Elon Musk, founder of a number of high profile companies, including Tesla motors, PayPal and SpaceX, was interviewed recently at Code Conference 2016.
In the interview, Musk tells a couple of stories and anecdotes about Tesla’s Supply-Chain that highlights how things can derail fast and put your production to a halt.
It helps to illustrate the role that procurement can, and must, have in anticipating and preventing such situations. Also, in minimising impacts, and if the worst happens, to react quickly, and get back to normal as fast as possible.
You can watch the whole interview below (I recommend you do). If you prefer to go directly to the part I am referring to (1 hour 10 min into the interview), it is here.
With an eclectic agenda ranging from a keynote on nuclear energy, to a discourse on treehouses, UPMG2016 is shaping up to be a highly informative conference.
The 85th Annual Utility Purchasing Management Group (ISM UPMG) is just on the horizon. The conference has grown significantly in the past decade, and has come to be recognised as one of the premier educational events within the utility supply chain industry.
As ever, the agenda is an eclectic mix of topics. As well as some fascinating sounding keynotes on nuclear power and treehouses, attendees will be discussing issues from sustainability to leadership, politics to human behaviour.
Here’s a small taste of the line-up in store at UPMG2016.
Industry Trends and Nuclear Delivery
Much like ISM’s annual conference, it’s not all about procurement and supply chain. There are plenty utilities-specific sessions to visit.
An important session, and one of the main reasons the UPMG conference exists. This session will cover industry trends and how they will affect power industry spending and resource demands over the next 12 to 24 months.
Britt Burt from Industrial Info Resources will also explore spending within industry segments for gas, coal, nuclear, and renewable generation, along with transmission and distribution projects.
Human Side of Power Generation
Similarly, this session will look at the human side of power generation. Experts from Associated Builders and Contractors, Alabama Power Project, and TVA, will explore the demand outlook for skilled craft labour supporting the US Power generation fleet.
This will include the cyclic demands of outage seasons, and the unique solutions utilities, contractors and labour are putting in place to meet peak requirements.
Delivering the Nuclear Promise
Anthony R. Pietrangelo, Senior Vice President and Chief Nuclear Officer of the Nuclear Energy Institute, will present a session on how the industry is advancing safety, and its reliability and economic performance.
Pietrangelo will also speak about the key role nuclear power has to play in environmental sustainability.
Essential Knowledge and Skills
Sessions that cover essential knowledge and skills relevant to the wider profession include discussions on:
mergers and acquisitions
the changing source-to-pay technology landscape
best-practice contracting and channel strategies.
Presenting organisations include Oniqua, SAP Ariba, IBM, PwC and leading utilities providers.
Leadership & Treehouses
Alongside the industry and sector specific keynotes, there are a few others that are sure to capture attention.
“The Treehouse Guy”
“The Treehouse Guy” Pete Nelson is the star of Animal Planet’s ‘Treehouse Masters’. With a reputation for limitless imagination and incomparable skills, Nelson is known as the best treehouse builder in the world. He lives by the inspirational motto “if you dream it, you can build it”.
The Science of Leadership
Huffington Post columnist Vanessa Van Edwards is the lead investigator at Science of People, a human behaviour research lab. Her session, “The Science of Leadership”, delves into the latest neuroscience, behavioural economics and phycology research to uncover whether leaders are born or made.
Political Climate – Campaign ’16
Hawthorn Group Chairman and CEO, John Ashford, will give a veteran political insider’s look at the 2016 US election campaigns and victory prospects in the race for President, Senate, House and Governor.
Build Your Network
As every conference-going procurement professional knows, one of the most exciting aspects these events is the opportunity to build your network.
Attendees will rub shoulders with colleagues, industry experts, thought-leaders and suppliers on the golf course, in Nashville’s bars and restaurants, and at the conference itself.
Are you planning to attend UPMG2016? The Procurious community would love to hear from you after the conference about your key takeaways from the event.
The Utility Purchasing Management Group’s 2016 conference will be held in Nashville from 11th – 13th September. You can register here.
Don’t assume everyone in the same culture has the same norms. Getting beyond cultural stereotypes, and seeing the individual, is key to good cross-cultural negotiation preparation.
In our previous article, we kicked off our recap of, and insight into, the intricacies of cross-cultural negotiations.
In the second part of the series, our negotiation experts discuss cultural dimensions literature, the importance of moving beyond stereotypes, and why time should always be on your mind.
