All posts by Jim Willshaw

Going to Negotiation Training? No, I Learned Last Week

In the final article in this series, I consider how our stakeholders outside of the procurement function consider negotiation. After all, everyone can negotiate, right…?

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As seasoned buyers many of us will have been asked the question; “Can I join your next negotiation?”

Nearly always the request is well meaning and indicative of a willingness to learn the art which is core to our profession (despite my belief that buyers fall back on the perception of their own negotiation skills too easily). It is also, I feel, always unintentionally dismissive of the skill itself.

Unwritten within the question is the inference that the invitee assumes learning to negotiate can be done within a few hours, and perhaps even in a single sitting. “I’ve attended the training course, now I need to take the test”, is the secondary call. Those of us practising negotiation for all of our careers know all too well that during every negotiation, even the most experienced and skilled of us make mistakes, and value egresses to the other party outside of our control and planning.

Of course, being the type of individual who is passionate about developing people, particularly in the area of procurement and business management, I seldom refuse a request and attempt to install the observer in to the next appropriate negotiation. Many readers will also recognise that this often means waiting several weeks or months as “good, old fashioned, round-the-table, face-to-face” negotiation happens less and less in today’s technology driven world.

Perpetual Conditioning

Without question, we are “negotiating” during every email, phone call or meeting that we have with our negotiating counterparties – or “conditioning” as we like to call it. We negotiate by requesting our leaders to set out our message to their senior counterparties.

We set out and plan our negotiation, conduct detailed cost and market analyses, plan the room layout, the attendees, the tone of the questions and who will ask them, our critical requirements and our tradeables, and lots more besides. And after all this work, unseen by the requestor, we execute the negotiation, hopefully in the allotted time. However, I contend that the single most critical success factor in any negotiation is ensuring you are negotiating with the correct party. Note: I say party, not person.

Having the correct person in the room is important, too. Most of us will have learned a valuable lesson at some point in our careers by experiencing frustration and delay at a counterparties repeated requirement to refer to more senior colleagues. “Surely you expected that question and prepared a response?!” is our, often silent, cry.

But, my point is not about having the correct person in the room, it’s about negotiating with the correct party. Negotiating is tough enough with a counterparty that is willing and hungry to reach a resolution. Negotiating with a party who simply does not have to negotiate; a party who does not need to concede and does not believe he will lose is the toughest of all. And this, invisible to the prospective negotiation observer, is where the high performing buyer excels.

This type of negotiation started a long time; ago often months and sometimes years ago. Recognising a growing dominance or complacency of any given counterparty, the skilled negotiator develops hunger. A hungry competitor who may or may not force the complacent of dominant supplier to move position and concede value. It actually doesn’t matter whether the incumbent moves position or not, the high performing buyer now has options.

Negotiation 101

Do not misunderstand my point here. I am not describing the time-served tactic of “play one off against the other“. At the start of this negotiation there simply were not two parties to play off against each other. Success in this negotiation is the culmination of hard fought manoeuvring, which ultimately makes the dominance of the incumbent supplier irrelevant.

Manoeuvring which creates a credible threat to the incumbent where previously there was none. All of a sudden the negotiator has options. All of a sudden the BATNA (Best Alternative to Negotiated Agreement) just got a whole lot better and a positive result will ultimately be obtained.

I am also conscious that my use of the word manoeuvring may be perceived negatively. It is not meant to be so. In the world of complex, multi-national negotiations with poor market dynamics, limited competition and high switching costs, I use the word merely to explain what is necessary to extricate an organisation from contracts with under-performing suppliers.

In this sense manoeuvring is meant only in a positive and necessary sense and it may occur for years before tangible results. But as high performing buyers, manoeuvre we must, unless of course, we are content with negotiating brilliantly with the wrong party. 

Read more articles from me on Procurious here and here.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

Zero savings? Thanks, that’s perfect!

In this article, the fourth in a series of five, I consider the level of credit granted to projects which deliver substantial savings, and whether, from the perspective of the business, this is appropriate.

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As procurement professionals our time is often consumed by savings targets. Delivering, seeking approval and recording savings. Big savings are good news. No savings is bad news – really bad news. The type of bad news that gets you sacked.

