The best way to negotiate

Welcome to the third article in a monthly series from John Viner-Smith.

How to negotiate effectively

If you’re a student of negotiation (and, as a procurement professional, how could you not be a student of negotiation?) then you should have a well-thumbed copy of Richard Fisher and Bill Ury’s “Getting to Yes” within easy reach on your bookshelf. Fisher and Ury literally wrote the book on what is termed “principled” or “interest-based” negotiation (often simplified to “win-win” negotiation). When asked “what’s the best way to negotiate?” most academics will point you to this approach.

Concept Photo/Shutterstock.com

There are five central guiding principles to this approach.

  1. Separate the people from the problem. In other words, seek to decide issues on their merits rather than the emotions, fears and egos of the negotiators
  2. Focus on interests, not positions. Fisher and Ury assume that almost all disputes can be resolved with principled negotiation because, when you cut through the positions adopted by negotiators to their actual interests, they are often more easily reconciled
  3. Invent options for mutual gain. By working creatively and collaboratively around the interests, negotiators can achieve outcomes that deliver gains to both sides.
  4. Insist on objective criteria for decisions. The classic examples quoted here are the purchase or sale of something like a house or a car, where there will be plentiful benchmark data available pointing to the “fair” price for the item being traded or an independent appraisal can be carried out.
  5. Know your BATNA (best alternative to a negotiated agreement). Your BATNA is the best outcome you can achieve if you don’t do this deal. If the proposal on the table is as good as or better than your BATNA, the deal is worth doing. If it isn’t, it’s not.

There are definite advantages inherent to this approach. If you genuinely have scope to negotiate this way you can engineer “all gain” deals which add value to both sides. In some cases, correct and thorough preparation on both sides and conscientious commitment to maintaining an atmosphere of curiosity, creativity and collaboration can result in deals which represent increased value to both sides and are the foundation of strategic partnership in business.

In a previous Procurious article I wrote that “win-win” is a myth, so you may be wondering how I reconcile that view with the idea of engineered, all-gain deals. “Win-win” is a term that is bandied about so much it has lost all meaning. All too frequently it’s used by one side or the other when they’re winning something, but haven’t given any real thought to what the outcome does for the other side. Engineered, All-Gain deals are only possible when both sides are genuinely curious enough to understand the other side’s underlying interests and candidly share their own. Sharing that information makes both sides vulnerable to the other, so an environment of trust and authentic commitment to the long term is vital. Business relationships like that are like marriages, and it is no more appropriate to talk about who won what in such a relationship than it is to call a winner in a marriage.

So is interest-based negotiation the best way to negotiate? My answer would be “sometimes”.

Let’s start by looking at this idea of calling interest based negotiation “principled”. Does that imply that all other kinds of negotiation are unprincipled? That’s a dangerous value judgement to make! Let’s use an example to explore this question. “Joe” is buying a house.

  • Joe’s budget is £500,000
  • The asking price for the house is £510,000
  • The vendor (unbeknownst to Joe, of course) needs £455,000 from the sale
  • The identical house next door sold last week for £489,000

Getting to yes-style, “principled” negotiation theory dictates that Joe should work with the vendor to find the deal that best suits both their interests and is fair to both, possibly taking market benchmarks into account. Under these conditions, you might consider that a settlement around £490k is fair and principled.

Instead of doing that deal, Joe uses an array of questioning skills, market knowledge and tactics to establish that the vendor could do the deal at £455k and wants money fast.  Joe then uses that information to apply pressure on the vendor to close the deal for £460k, thirty thousand pounds less than the “objective”, “fair”, benchmark price. Recognising that he’s never going to see the vendor again and therefore there is no value in a warm or trusting relationship, Joe uses every available lever to push the vendor down to a price that is closer to their walk-away point than the middle of the range.

Joe’s negotiating methodology is the antithesis of Fisher and Ury’s approach. He deliberately makes the person the focus by using the pressures on the vendor to create leverage. He focuses that leverage entirely on meeting his own interests to the greatest degree at the expense of the vendors’  and makes no attempt to come up with options for mutual gain. He ignores the objective criteria, focusing instead on the subjective pressures in the vendor’s head. Finally he closes a deal, keeping the lion’s share of the value in the deal for himself. So does that make Joe unprincipled?

