All posts by Robert Freeman

3 Mistakes That Will Destroy Trust Between Procurement And Suppliers

As you’ll  know from your personal life, the most loyal friendships are earned through  experiences, challenges, and good times. So why should be any different with your suppliers?

If you have a vendor who constantly demonstrates great performance and continues to deliver and deliver and deliver…reward them! Give them extra projects or new developments and more business. Don’t continue to pressure them and penalise them, because this relationship might erode over time. Perhaps it could still functional and transactions will happen, but the relationship will be affected as a result.

Here I have collected three typical mistakes that will destroy trust between a procurement organisation and its suppliers.

1. Empty Threats

“Be constructive in your arguments and honest in your feedback…”

This was one of the first lessons I learned from a mentor when I asked about contract negotiations. It’s simple but powerful and it genuinely creates trust.

If you are bluffing –a professional partner will recognise it. And you want to work with professionals, right?

Walk the talk. If you’re claiming that a supplier is offering a better price – be able to prove it.

Making empty threats is either the result of a lack of preparation  or a lack of any decent arguments full stop.

Remember that trust is the base for a good partnership. And fake promises can easily destroy trust.

2.  Continue negotiations after contracts are signed

I have to confess that I’ve done this many times in my procurement career so I understand how harmful it can be.

There is an unwritten rule for sales people that states you should stop selling after the client has agreed to a deal.

The very same  rule should be applied to procurement professionals. We should have the ambition to reach the best deal within our budget and time limits, we should consider risks and potential threats but all of this should happen before we agree the final contract. After the two parties agree prices, terms and conditions of contract, everyone should concentrate on execution.

Normally we set certain deadlines for the supplier selection process and close to these deadlines we can become more and more stressed, losing focus and failing to mention  important details or opportunities. As a result we often finalise the agreement not because we are sure that this is the best deal, but because we are short of time.  And then, after the documents are signed, we attempt to save costs further with the vendor.

Procurement professionals must act professionally in such situations. Simply opening up new negotiations with the vendor will destroy trust, sending the signal that the agreement means nothing to you and that you’ll happily switch to a better alternative whenever you get the chance. As a result, they will also de-prioritise you as a customer and not invest the time and efforts into developing your products.

If you see an opportunity to decrease prices after the contract is signed,  be open and transparent to your vendor. Explain your reasons set the arena for a new discussion and listen carefully. With any luck you can find a solution that suits you both.

3.  Focusing only on price reductions

I like to explore competition in Procurement! Preparing a good RFQ/RFP process and making suppliers fight for your business is great isn’t it?

Doing this process a number of times within the same product group will definitely lead you to a dead end. You’ll reach a threshold where quotation will not bring more savings.  It’s a frustrating moment when there is no more low hanging fruit, no more chances to cut the prices by reverse auction or bidding processes. So now what?

In most cases the extra revenue can be gained in more ways than simply cutting your suppliers’ margin or increasing purchase volumes.

Look into the business relationship, the supply stream and the infrastructure of the business and investigate where we can save costs and do things better, faster and smarter. More often than not, if we really find this momentum and use it to reduce costs, we will get bigger volumes into this business. New projects will come and more development will happen if the relationship is strong and there is trust. This will also result in more revenue coming to both sides – it’s a win-win.

3 Mega-trends In Procurement You Need To Understand Before 2019

What are the key mega-trends procurement pros need to get their heads around before 2019?

CatwalkPhotos/ Shutterstock

1. Co-Creation –  Using collective efforts to bring the best value

Since the very beginning of my career in Procurement competition was a key.  Competition helps procurement drive down prices using quotations, tenders, e-auctions or other tools.

And, of course,  it is much easier to negotiate contract terms and conditions with  if you have alternative sources.

Striving to establish, at least,  dual sourcing for every product helps you to decrease supply related risks.

But with greater experience I started to see that competition has its limits,  that RFQ’s and tenders were not bringing the desired effect.  This was particularly apparent for certain groups of products with limited supply possibilities and higher complexity.

I learned that for such segments a more efficient strategy is to cooperate with your key suppliers.

Cooperation is about alignment and harmonising performance, goals and strategies.  The very first step should be about aligning performance and KPI’s. Then you align the goals, including price reduction. At this point, the strategies of both companies should be aligned.

So cooperation is the alignment and harmonisation between two parties: the procurement organisation and the vendors.

But is cooperation and competition with suppliers enough in the modern world?   My simple answer is no. Procurement of tomorrow is about more than delivering goods, reducing prices and mitigating risks. The future of procurement is creating value for the final customer. And so the new buzz-word coming in 2019 is Co-Creation.

Co-creation is about developing and delivering products, services or systems using the common efforts of all interested parties.

2. Digitalisation

In my consultancy work I meet ten to twenty Procurement and supply chain organisations every year. It’s a big privilege to meet so many great people, and work in a variety of industries and businesses.

But one thing that surprises me is the fact that the majority of organisations are not making procurement decisions based on  complex benchmarking or performance indicators.

In fact, the majority of organisations in Europe and North America are making Procurement decisions based entirely on  cost reduction. Whatever has been discussed before quotation is ignored and whatever might happen after is neglected.

“Give me the best price: here and now! And you get the business…” – is still the driving force for many procurement organisations.