For those of you who have followed my previous articles you know that I like to turn things around a little – to view things from the perspective of a business owner rather than a procurement professional. This article is no different.

The Savings Process

Let me first paint a picture which represents countless procurement activities around the world, I think it will be familiar to you:

After months, sometimes years, of effort the cross-functional procurement team signs the contract with the new supplier and implementation commences. The business signs off the savings which satisfies the agenda of the procurement leaders. The procurement personnel step back to allow the business to implement the new contract and manage the contract thereafter. “See you in three years” is the agreed message.

The newly contracted supplier, who may be the incumbent working on new contractual terms, sets about a “seamless” implementation (Ever seen one of those? No, nor me). Ever constrained resources of the procurement team and the business mean that effective Supplier Performance Management (SPM), (being very distinct from Supplier Relationship Management (SRM)) becomes a luxury too often performed by personnel unskilled at perpetual jousting with a hardened supplier account executive.

The inappropriate flow of information commences, which, in turn, will detriment the value (cost, service quality, innovation etc) retained by the buyers organisation. Suppliers work hard to find loopholes in the carefully negotiated performance clauses and claim to be meeting their contractual obligations even though the satisfaction levels of the buying organisation may remain low or decreasing with time.

Before we know it, the causes of the dissatisfaction which caused the buying organisation to test the market a few months ago are back on the agenda. Inevitably, at the end of the contract term, perhaps before, the market will be tested again. The result of the repeated procurement activity? Savings. Again, savings.

A Perfect Zero

How about we turn this around? How about we strive for zero savings? That’s right. You heard me correctly. Procurement could strive for zero savings. Before you question the level of my delusion please read the last paragraphs of this article, but first let me paint another picture.

In this picture, the same procurement activity took place as before, but the post-contract SPM was fully executed by adequate and skilled personnel. In this case, the innovation and continuous improvement clauses that were written in to the contract are realised. Suppliers are not able to wriggle out of the spirit of the previous negotiations. An appropriate period ahead of the expiry of the contract – long enough to switch suppliers should the need arise – the buying organisation commences its procurement activity only to find there are zero savings. A disaster? No. Let me tell you why.

We all hear the newsreaders’ tone change if the Dow Jones, FTSE, or Nikkei, or whatever is your favoured index, has fallen that day. Their tone drops portraying a sense of negativity. We are indoctrinated that a falling market index is bad news. Instead, however, what if the event of the indices dropping was accompanied by a cheerily delivered message of “great news folks, tomorrow you’ll be able to buy those blue chip stocks at a price way cheaper than today!”

Such a statement would be true; the stocks would be available at cheaper prices, but we never hear this message, even though we each take advantage of the falling index via our pension funds managers who are continually investing our hard earned cash.

Analogously, with procurement savings on repeated contracts – is a saving, a saving? I contend that those numbers which are repeatedly cited as savings by procurement teams could alternatively be merely a measure of the buying organisations ineffectiveness in managing its suppliers during the last contract term. A high saving means a poorly managed preceding contract.

A robustly managed supply contract, followed by a professionally implemented procurement project which delivers zero savings could be (stress, could be) demonstrative of a very well run contract where value has readily flowed to the buying organisation throughout the contract term, leaving non-incumbent suppliers with nothing further to offer.

Theory and Reality

Do I really believe zero savings are aspirational for most procurement projects? Well, no, actually I don’t. There are always some inefficiencies that can be eliminated, market developments and innovations that can be exploited, and organisations simply do not have the resources to execute the theoretically perfect procurement and contract management that I have set out above.

My message is simply that procurement leaders should carefully consider the causes of significant savings numbers, including the degree, and success, of post-contract supplier management – the news may not all be positive. Offering reactionary congratulations for projects delivering big savings numbers or an automatic chastisement for projects delivering small savings may be ill-advised.

By the way, I also need to be abundantly clear that I am not suggesting managers chastise personnel who report significant savings with a short-sighted, inflammatory question of how their staff previously spent their time. To do so is sure to lessen future efforts.