If you’re tempted to say “yes”, ask yourself why. Certainly Joe is unlikely to enjoy a warm relationship with the vendor after the deal but why should that matter? He’s never going to see the vendor again. So if you did answer “yes”, is it possible that you just don’t like Joe? Maybe he seems greedy. Maybe you have some sympathy for the vendor. Viewed in isolation, Joe’s approach might seem aggressive and selfish. But let’s say Joe has a family, ask yourself this; who has more right to Joe’s £30,000; the vendor or Joe’s kids? They can’t both have it. Viewed that way, you might conclude that by pushing the vendor to accept the lowest possible price and saving himself enough money to put one of his kids through University without debt, Joe’s actions are entirely principled.

Life (personal and business life) is complex. We all balance complicated and often conflicting principles and duties and it is tempting, in the stress of negotiation, to lose sight of who’s interests you are there to serve. As a matter of principle you owe yourself the best deal possible. You owe your stakeholders the best deal possible. You owe your counterparty only what the circumstances of the deal at hand dictate that they are due, at the lowest possible cost to yourself.

Saying “It’s always best to adopt an interest-based approach to negotiations…” is correct in academic terms, but in the real world you have to qualify that by adding “…when you can”. As a negotiator you have other options available to you and they will be valid some of the time. In selecting which approach you adopt, I offer you a single guiding principle that works for me;

“Adopt the approach that will deliver the greatest benefit to yourself and the interests you represent”.

If circumstances allow an interest-based approach, this one principle will guide you to that approach. If not, this principle will help to focus you on doing what is necessary.

One of Australia’s top procurement job goes to…

Today marks a big day.

Procurious member, and reigning Asia-Pacific CPO of the Year, Visna Lampasi has been announced as Head of Group Procurement at Australia’s largest retailer, Woolworths Limited.

Visna Lampasi Woolworths

In what was no doubt a hotly contested role, Visna will lead the procurement of all goods not for resale across the Woolworths Limited brands including Woolworth Supermarkets and Petrol, Liquor Group, Big W, Masters Home Improvement, ALH Hotel Group, Woolworths Money, Everyday Rewards and Ezibuy.

For those unfamiliar with Woolworths Limited, the group of companies has approximately 200,000 staff Australia-wide with an annual revenue of $60 billion – one of Australia’s leading groups.

If anyone is up for the task of delivering commercial value in such a high profile role, Visna is having taken out the title of The Faculty’s CPO of the Year 2014 earlier this year.

Visna’s career background spans across a number of procurement roles, most recently operating as infrastructure company Leighton Contractors’ Chief Procurement Officer where she established an award winning social procurement program.

Procurement veteran and Procurious founder Tania Seary welcomed the announcement: “I haven’t had the opportunity to work closely with the Woolworths Procurement team, but I understand they have been through various transformations.

“Within the Australian procurement landscape, the team would be regarded as a mature procurement function,” said Seary.

“Having gotten to know Visna over the years, I know she’s a very talented and tenacious procurement professional who will undoubtedly identify a multitude of sources of untapped value within the organisation.”

Industry peer and Rio Tinto’s General Manager of Global Process Architecture, Cindy Dunham echoed Seary’s sentiments:

“I’ve had the pleasure of working with Visna on a number of procurement professional bodies and know that she’ll bring a great depth of knowledge and experience to the Woolworths Group.

“Visna’s large network is complemented by her industry leadership, influencing skills and dedication. I look forward to her continued commitment to raising the profile of procurement in Australia.”

The Faculty’s CPO of the Year judging panel chairman Dr. Karen Morley also congratulated Visna on the new role.

“Visna’s track record of achieving commercial outcomes, leading cultural change, and balancing social outcomes in tough project management environments sets her up well for further success.”

From the team here at Procurious we’d like to congratulate Visna!

