear agreement, Yemen, Egypt, Turkey, Jordon, Lebanon – before turning east to the unsustainable growth of China and north to Putin’s Russia, Ukraine and the Crimea before finishing with Cuba. He has an all-encompassing world-view and draws repeatedly on history – WWII, the Cold War and the collapse of the Soviet Union, the hopelessness of artificially created borders drawn up by the victorious powers after WWI. Some notable quotes from this part of his speech include:

  • “If we treat China as an enemy it will very soon become one.”
  • “Nationalism is easily stoked but hard to control.”
  • “We can expect more attempts by Russia to thwart US influence.”
  • “The greatest challenge to national security and the global economy is not an international threat – it can be found in the two square miles around Capitol Hill in Washington.”

Gates then pulled his focus back to the US and told the audience that in his opinion, all of the county’s security woes were self-inflicted. He dwelt on the cuts to defence spending and the instability caused by the withdrawal of US world leadership. He touched on the low rating given to terrorism risk in the audience poll [see previous blog post], agreeing with the 5% figure and noting that terrorist attacks were not an existential threat but rather something that can be managed and suppressed (on American soil, at least) in much the same way as crime. He points out that attacks like Fort Hood, the Boston Bombing and Charlie Hebdo are not disruptive in that they do not affect people’s ability to carry on with their lives and continue to do business.

To summarise the main take-outs for procurement professionals from Gate’s speech:

  • Supply chain disruption from global/cataclysmic conflict has diminished dramatically while the potential for localised conflict is very high.
  • International commerce, energy supplies, freedom of navigation and other factors that affect supply chains depend not on events happening overseas but on decisions made in the US.
  • When doing business with the Middle East and North Africa, most states have a good deal of stability apart from the ones already regarded as “failed” – Syria, Libya, Yemen, potentially Lebanon and Iraq.
  • On negotiation: the worst possible position to be in is an unwillingness to walk away from the negotiation table.
  • Hypocrisy in supply chain ethics: the US sources rare earth minerals from China despite its human rights record, titanium from Russia despite its aggression.
  • Young people he has seen (particularly those in uniform) are of an extraordinary quality – they’re smart, eager and they care about things.
  • The most important trait for a leader is a willingness to surround yourself with smart people and listen to them.

Gates received a standing ovation from an audience that knew how privileged they were to hear from such a great mind. A brilliant opener to ISM2015 that really set the standard for the rest of the conference.

China services PMI climbs again

hsbcchina

The HSBC China Services Purchasing Managers’ Index climbed again in March, reaching its highest level for the year. This metric, used to measure the activity of purchasing managers across China, indicates that despite a slow-down in the nation’s factories, China’s services industry is reporting reasonable growth.

The details behind the rises, which caused a significant rally in the Chinese stock market, are were outlined by Qu Hongbin, HSBC’s chief economist for China, who said in a statement “The latest set of PMI data indicated that Chinese service-sector companies had a strong start to the second quarter, with activity and new orders both rising solidly in April.”

Serving China 

China’s services industry is enormous and accounts for roughly 48.2 per cent of the nation’s economic output (significantly higher than any other sector). This sector is expected to continue to grow as the country’s citizens become increasingly wealthy.

Some analysts have issued caution over the recently released PMI figures and indeed, remain concerned over China’s economic future. When the stats used to generate the metric are reviewed more closely, it can be seen that seen the final prices charged by firms involved in the data collection are, in fact, at a 15 month low. This has prompted some analysts to suggest that firms have simply reduced costs in order to meet sales targets.

Despite these concerns, the services sector does seem to represent a shining light for the Chinese economy. Housing, exports, manufacturing and investment have all slowed in recent months. However, jobs and activity in the services industry appears to be growing.