Hofstede’s Cultural Dimensions
The participants were asked to reflect on the landmark research on cross-cultural negotiations of Geert Hofstede. Hofstede identified six key cultural dimensions, which would vary from culture to culture, that all need to be considered as part of negotiation preparation.
Individualist vs. collectivistic
Power distance (i.e. egalitarian or hierarchical)
Masculinity or femininity (focus on task vs. relationship)
Uncertainty avoidance (related to taking risk)
Long term vs short term orientation
Indulgence vs. severity (the attitude toward enjoying life and having fun).
Each culture will approach these dimensions differently, taking a spot on a sliding scale between the two extremes. Knowing where cultures sit can be a huge assistance when going into cross-cultural negotiations.
Understanding Cultural Differences
Three of the Roundtable participants discussed their experiences in negotiations when taking these dimensions into consideration. Bérénice Bessiere, Director, Procurement and Travel Division at World Intellectual Property Organization, discussed the different approaches to gender between European and Chinese companies.
Bérénice visited China to lead a negotiation. Although she was the senior buyer, she was assumed to be junior to her younger, male colleague. During the trip, it became clear that the supplier treated its female employees in a way that wouldn’t be acceptable in Europe.
The supplier didn’t win the business in the end (although for reasons other than this). Bérénice admitted she had wondered how the relationship would have worked if they had.
Another example was offered by Xin-jian Carlier Fu, Strategic Sourcing Commodity Manager at Honeywell. She highlighted the cultural differences between Chinese and Americans in business negotiations.
While many Chinese organisations operated with a very traditional, reserved culture, the Americans projected a very over-confident, talkative image in negotiations. Such was the difference to how business was conducted in China that it actually worked as a negative in negotiations between the two groups.
Finally, Carina Kaldalian, External Supply Governance Specialist at Merck, shared her experience based on her own cultural differences. In her home country of Lebanon, being an hour late to a social event is entirely acceptable.
So when Carina arrived for her first social meeting in Switzerland 10 minutes late, she thought she was doing ok. However, it was seen as unacceptable by the people she was meeting with.
This helped her make changes to her own behaviour, while giving her a better understanding of punctuality in different cultures.
Going Beyond Stereotypes
Giuseppe Conti made the point that cultural averages and stereotypes don’t necessarily apply to all individuals. Individual culture is instead influenced by a number of factors including work experience, upbringing, family values, and education, amongst other things.
When negotiating in a cross-cultural situation, it’s important to get past stereotypes, and uncover specific traits of the individuals you are dealing with.
The participants had a number of ways that this could be done. Thierry Blomet, Senior Vice President at Kemira, suggested an informal discussion over dinner the day before the negotiation. This would allow people to avoid entering negotiations without having ever met the other party before.
Other participants highlighted the importance of building relationships, and getting to know the other party better. This was especially important when dealing with Asian counterparts.
Other good strategies were identified as building information through local agents, creating an emotional connection, and building trust in the early stages. With high value placed against trust by many cultures, it’s key to get it right. Participants even highlighted instances where contracts had been signed on the basis of trust alone.
All Down to Timing
Time was also a factor mentioned by the Roundtable. Laurence Pérot, Director of Global & Strategic Sourcing at Logitech, recommended planning for time, as it’s likely to be treated differently in different cultures.
Laurence recommended planning for more time than you think you will need. This will help ensure you have good conversations, and get what you need. It will also help to show the other party that you’re not just rushing to close the deal.
However, there were also warnings that suppliers might try to use time to their advantage. Ali Atasoy, CMO Operations Manager (Intercontinental) at Merck, stated that the other party may be deliberately slowing the negotiation down, as efficiency may not be at the top of their agenda. He advised patience in this situation, helped by knowing that there were no major time limitations for your negotiations.
Finally, the reputation of an organisation was also highlighted. Matthias Manegold, Head of Procurement and Supply Chain Practice at Kinetic Consulting, advised that procurement professionals need to be consistent in their negotiations, and make sure the other party feels good about the outcomes.
Outcomes will drive what people say about you, and negative comments could harm your reputation with the wider supply base.
In the final article in this series, we’ll look at discussions on how individuals can adapt their behaviours based on information that is gathered, as well as the experts’ advice on how to negotiate with people of their own nationality.
This roundtable was organised by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specialises in Negotiation & Influencing training. Giuseppe Conti, has over 20 years of Procurement experience and 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).
First, we would like to take the opportunity to thank the Procurious members who took part in this survey. Your input is very much appreciated.
In the current non-financial reporting landscape there is a heightened focus on understanding your supply chain. As a result, organisations are increasingly evaluating the performance of their suppliers against a wide spectrum of non-financial criteria and monitoring the associated risks.