For those wanting to know how she does it, stay tuned for some exclusive procurement advice from the woman of the hour coming soon.

Risk of business disruption has increased by a fifth – which countries are affected?

A new report reports that a fifth of the world’s countries are at risk from business disruption… this and more in our weekly news blast:

Risk of business disruption has increased in a fifth of countries

  • The risk of business disruption due to civil unrest has increased in a fifth of countries over the past quarter, according to a report.
  • The ranking of 197 countries, which assesses the likelihood of strikes, protests and ethnic and sectarian conflict impacting business operations, includes 11 states that are considered to be “extreme risk”. These include Syria at number one, followed by the Central African Republic, Pakistan and Sudan.
  • Maplecroft’s Civil Unrest Index shows risk has increased most in Hong Kong over the past three months, due to the pro-democracy demonstrations. This was followed by Liberia where there has been mounting unrest as a result of the Ebola virus outbreak.
  • Maplecroft said firms operating in and sourcing from these countries “faced severe disruptions”. Factories in Vietnam were forced to suspend production during anti-Chinese protests in May 2014, and anti-government protests in Thailand, culminated in a coup and “shut down much of the country’s commercial centre”, halving projected GDP growth to 2.5 per cent.

Read more at Supply Management

World Bank to launch procurement app

  • The World Bank plans to release a mobile application that will give users access to comprehensive procurement data from 2004 to 2014.
  • The new app, which is being rolled out amid an ongoing controversial procurement reform process within the institution, aims to provide more transparency and accessibility to donors and recipients. Once downloaded, the app will be fully functional offline, allowing those in the most remote places full access, according to Joao Veiga Malta, practice manager at the bank’s Governance Global Practice. “What we wanted to do was to be able to provide you the procurement information that the bank had with an easy reach [so] that you did not necessarily need a masters in statistics in order to be able to do an analysis.”
  • The app, Veiga Malta explained, will show the distribution of awards by country and can be organized by civil works, goods, consulting services and nonconsulting services. Users can search by fiscal year, economic sector, donor country or recipient country, and will be able to see graphs, pie charts, ratios, trends and rankings.

Read more at Devex.com

New Spanish brand enters the hot fast fashion market

  • When most people think of European clothes, they immediately think of haute couture creations from Paris with astronomical price tags. If not that, there are the giant label’s prêt-à-porter incarnations which fetch similarly high prices. So the idea of clothes from sunny Spain with price tags on T-shirts at P299 can be a surprise.
  • Those T-shirts come from Sfera (pronounced es-fera), a fast fashion brand from the Spanish company Grupo El Corte Ingles. The company is the largest department store chain in Spain, and under its umbrella, it has travel agencies, convenience stores, and home and DIY stores.
  • Sfera opened its first Asian venture in SM Makati, right inside SM’s department store. “We believe that [the Philippines] is a very mature market, and [it] can give us feedback… [on] the behavior and the Asian taste of the customer,” said Guillermo Lopez Garcia, an international manager from Sfera, as he discussed why the brand decided to bring its fashions here. “We believe that if we can compete and succeed in the Philippines… we can succeed anywhere.”

Read more at Business World Online

Supply chains conservative about 4G handset development in China during 4Q14

  • Handset supply chain makers are continuing to see the effects of lagging 4G handset sales in China as vendors clear out reserves of 3G units.
  • Both vendors and retailers in China are still clearing reserves of 3G handsets as sales have been stagnating following decisions by major China-based telecom providers to end handset purchase subsidies.
  • The subsidies spurred a wave of handset purchasing throughout 2013 into 2014 and were expected to continue for 4G units. However, most telecom providers have limited or even stopped such moves and have yet to reissue new plans for helping to push 4G handsets in China.
  • Panel makers and touch panel makers have seen the brunt of the situation in 2014 and expect conservative orders to China during the fourth quarter of 2014 as a result.