So, it may then be advantageous to allocate the scarce resources of the organisation toward contract management rather than repetitive RfX-style procurement. Readers of my earlier article “Buyers under the Duvet” may recognise a need to stretch practises outside the normal comfort zones of buyers, with the possible result that effective contract management actually reduces the level of savings from RfX-style negotiation.

In itself, this is not a problem so long as (!) organisations have already secured the value during the contract management phases of the procurement cycle.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

Procurement Systems – a Panacea or Pancake?

In a far off world, our intergalactic cousins may have a procurement systems panacea, but in my world I’ve yet to see it.

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Of course they can help manage the process flow, speed up the approvals, assist contract management and supplier performance. Some even claim to manage relationships. (Really? Systems manage relationships? – that’s news to me!)

Of course, systems have their place and are a necessity in most organisations. I am not suggesting a reversion to having no procurement systems in place. It would be folly in today’s ever-global world, with increasing expectations on corporate governance, to do so. My issue is not with procurement systems, per se, my issue is with systems being used as an excuse for under performance.

The ‘Panacea’ Menu

A commonly held view is that the system’s deficiencies are a core reason of procurement’s inability to deliver the business’ requirements, and a conclusion is drawn (sometimes hastily, sometimes protracted) that a new procurement system is needed.

Procurement software companies pitch for the new and the panacea, complete with all manner of whistles and bells is selected. Rather like my own children at a pancake house selecting from the menu, this is their most fun part, seduced by all manner of options – it is often all downhill from here.

Having made the significant investment commitments, the intricacies of software become known and the integration of the selected system panacea hits trouble and is scaled back, perhaps even being stacked alongside or on top of previously selected ‘panacea’ systems.

Often bells and whistles become either un-implementable or unaffordable. The panacea has turned in to a pancake; or moreover, a large stack of pancakes complete with sickly, unpalatable toppings upon which the consumer looks and questions why such a large, unappetising feast was ordered. Appetite quickly disappears and nausea kicks in. When half of the stack is consumed, cries of “I’m full” resound.

Make Systems work for you

In a previous article, I set out my thoughts on procurement personnel too often remaining in their comfort zone, failing to challenge themselves or their stakeholders.

My point in this article is simple – expecting a procurement system to play too large a role in any procurement transformation is madness. Systems are only systems. Systems are nothing without the people who use them. Buyers who dislike the old system will, in time, learn to dislike the inevitable deficiencies of the new system.

The skilled buyer needs to master their system and make their system dance; using the system to assist, not hinder, meeting the most strategic requirements of the business; to not be constrained by its imperfections. During implementation care needs to be taken to not impose distractions on to the business which reinforce any misconceptions that procurement is only interested in cost cutting.

Clever configuring of almost any well maintained (up to date) reputable system can deliver necessary controls without the unnecessary frustrations and costs of a wholesale re-implementation. Systems should save time for the procurement team and for the business users. Systems should perform for us, not the other way around.

I hope that it is needless to say, that of course, systems need to be maintained, developed and users professionally trained to extract value from the system, not be constrained by it. I simply urge all who are considering a procurement transformation not to over-estimate the criticality of their system, and to correctly consider the manner in which its personnel use existing tools. Systems can become the rule by which we are measured, but they should never become our ruler, nor our excuse.

The scarce resources of your organisation are at stake, and along with it the reputation of the department. Previously, I have contended that buyers are too narrowly focussed in their practised skills – I simply favour investing in the flesh and blood that use the systems ahead of investing in the systems themselves.

Read more articles from Jim here.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

Supplier Relationship Management – Cavalry or Surgery

In my first article I consider whether buyers resort to blunt negotiation too much, arguing that a significant amount of value is ignored by not appropriately committing resources to the early and later stages in the procurement cycle.

Surgery or Cavalry

In this, my second article in a series of five, I address the issue of SRM and some of its potential pitfalls.

Much of the recent procurement press, conferences and social media has been consumed with organisations promoting their methods of working with suppliers in a collaborative manner to create value and return greater profits for all parties. Supplier Relationship Management (SRM) is the most commonly used phrase.

I agree with the outlook that often suppliers are the experts in their field; more expert in that field than the buyer’s organisation. This should not be a surprise as, for the most part, the buyer’s organisation only expends a very small fraction of its resources in any area of supply, but for the supplier that same area may represent a very significant part of its entire business.