In order to better understand what is driving this behaviour and how companies are identifying and mitigating supply chain risk, Greenstone conducted the ‘State of Supplier Management 2016‘ survey.
We asked 1000 senior decision makers from mid-to-large organisations about the perception of supply chain risk and due diligence at their organisation. We also asked about the drivers for collecting supplier information and key factors in shaping their supplier engagement programmes.
We have identified five key insights into the state of supplier management from this study. These are listed below and expanded on in this report.
Supplier due diligence processes are a growing requirement for most businesses.
The majority of businesses are collecting non-financial information from their suppliers at some level.
Regulation and reputational risk are the strongest drivers for collecting supplier information and help to shape supplier engagement programmes.
Procurement teams are much more likely to be responsible for the collection of supplier data than Sustainability teams.
There is a growing trend of companies adopting online solutions to gather and analyse supplier management data.
Supplier Due Diligence
As you might expect, given the increasing global focus on supply chains, more than three quarters of respondents see supply chain risk, and the resultant need for supplier management and due diligence processes, as a growing requirement in their business.
In line with this perception, 72 per cent of responding companies are already trying to address supply chain risk by collecting non-financial information from their suppliers.
The necessity to collect non-financial information from suppliers appears to have become accepted across multiple sectors. However, the level of detail, method, and frequency of data collection differs greatly.
It was found that 43 per cent of respondents only collect supplier information as part of a tender process, or in the initial stages of supplier contracting. Therefore, these organisations are not conducting ongoing supplier due diligence. They cannot be sure that suppliers remain compliant throughout the period in which they deliver services.
However, a similar number of organisations do keep track of ongoing supplier performance. 17 per cent are sending out questionnaires by email or post, and 22 per cent are using an online supplier management tool.
Where supplier information is being gathered, there are common topic areas of compliance focus. Environment, health and safety and commercial information (e.g. insurance certification etc.) are the top three areas covered in supplier questionnaires.
However, what the study also shows is that a wide range of information is being requested. As a result, increasingly diverse areas of both the buyer and supplier organisations are required to engage in the process and have access to the data.
Drivers for Supplier Engagement
The research demonstrated that non-financial supplier risk and compliance have become key topics for organisations but what is driving this shift in behaviour?
When asked which factors are driving the collection of supplier information, 43 per cent of all respondents point to regulation and legislation being the strongest motivating force, followed closely by reputational concerns (32 per cent).
When asked what factors were important in shaping the structure and focus of organisations’ supplier engagement programmes, risk reduction, corporate sustainability, reputational risk and regulation were all sighted as significant motivating forces.
Specific legislative and reporting framework drivers mentioned by respondents included: Bribery Act, the UK Modern Slavery Act, UN Global Compact and ILO Core labour Standards as the top four frameworks or guidelines used to inform their supply chain practices and reporting processes.
Responsibility for Supplier Risk and Compliance
While non-financial reporting has long been the responsibility of CSR or sustainability teams, the increasing momentum of supply chain reporting is engaging new areas of organisation.
This is partly due to the outward looking nature of this issue and the need to engage with multiple supplier organisations. It is also due to the breadth of topics covered by the requests for information.
The study shows 83 per cent of respondents stated that procurement is the area that manages the entire process, from contacting suppliers, through to analysis of the data.
This is most likely due to the fact that procurement ‘own’ the relationships with the suppliers, have a clear idea of contract status and the commercial scale of the contracts and can therefore identify which suppliers meet the buyers defined risk and compliance criteria.
The level of resource allocated to supplier programmes varied significantly with 40 per cent saying that managing this process was the part-time responsibility of a full time employee and 38 per cent saying that multiple individuals in the business have full time responsibility.
What this does show is that there are clearly defined responsibilities within organisations for identifying third party risk and dealing with non-compliance.
Moving Beyond Manual Processes
The complexity and scope of collecting, analysing and reporting supplier information often calls for solutions beyond the manual processes and repository functions of lifeless spreadsheets.
For those organisations that have not yet automated the process, 61 per cent say they are considering adopting an online solution to gather and analyse supplier information.
It is evident organisations recognise the need for automation in the process, as it is not feasible to manually evaluate hundreds or thousands of supplier responses, and monitor their ongoing compliance.
In addition, the increasing legislative and reporting requirements place an additional emphasis on transparency and audit capabilities.