Read more at Digitimes

Kaiser moves to remake its supply chain

  • Kaiser Permanente is trying to remake the hospital supply chain, Forbes reported.
  • The California-based integrated provider is using new software to try and make the ordering and use of supplies for its 38 hospitals, 9.5 million members, 17,000 physicians and 48,000 nurses more efficient and less costly, according to Forbes contributor Steve Banker.
  • That’s a change from Kaiser just five years ago, when nurses and other frontline healthcare workers were responsible for tracking down and ordering supplies, which were often siloed in multiple locations throughout the system. Recalled or expired supplies had to be discovered and returned in a virtually manual process. That form of supply chain management often meant that providers had time taken away from caring for patients.

Read more at Fierce Health Finance

Thyssen to manage Airbus Helicopters supply chain

  • German industrial group ThyssenKrupp  has agreed a deal with Airbus to manage the supply chain of metallic raw materials for Airbus Helicopters.
  • ThyssenKrupp said its Aerospace division would manage procurement, logistics, quality assurance and fine-tuning the management of blanks – unfinished metal that is stamped out of larger pieces of material – for Airbus Helicopters worldwide. It said the cooperation would take place for the “coming years”, without being more specific.
  • ThyssenKrupp Aerospace is part of the group’s Materials Services division, which distributes materials and provides technical services for the production and manufacturing sectors.

Read more at Reuters.com

Initiative to reduce fertilizer use for commodity grain crops launched in US

  • Environmental Defense Fund (EDF) has launched a new, collaborative initiative to eliminate fertilizer pollution as a major environmental concern in the United States. The effort will engage farmers and businesses throughout the supply chain to transform the way fertilizer-dependent grain crops are grown and sourced.
  • “If we’re going to meet food demands for a growing population, we’ve got to decouple production from pollution as soon as possible,” said David Festa, EDF vice president. “The most promising way to accomplish this essential task is by collaborating with decision makers at every point in the U.S. grain supply chain — from retailers and food companies to agribusiness and farmers.”
  • “Our long-term goal is to make the entire U.S. grain supply sustainable — good for farmers, good for the climate and good for our waterways,” said Suzy Friedman, director of EDF’s Sustainable Sourcing Initiative.

Read more at OCJ.com

Rollin’ – this procurement professional keeps you on the road

Emily Hall hit a cross-road in her early 20s when a manager gave her something of an ultimatum.

Emily Hall

After participating in the National Championships for five years in the junior ranks, the keen softballer approached her manager about taking a couple of weeks off to partake in a major tournament. She also indicated that she might need to leave work on time to attend training twice a week.

“He told me that I would have to make a choice – sport or career. I chose career, and have no regrets.”

Emily’s decision has seen her rise through the ranks at Australian corporate giants like Coles Supermarkets, technology giant IBM and Ford Motor Company, among others.

These days she’s leading a team at international toll road owner and operator Transurban in three key areas – sourcing, procurement operations and corporate services (facilities and corporate travel management).

She’ll spend this year embedding the relatively new procurement team into the business, overseeing the deployment of new technology solutions that will increase automation and improve work flows. She prides herself on always delivering results and leaving a legacy.

“Like most, I fell into procurement. My first job was on a graduate program which involved rotations through the broader business. My second rotation was in purchasing, and I ended up in that role for two years. I did a small stint in sales and marketing before coming back to procurement, and have now been in the profession nearly two decades.”

Emily isn’t one to plan too far into the future, which has worked well for her to date.

“I want to continually position myself to learn, improve, deliver results for the organisation I work for, and grab the right opportunity when it comes my way.”

Emily’s sporting abilities haven’t faded completely. She still likes to have a hit of hockey or perhaps basketball on weekends, and doesn’t mind a bit of cycling. But she leaves the sporting tournaments to the next generation, reserving her leadership prowess for work hours.

UK public procurement organisations praised for insurance framework project

It’s a win for Procurious-favourites YPO (and partners)

A collaboration between the largest public procurement organisations in the UK to reduce duplication of effort and achieve savings has taken home the Best Public Procurement Project gong at the CIPS Supply Management Award 2014.

CIPS Supply Management Awards 2014

What was the idea?