Who Are the Experts?

It follows, logically, that suppliers may know more about the upstream supply chains and its extant inefficiencies than the buyer. It also follows that any supplier whose business substantially relies upon a small number of goods or services will have greater capability, capacity and appetite to analyse and strategise over how to extract maximum value from the supply chain when compared to the buyers organisation.

Of course, there are exceptions to this rule – particularly, in the case of new product/service launches or when the buyers organisation has a lot to win or lose. Generally though, I contend that such projects which are truly strategic to both the buyer and the supplier seldom occur and are even less frequently in the scope of the SRM blunderbuss.

Indeed, when such circumstances arise (true interdependance, or buyer dominance between buyer and supplier) then I will agree that full scale SRM can be appropriate. For a majority of buyers, I assert that they might never work on a project which is of enough significance to either their own organisation or that of the supplier to warrant full scale SRM and its associated direct and opportunity costs.

I also contend that if a SRM programme is pursued, unless buyers are aware of the dangers, the supply chain as a whole may become more efficient but that the buyers organisation sees little tangible benefit itself.

Who benefits most?

A core facet of SRM is the sharing of information in a collaborative manner. As we also understand from our first, rudimentary attempts at negotiating, information is a primary determinant of price and value. The party with better information is likely to conclude the negotiation nearer to their most desirable outcome.

As such the “players” in the supply chain (organisations in any supply chain are both buyers and suppliers) will seek to extract maximum value from the supply chain for themselves – as their shareholders oblige them to do. So, any high performing buyer needs to be aware of the impact of sharing any information and making sure that increasing their supplier(s) knowledge will not be detrimental to their cause – or if it is, to ensure that greater value is reciprocated.

Once information ceases to be confidential capitalist rules and human behaviours means that parties will, first and foremost, seek to extract maximum value for themselves, sharing the newly created value only when they are influenced to do so by the other players in the supply chain.

So far, so good, but repeated experience of working with major multi-national organisations has seen them under-state the investment necessary to ensure that at least their fair share of the value created by the SRM collaboration is retained by their own organisation, both in terms of direct costs and technical benefits.

Some organisations have recognised that and have invested heavily in a cavalry of SRM personnel (who often mis-practice SRM by performing Supplier Performance Management (SPM), which I will discuss in another article) and who impose a newly created SRM process on to unwilling suppliers who feel obliged to comply with the requests of the buyer as “building a relationship must be good for the two organisations as a whole, right?” Wrong.

Surgery, not Cavalry

In the circumstances I have set out above, building tight, well managed SRM relationships with key suppliers can be critical to the delivery of a project, even to the survival of a company however, no supply chain can survive the substantial costs which an ill-thought out SRM programme imposes; and well executed SRM relationships cost money, a lot of money. The substantial additional costs – and they need to be sustained over the medium/long term – can outweigh the benefits.

Furthermore, if those personnel are not skilled in controlling the information and understanding the dynamics of the relationships throughout the supply chain, and over a period of time, then organisations may only see a hefty number in the costs column while their benefits column remains meagre. The benefits are retained by others.

The opportunity costs of employing procurement’s scarce resources in SRM rather than other tasks can be significant. SRM may not deliver results quickly (although, it most certainly can) and small incremental improvements may be more likely produced as the parties feel their way around each other in the early stages.

Unless the supply chain dynamics are appropriate for implementation of SRM, organisations should prefer suppliers who simply perform to the required specifications – no more, no less. Commit resources to work on developing specifications to better reflect the needs of the business, but do not impose a wide-scale SRM programme that can be predicted to fail.

Instead of a SRM cavalry wielding blunt tactics and weapons, I favour a surgeon and scalpel approach. Firstly, identification of a small number of appropriate projects/supply chains on which to run (not impose) an SRM programme (4-8 is normally all except the very largest organisations can handle and/or afford).

Secondly, the selection or development of a small number of highly skilled individuals to perform the SRM and co-ordinate the efforts of the internal stakeholders. So the final element must be to have a medium/long term commitment, sponsored at a senior level outside of the procurement functions, and to have equally skilled surgeons willingly participating within each player in the supply chain.