Greenstone’s SupplierPortal solution enables buyers to effectively manage supplier risk and compliance through a secure and private online platform. Buyers have the flexibility to distribute standard framework questionnaires, as well as proprietary questionnaires, to their suppliers and can then manage and analyse this information through a comprehensive suite of analytical tools.
Have you ever had that nightmare where you’re wearing your pyjamas in class? With new training from ISM, your nightmare can be a reality (in a good way!).
I’m in training. I’ve got my laptop open on the table in front of me, a nice warm drink, and I’m waiting for the trainer to appear. A striking-looking instructor comes into view, walking slowly and deliberately in heels.
She’s wearing her ginger-coloured hair pulled back in a ponytail, quite a lot of blue eyeshadow and vivid red lipstick. She appears to have had eyelash extensions.
I sit up a bit straighter in my chair, before glancing down and realising with a shock that I’m wearing my pyjamas.
What is Micro-Learning?
But that’s okay, because it’s 9pm and I’m comfortably ensconced in a warm study in my own home. The kids have finally gone to bed and the dishes are done, so I’ve taken the opportunity to squeeze in one of ISM’s Just-in-Time Learning sessions, led by a flame-haired, animated instructor.
I’ve chosen a session called “Sourcing Strategy based on Forecasted Data”. At 8 minutes and 30 seconds, it removes my usual excuse about being too time-poor to invest in training. According to ISM’s Senior VP of Programs and Product Development M.L. Peck, this is what micro-learning is all about.
“People are craving content that address specific needs at specific times”, says Peck. “Micro-learning takes a ‘just-for-me, just-in-time, and just-enough’ approach”.
This works for me, as my attention span seems to be diminishing rapidly as I grow older. The animated instructor’s voice has a slightly robotic quality, but she’s convincing enough.
She moves around the screen, gesticulating with one hands with the other resting on her hip. She (I’m not sure if the instructor has a name) even blinks and waggles her eyebrows as she drives each point home.
The instructor rapidly takes me through the advantages and disadvantages of the various types of sourcing – spot buying, buying to requirements, forward buying and speculative buying. As she talks, animated graphics appear and disappear next to her.
The content itself is drawn from ISM’s impressive global network of subject matter experts, who have created a remarkable library of digital knowledge.
The animation is interspersed with a video of Kevin from ISM, a (human) instructor who gives a real-world example of a restaurant owner who uses each of the four buying types as circumstances demand.
Sharing Essential Skills & Knowledge
Each Just-in-Time learning video has a different style. Some feature animated characters such as this, while others are led entirely by real instructors.
There are whiteboard animations, live interviews with executives and leaders in the profession, short lectures from industry experts, fun activities, games and flashcards.
This style of learning isn’t designed to be a deep-dive, but is a fast and effective overview of essential procurement skills and knowledge. Viewers can choose to explore further through eISM’s Guided Learning and Self-Paced learning options.
This particular video, however, is packed with fast facts, statistics, definitions from the ISM Glossary. It also includes real-world examples about sourcing strategies. By the end of the eight-and-a-half minute video, I have three pages of notes.
And what’s more, I even have time to sneak in another training video before my drink goes cold!
Learn More (in Pyjamas if you Want!)
Procurious now hosts three of the eISM Just-in-Time learning videos here on the website. Simply click on the “Learning” tab, or follow the links below to view:
How do you take the global pulse of procurement and understand key current trends? Here’s a survey that helps do just that.
Zycus recently published their 2016 ‘Pulse of Procurement’ report, an annual survey and report that highlights key procurement trends around the world.
The report draws on the thoughts and inputs of 650 procurement leaders worldwide, helping to draw valid, statistical conclusions across a number of topics.
The key areas of discussion in the 2016 report include:
The present state of procurement
The role of procurement technology
Hot current trends of procurement
The future of procurement
With participation in the survey increasing year on year, and the consumption of the report also increasing, it’s becoming one of the key information sources for procurement leaders. Procurious caught up with Richard Waugh, VP Corporate Development at Zycus, to talk through some of the key messages in 2016.
Adoption vs. Satisfaction
One of the key findings Richard highlighted in this year’s report was the disparity between the high adoption of, but low satisfaction with, procurement technology.
In European countries all of the components of procurement technology have more than 50 per cent adoption. Core technologies such as P2P, eSourcing, Contract Management and Spend Analysis above 70 per cent.
However, only 1 in 5 survey respondents believed their technology solution was best in class or state of the art. One of the key reasons behind this, is that procurement are often left with a version of a legacy system, leading to low satisfaction.
Richard stated that, “These ‘best of breed’ procurement systems do exist, but it’s really only in the e-Sourcing area that state of the art tools are more prevalent.