Of course, this approach is beneficial in the short term. But on a strategic level it will not work.  In the era of big data this approach is a crime. I know that digitisation and fact-based Procurement decisions may not sound like a mega trend for many readers. But before you skip this point – answer one simple question. Do you really include performance evaluation and risk analysis in all your Procurement decisions?

3. Sustainability: Part of our new reality

Sustainable procurement is not a new term.

The United Nations definition says that sustainable procurement practices are the ones that integrate requirements, specifications and criteria that are compatible and in favor of the protection of the environment, of social progress and in support of economic development, namely by seeking resource efficiency, improving the quality of products and services and ultimately optimising costs.

It might look a little complicated at first glance, but it is quite a straight forward definition.

More and more countries are shifting towards sustainable procurement; improving national procurement policies and procedures. But the true leaders in this shift to sustainable procurement are the international corporations. Using their massive purchasing power, they are able to make real impact to ecological, technological or social standards across entire industries.

Some companies use the sustainability messages for marketing of their products or services, creating positive buzz and media attention to their brand. Many more develop their sustainability agenda for mitigating or preventing risks within supply chain.

One thing that I can say for sure; sustainability is becoming part of a new reality for procurement organisations. It is not a buzzword anymore, it is an expectation customers. People are beginning to understand that low prices should not be achieved by unethical or unsustainable means.

So what can you do to introduce sustainability to your Procurement agenda?

Start by investigating in more sustainable sources and raw materials. Look around your industry or category to identify the best practices and get some inspiration.  I guarantee that you will find great cases of good environmental, social and sustainability impact for any area and any category.

Of course you should also include sustainability parameters to your RFI/RFQ evaluation criteria.

Another great idea would be to involve some measurable indicators for your sustainability progress. For example, carbon emissions, water footprint, share of renewable energy used for manufacturing or recycled materials used for products.

And remember: responsible sourcing is more profitable in a long term!

3 Ways To Increase Your Procurement Salary

Another day in your procurement job, another day moaning about your unsatisfactory salary… If you want things to change here’s how you take control!

I’ve always said that I’m extremely happy working in Procurement, and there’s no question that it’s great to be doing a job that I’m passionate about.

But no matter how much enjoyment we get from our work – money is always important and a key contributor to our chosen career path.

Of course, you and I would both be happy to double our monthly income; so I thought I’d outline three pieces of advice to help you get there!

  1. Get paid for your value, not your time

Do you have a clear understanding of how your current salary was calculated? Is your employer buying your time or buying your skills?

Many procurement professionals make the mistake of thinking they are paid per working hour. But the main consideration for your employer shouldn’t be  “how hard is this person working?” but rather  “how much value is the person generating for the company?”

So my first piece of advice to you is this: Start thinking about what value you are creating for the company – start measuring it! If you measure your results and your ambitions you have a much stronger argument when it comes to salary negotiations.

Take a look at these two scenarios. If you were to approach your manager to discuss a pay increase, which one sounds more authoritative?

A) I have worked overtime and several weekends during the past six months. I don’t give enough attention to my partner and family. So I think I deserve a salary increase of +20 per cent.

B) I have finalised three major RFQ’s within our category during the past 6 months and  I have reduced prices by 12 per cent per year for our company! I think this performance justifies a salary increase of 20 per cent.

Try to use the employer’s language as in scenario B. Find the arguments and KPI’s which you know they will value the most and think about how you can add influence in these areas. Then all you have to do is impress them with your results!

2. Take more responsibility

Do you enjoy responsibility  or do you avoid it at all costs – letting others make key business decisions for you?

Both behaviors are quite natural. After all, people are different. But ask yourself, what is the main difference between you and your manager at work? Why do they earn a significantly higher salary than you? Many managers have less knowledge and skills than their co-workers and employees, but they are still respected more by the top-executives. How does that always happen?!

The simple answer is that your manager has the responsibility for a much bigger area of the work.

The rule:  greater responsibility = greater salary.

So don’t allow yourself to hesitate when it comes to taking on responsibility. Don’t just wait to be asked, be proactive.

“I heard that our Procurement department plans to run the value stream mapping for Category XYZ. Can I lead this project as I know the processes and steps for VSM?”

“Can I take the responsibility for mapping new suppliers in South Asia, as I already have many business connections there?”

This approach to your work will stand you in good stead to get a significant salary increase when the time comes to negotiate.

Generate profit  for the company

In my experience most organisations consider their procurement department to be the cost centre of the business. Others regard it as a support or service function and,  in the worst cases, they dismiss procurement pros simply as buyers.

But you and I both know that procurement  has an enormous impact on an organisation’s profit.

Whatever your savings are – they contribute to the gross profits of the company. As we say at Future Procurement organisations: “one dollar saved is one dollar earned!”

So how can this knowledge help your salary?

Senior management in your organisation may not understand the value procurement brings to the business and they certainly won’t be familiar with your individual responsibilities and deliverables. They even may not understand the role of Procurement organisation…

But top management of any company cares about profit, this is the language they understand.  So modify your messaging and communicate the extra business profits that are connected to your procurement role.

To sum up; if you want your salary to increase you need to add value to the company, take more responsibility and concentrate on proving the profit you contribute to the company.

Remember; your employer will never care about you more than you care about yourself – it’s sad but it’s true!  Throughout my corporate career, the  biggest salary increases were never initiated by my boss.

Your salary is your own responsibility and if you don’t like it – it’s your problem to fix.

So get out there and fix it!