Effective, sustainable SRM cannot be imposed.

Jim WillshawJim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.

Buyers Under the Duvet

In this first of a series of five articles, I consider the bedrock skill of our profession and consider whether we rely on it too much. feet-684682_1280

Firstly, some readers may be CPOs, Senior Category Managers, Global Vendor Managers or other similar title, for the purposes of this series of articles I’m simply referring to us all in our derivative term; buyers.

My experience of having worked closely within procurement teams of many small and large organisations – some award winning, others developing, is that I observe that the primary focus of buyers is principally on one thing. It is ironic therefore that my belief is that it is this same one-dimensional focus that holds back many procurement teams from tackling the age-old problems in our profession.

A Story of Failure?

These are the topics which we read about with countless repetition in professional publications; failure to be heard at the top of the organisation, failure to attract and/or retain top talent, failure to be seen as adding significant value, failure to be seen as anything other than a support function.

While many readers may argue with some of the topics on the list as incorrect for your own organisation, my experience is that there are very few, if any, procurement departments that could state with authority that they are not working on any of the topics set out above.

The buying process is governed by process, which in turn is often governed by a system – this is especially true within the public sector. This list of do’s and don’ts constrains swift action and creative thinking – all of course, “for the good of the organisation”.

Or is it?

My assertion is that, while necessary, the existence of process constraints makes it ever easier for buyers to remain in their comfort zone – to remain under the warm embrace of their duvet, too scared to poke a foot out in to the cold air outside of “the process”. Instead, they beat a hasty retreat back to the core competence of procurement namely, negotiation, which delivers an unwholesome, self-satisfaction of their own procurement targets, but which leaves stakeholders needing more.

Often, too, it is very blunt, poorly executed negotiation in which buyers seek their solace. Under the comfort of the negotiation duvet some buyers perform superbly well using all manner of techniques before and after the main negotiation event. Others flounder a little before concluding swiftly with a mediocre result for both parties – often beating a single item – normally price, before leaving both parties under-fulfilled.

Satisfying others, first.

For the high performing buyer, in order to resolve the exemplar list of topics that I set out in the first paragraph the shackles of “process” need to be made invisible when viewed from the businesses perspective.

A challenging yet empathic approach is required throughout the often ignored early and latter phases of the procurement process to avoid prematurely jumping “under the duvet” to negotiate the wrong thing(s) with the wrong supplier(s). Buyers too often spend too little time on managing specifications and the drivers of demand, before beginning to negotiate great deals, the value in which quickly ebbs away following poor contract management.

It is the job of the high performing buyer to invisibly navigate through the quagmire of procurement process and do’s and don’ts and still deliver fantastic levels of satisfaction to the business – leaving them desperate for more interaction; to robustly challenge what the business thinks it wants and differentiate this from what it needs in order to add value.

Leaving Savings Behind

It may surprise many of you to learn (as it did me) that perhaps the most effective procurement team I worked within had no savings targets. Upon being asked “so how do you show your value?” they answered, “why do we need to show value?” A telling answer later complemented by the explanation that their business (a division of a global brand with annual revenues of €500m+, by the way) would never enter in to a project of any kind without procurement being represented.

The impact of their previous success was a department unhindered by spurious savings targets. Instead the interaction between procurement and the business was truly mature with both parties seeking to maximise the satisfaction of the others. The procurement personnel were intrinsically part of the business who together strived for value creation.

Please don’t misconstrue my message. I am not suggesting that readers run back to the office and tear up their savings tracker or process manual, at least not yet. But I am suggesting that careful consideration is taken to ensure you are correctly targeting the complex, multi-dimensional objectives of the business and not simply self-satisfying.

To badly coin a well known quote (Hunter. S. Thompson) and song lyric (The Killers) are you business? or, are you procurement?”. And do you know how to develop the behaviours of your team to being not merely a process driven cost cutter, but a creator of value? 

Jim Willshaw

Jim Willshaw (MBA, MCIPS, MIIAPS) is an experienced procurement professional acting as a consultant, speaker, coach and trainer to leading organisations all over the globe.