“There is still a pent up demand for these best in class tools. These would help organisations make a step-change in performance, but many organisations are forced to make do with what they have.”
Supplier Performance Management
Richard believes that having the tools and technology available to enable closer collaboration with suppliers, will in turn drive innovation. These tools can help to measure the value of contributions that suppliers can bring to the table.
Richard stated that the more advanced procurement teams are already using technology to get closer to their supply base, and bring forward the best ideas for profit enhancement.
In addition to this, automation and procurement technology can help to significantly reduce manual, transactional activities, helping procurement get more from their resources, and at the same time enable the profession to be more strategic.
Spend, Perception & Risk
Spend Under Management
The Pulse of Procurement report also highlighted encouraging signs in the management of enterprise spend by procurement. In 2016, 26 per cent of the respondents have achieved an average of 80 per cent of spend under management.
These best in class performers have gone down the path of better stakeholder management and involvement. This allows them to access traditional ‘sacred cows’ of marketing, legal and IT spend.
However, according to Richard, there is still room for improvement. “The weighted average is only 57 per cent spend under management. If you’re average, you’re barely getting over 50 per cent of your spend managed.”
The report supports the idea that procurement is more of a strategic partner for the business now in many regions. This positive perception, and better visibility with stakeholders is more important, particularly in light of budget pressures.
In Europe, 9 out 10 leaders highlighted a positive perception of procurement by the C-suite. However, this region also has the greatest budget pressure. The majority of European respondents said that procurement budgets for 2016 were either flat or declining. This has led to teams being asked to do more with the same, or more with less.
In Asia-Pacific, the strategic role of procurement is still developing. Richard said, “There is an opportunity for Asia-Pacific to catch up this lag. As you start to manage the spend, the possibilities for savings are better. In fact, the savings goals for procurement are actually highest in this region as they address these categories for the first time.”
For the first time, supplier risk management fell out of the top 5 priorities for procurement in North America, although it remained in the top 5 in Europe. While this is probably reflective of the current macro-economic conditions in Europe (Brexit; political instability), it does show a potentially short-sighted approach in North America.
In better economic conditions, it’s easy to let risk fall down the ladder. And with less volatility in America, even with a Presidential election coming up, organisations may have changed their focus. However, as Richard states, now is not the time to take your eye off the ball on risk.
“The more mature procurement organisations are doing a better job of managing supply risk. They realise the cyclical nature of risk and the potential for a downturn, and understand the need to be more prepared. However, there is still a significant component who are tactically focused, and dealing with the current reality, rather than looking ahead.”
Pulse of Procurement
Finally, we asked Richard why procurement professionals should download the Pulse of Procurement report. For Richard, it was as simple as saving yourself time with data analysis, and getting a better view of the world outside your organisation.
“For most organisations, everyone is stretched, doing more with less. People tend to have a myopic view of what’s going on in their organisation, without seeing the bigger picture. They can’t readily benchmark themselves against the wider function.
“The Pulse of Procurement report gives you the chance to have data synthesised for you, and to gain some context as to how you compare to the function overall. This then allows you to see where you are leading and lagging in comparison.”
You could be forgiven for thinking the management of indirect procurement is akin to rocket science. Is it really so complex?
Sourcing and contracting indirect goods and services in categories like I.T., consulting, HR and travel is important to keep the business running.
You could be forgiven for thinking that the procurement of such services is akin to rocket science, especially if you listen to those many external “solution providers” whose income stream may depend on you.
It may be tempting to consider outsourcing some or all of the management of your indirect spend. In many organisations it is often poorly recorded, loosely managed, widely dispersed, and, generally, messy or neglected. But first let’s consider the issues, and how this indirect spend could be managed internally.
Direct and Indirect Procurement
Direct (or core) procurement traditionally focuses mainly on the sourcing of goods, and some allied services, that are used in the manufacturing or production of goods for sale. These items are usually clearly specified, often with a pre-defined supplier base.
Indirect procurement is different. It is essentially the sourcing of services (and maybe some goods) to support day-to-day operations.
The indirect spend may make up around 30 per cent of all third-party spend, but there are significantly more suppliers and the buying community is more decentralised. Add to that, a higher potential for maverick spend and sensitive stakeholders, and there is the added complexity.
What is happening now is that the percentage of indirect spend-under-management is growing in many companies. Difficult areas such as advertising, insurance and consulting fees are slowly being brought into the category structure.
It is often said that indirect procurement is not strategic. However, some high spend categories, such as sponsorship and employee benefits, could definitely qualify.
Key issues in Indirect Procurement
Buying decisions are often dispersed throughout an organisation into diverse and competing business units or locations.
Stakeholders can, and will, resist any changes on which they have not been consulted.
Managing an indirect category such as marketing services or consulting requires assembling the historical data and providing reliable spend information. Often transactions are miscoded – sometimes on purpose – which creates the wrong picture.
Suppliers can only be a resource for continuous improvement if the communication channels are open in both directions.
Strategies for Indirect Procurement
The first step in a category strategy should be to aggregate the spend and understand it and its sub-categories. Next, present this information, in a digestible form, to stakeholders to elicit their input.
It is never too early to talk to stakeholders about the data or the proposed Scope of Work. After the Request for Proposal has been issued, it is too late.
Two of the success criteria in indirect procurement are a robust Scope of Work and a detailed Service Level Agreement with workable measurements. Without these, any contract can fail.
Indirect Procurement as a Career Choice
The requisite technical skills for individual success in procurement have been well-documented. One of the key skills of the future is to be numerate and have analytical ability, but not necessarily be a mathematician.
Managing indirect categories requires a different skill set from that which is needed for working in direct procurement. Behavioural skills, which can also be acquired, come into the spotlight here.
Particularly important is the need to collaborate with stakeholders. An aspiring category manager needs Influencing and listening skills, empathy, and the ability to take the initiative as well as being decisive when the need arises.
Indirect categories (when the tail-end spend is excluded) do not easily lend themselves to automation or the use of the e-procurement tools, such as e-catalogues or vendor management systems.
This creates a dilemma for external service providers who have these tools, but readily admit that there are nuances and emotions at play that may be beyond their control.
The organisational culture and landscape on the indirect side has many nuances that do not exist on the direct side. Procurement executives will therefore need to traverse the waters of indirect spend with unique strategies to ensure success.
Indirect procurement is all about building trust with stakeholders and suppliers to ensure continuity of supply and smooth operations.
Just try to procure the same make and model of smartphone for everyone, or change the catering company without considering end-users.
Negotiations can be tricky. A cross-cultural negotiation presents an entirely different challenge, one with countless pitfalls and potential faux-pas.
Negotiations in a business setting can be difficult at the best of times. Throw cross-cultural diversity into the mix, and the difficulty level rises again.
The way you speak, behave, control your body language, and operate can change hugely from culture to culture. This increases the chance of making a mistake, or accidentally offending the other party.
Some people may also make the mistake of assuming that when we talk about culture, we are limiting this to a purely geographical standpoint.
When referring to a cross-cultural negotiation we often talk about different nationalities as a primary characterisation. But this is not the only element that affects culture.
Culture is the unique characteristics of a social group, and the values and norms shared by its members. This social group may be a country, a corporation, a religion, gender, an organisational function, or one of many others.
Dealing with Cross-Cultural Negotiation
How can you prepare for a cross-cultural negotiation? What do you need to know? What do you need to prepare in advance? And how should you approach negotiating with different cultures? This is where expert advice can help.
Procurious were lucky enough to be invited to listen in on a cross-cultural negotiation roundtable, organised by Giuseppe Conti, Founder of Conti Advanced Business Learning. Participants came from a range of businesses and diverse backgrounds, and comprised 8 different nationalities. The discussion was fascinating, and provided some great insights into a complex subject.
In this series of articles, we will examine key factors to be taken into consideration during cross-cultural negotiations, and see some real-world examples straight from the experts.
Power Dynamics and Balance
Giuseppe kicked off the discussion by asking the participants to talk about their own experiences of cross-cultural negotiations.
Jonathan Hatfield, Director of Purchasing, EMEA at PPG Industries, talked about his first trip to Russia to purchase chemicals.
Supplier power played a large part in the negotiations. Jonathan visited factories in Siberia, where no-one spoke any English. In line with the strong hierarchical culture of the country, he was also dealt with several junior product managers before he could access more senior people.
While Jonathan’s aim was to create a relationship with the supplier, the supplier cut straight to the point. They only wanted to know what he wanted to buy, where it was going, and what the price would be.
Jonathan left Russia not even knowing if he had managed to secure any materials (happily he did!). It taught him about power balance, and also to make sure that he had approvals lined up in advance.
Language Barriers and Coffee
Two other participants gave examples highlighting the difficulties of language barriers and body language.
Thierry Blomet, Senior Vice President at Kemira, took part in a negotiation with an Indian customer, who appeared to be shaking their head from side to side at every argument that was presented. This left Thierry feeling that none of his ideas had been accepted.
When he questioned this with his local representative however, he was told that he was doing fine. The shake of the head was actually a sign of agreement with what he was saying.
Matthias Manegold, Head of Procurement and Supply Chain Practice at Kinetic Consulting, talked about a situation where language barriers played a major role.
He was negotiating with an Asian business to bring new technology to Europe. Each statement in the negotiation was met with a “Hai” (Japanese for yes), but it wasn’t until later on that Matthias was told that this actually meant, “Yes, we hear you, but we don’t necessarily agree”.
One final example came from Jean-Noël Puissant, Head of Procurement EMEA at Monsanto International. Jean-Noël highlighted the difference in how negotiations start in different cultures.
In one negotiation in the South of Italy, the owner of the supplier arrived with his wife, listened to the agenda being laid out, then suggested everyone get a coffee.
It was his way of starting the negotiation by getting to know the other party better with some conversation before the business discussions kicked off.
The participants also reflected on company cultures, and how current or former employers’ cultures had shaped their own negotiation approaches.
Stephane Guelat, Senior Director – Supply Chain at Pentair Valves and Controls, spoke about one of the key factors for procurement and supply chain – ethics.
Stephane said that, while many organisations will put employees through ethics training, the ethical standards may be different across cultures. For instance, the exchange of services or gifts may be perceived as completely unethical in Western Europe, while fully normal in India.
Xin-jian Carlier Fu, Strategic Sourcing Commodity Manager at Honeywell, argued that there are likely to be many different cultures within the same organisation.
This was confirmed by Jonathan Hatfield, who said that this is ever more the case as organisations from different cultures and countries merge. He added that it was something buyers needed to be cognisant of when dealing with companies which had been taken over.
Finally, Giuseppe highlighted how his first job with a large multinational with a very competitive culture shaped his initial approach to negotiation.
When working later in his career with a smaller, family-owned organisation, he learned to adapt and broaden his approach to negotiation. According to Jean-Noël, we cannot assume one-size-fits-all. We need to understand the specific culture of each large or small organisation.
There’s much more to come on this topic, including tips on negotiating with different nationalities, and applications of cross-cultural research in negotiations. Come back next week for more.
This roundtable was organised by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specialises in Negotiation & Influencing training. Giuseppe Conti, has over 20 years of Procurement experience and 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).
How can you find out if you’ve got a good deal from your negotiation? Here are some price analysis tools that could help you out.
One of the key performance measures that invariably arises at the end of a negotiation is if the final price achieved is a good one or not.
If we, as buyers, have purchased the product or service for a number of years, we can rely on our experience. But we have all faced a situation when we have to deal with an unfamiliar product. What do we do then?
I have outlined the pros and cons of some different approaches to price analysis. There’s no magic formula we can apply to confirm if the negotiated cost is accurate to the market price.
Each price analysis method has its own strengths and weaknesses. Knowing them will help us to understand which one to apply in which situation.
The most basic method. You take the final price, and compare it against the prices quoted for the same product by other suppliers in the market place. This is the most common method, and it’s usually applied to common products, or those with transparent pricing.
Doesn’t require too many resources.
Relatively easy to find out if the cost is over the market average.
It can only be applied to common products – it should not be used, for example, for the cost of a lab analysis service, or customised goods.
You have to work with updated costs – in some areas, like electronics, a 6 month old cost may be obsolete.
You have to compare exactly the same product, under the same circumstances – not, for example, two different mobile phones, or services from two different countries.
If it’s not possible to find equivalent market prices for the products or services, procurement can use the approach of a detailed cost structure analysis.
In order to do it, we ‘only’ have to replicate the manufacturing process, and assign an estimated cost to each stage. We can then benchmark this result against the cost provided by the supplier.
With a service, rather than a product, the process requires disaggregation of the service into its constituent parts (salaries; materials; equipment), and a cost assigned to each.
Provides a detailed view of costs.
Can be used as a basis for supplier partnerships, and to visit supplier facilities to look at the manufacturing process.
Allows for negotiation on each constituent part of the good or service, increasing potential for savings.
In-depth knowledge of the manufacturing processes and costs is needed.
Without supplier input, manufacturing process costs will be estimated, increasing the error margin exponentially.
If the product has a published price index, then it is logical that the index will be a good guide to check if the negotiated cost is a good one. It would then be a matter of comparing the negotiated and index price to see if the negotiated cost was good or not.
The process is a bit more complex than that, but for the purposes of this article, there is no need for further explanation.
Price indices usually are available on the Internet under paid subscription. As an added value, these sites usually offer forecast analysis that could be helpful for ongoing procurement strategy.
Can show trends and provide a comparison to the cost the last time the product was purchased. For example, if a product index has decreased a 5 per cent, but the supplier has only offered a 2 per cent cost decrease, then it’s clear that there is room for further negotiation.
The indices are just a guide, there is a more complex cost structure which has to be considered. For example, other factors, such as a trader’s fee, would not be expressed as part of the product cost.
Indices only have a partial influence on the final price. A drop of 30 per cent on a factor, such as petrol price in the plastics market, wouldn’t necessarily mean a 30 per cent drop in the product price.
Markets can fall victim to speculation, or an issue that distorts the index. Being unaware of these issues prior to a negotiation could lead to a higher than expected cost.
Unit Price Analysis (UPA)
The Unit Price Analysis (UPA) is a mathematical model which predicts the right cost that a product or service should have based on its specific properties or details. It’s like a price calculator.
We have access to a goal cost before starting negotiations.
Companies have developed their own UPAs based on non-linear regression statistical analysis. You can hire their services in the same way as you sign up for Price Index sites.
They are quite helpful when calculating complex project costs, and provide an accurate cost result for EPC projects.
Building this model from scratch is expensive. Nearly all companies outsource this service.
You must be sure that data comes from a trustworthy source before using it for a negotiation.
UPAs are unitary prices based on a specific volume. The data doesn’t support different volumes.
In addition to the price analysis tools outlined above, there are a number of other, less common, ones. They are less used as they can only usually be applied to very specific cases.
There is no, one correct method. The specific circumstances of each sourcing activity will determine which method can be best applied to the post-negotiation benchmarking activity.
Why procurement professionals must drive supplier innovation in order to keep up the fight for a sustainable planet.
As a procurement professional it can sometimes be a little bit challenging to keep up the motivation to pursue a more sustainable planet. News headlines and science reports reflect a world which is developing in the wrong direction.
At the end of the day, is there still hope for you, me and the planet? In this article I will put focus on some of the positive signs we can see. Let me be clear – it is still worth fighting for sustainable procurement, the planet and the generations to come.
Transparency is growing. It’s harder and harder to hide malfeasance. Carbon emissions are disclosed. Everyone is online everywhere, and we have easy access to information, and the ability to pictures of something that we dislike at any given time of the day. And if you fail, even as a company, the public will collectively judge and give the verdict.
Even in procurement we are working with tools, like the Ecovadis sustainability rating system, where the performance of the suppliers is evaluated. Not only for the sake of performance, but also because we want companies to change. To create impact driven approaches.
Regulators and Heroes Show the Way
It is obvious that the more transparent we get, the more the regulators act. More and more companies and public actors disclose their behaviour, and this leads to actions amongst regulators who create climate treaties, introduce carbon taxation, or hand down regulations to markets.
Investors have even started incorporating sustainability and ESG risk into their calculations on where to invest their money.
Heroes are among us. Alongside the great minds in science, many individual policy-makers, business leaders, farmers and consumers are making millions of decisions and taking small steps, every day, to reduce their impact or improve the planet.
The vast majority of people want to take care of their world, and science and the media are providing the tools and knowledge to help them do so. Lights are being turned off. Public transport systems are being built and used. Less food is being wasted. Each of us wants to be a hero.
Fostering Innovation and Collaboration
Innovation matters. Enormous investments are being made. These efforts, many of which are being driven by the best minds in academic and business labs, will without a doubt deliver solutions to many of our environmental challenges. It’s a question of when, not if.
Collaboration is happening. Competitors are talking to each other and to policy-makers around how to share best practices to reduce costs and improve efficiencies. Solutions to global sustainability problems are too big for any one country or company to solve.
Integrating Sustainable Supplier Innovation
We should not forget that a company’s ability to build close partnerships with innovative suppliers is directly correlated with the firms successful innovation performance. Companies which include their suppliers in the innovation process seem to financially outperform their peers that do not.
It is a fact that 90 per cent of companies do not include their suppliers in their innovation processes. 69.9 per cent of corporate revenue is directed towards externalised, supplier driven cost. Suppliers should be viewed as an extension of the company and, as such, they should be incentivised, coached, sanctioned and rewarded to help achieve corporate objectives.
The message is clear: we need to keep fighting for sustainable procurement, the planet, and the generations to come. We can make a start by integrating suppliers closer to the innovation processes.