The joint venture was headed by the Crown Commercial Service, and YPO, ESPO and NEPO. It provides the public sector with quick and easy access to a wide range of insurance services, including property, liability and motor cover. Since its launch in February 2013 it has already been used by over 260 customers from across the public sector, delivering savings of some £7.6m. It’s also worth noting that individual customers such as local authorities have saved over half a million pounds on their insurance costs.

Of the 29 suppliers on the agreement, a healthy percentage – over 25 per cent are SMEs. This goes some way to demonstrating how the Government’s commitment to improving public sector business opportunities for smaller businesses is working.

The CIPS judging panel said:

“The team demonstrated a creative approach to a category in which procurement can find difficulty gaining traction in.  There is evidence of not only real cash savings but a team that engaged widely with stakeholders and the wider market to deliver outstanding results”.

On the win Sally Collier, CEO of the Crown Commercial Service exclaimed: “I am absolutely thrilled. This is a tremendous accolade for our highly successful collaboration with YPO, ESPO and NEPO. It recognises our commitment to delivering savings for the taxpayer and improving efficiency by working closely with customers and constantly innovating to meet their needs.” 

Paul Smith, Procurement and Supply Chain Director of YPO offered: “The award is a fantastic recognition of the hard work and commitment of all collaborative partners. The aim was to deliver a single approach to insurance procurement across the public sector, streamlining processes and achieving efficiencies. I am delighted that this has been realised and many organisations are already reaping the financial benefits.”

Paul Smith and YPO previously featured in our ‘Is the UK more risk averse than the rest of Europe?’ article. Read it here.

Procurious is heading down under… come and meet us

Procurious is hitting the road (well sky…) throughout the month of November, and we want to see your faces!

Donuts down under

Lend us your ears, open your minds, and get ready to download key learnings that can help give you a competitive advantage in the procurement marketplace.

Procurious is going to Australia

Who’s going?

Procurious’ very own tech wunderkind Jack Slade – Product Manager, social media guru, and entrepreneur,  is coming along for the trip. Also joining Jack is Lisa Malone – who not only serves as our fabulous European General Manager, but can talk to you about developing your personal brand and tackling procurement’s outdated image problem.

Procurious will also be meeting with The Faculty Roundtable members in Melbourne, Perth, Brisbane and Sydney to discuss how social media is impacting procurement and the benefits of online collaboration.

You can Tweet along with us during the session using the hashtag #webringthedonuts

Social Media and Procurement – Leadership & Networking Procurement Breakfast 

Alternatively, why not do breakfast?

Come along to a networking breakfast to learn about opportunities for procurement to achieve its agenda using social media; networking with Roundtable members, FLiP Alumni and other procurement professionals.

We’ll be in Melbourne – Friday 14 November, 8am
Where: The Faculty, 502 Albert St

And also Sydney – Thursday 20 November, 8am
Where: Sydney CBD – TBC

To register to attend the Leadership & Networking Breakfast email Belinda Toohey [email protected]

Anything we’ve forgotten?

We expect each session to last between 45 – 60 minutes. That should allow us plenty of time to discuss:

  • Digital procurement and how everything is connected
  • Benefits of connecting and collaborating online for procurement; suppliers; to drive social value; personal branding and Employee of choice
  • What is Procurious? An Introduction and how to get the most out this network
  • Discussion: Smart  social media behaviors
  • Q&A

Availability of sessions will be subject to change.

So mark a date in your diary, gather your team and get Procurious in for a session,  remember #webringthedonuts!

In space, no one can hear (the procurement professional) scream…

This is the fourth article in a fortnightly series from Gordon Donovan.

Captains’ blog (well there is a space theme to this one….)

You may have read recently about NASA issuing an RFP to resupply the international space station.  

It reminded me of a couple of quotes from John Glenn:

“I guess the question I’m asked the most often is: “When you were sitting in that capsule listening to the count-down, how did you feel?” Well, the answer to that one is easy. I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts — all built by the lowest bidder on a government contract.” 

“As I hurtled through space, one thought kept crossing my mind – every part of this rocket was supplied by the lowest bidder.”

In a previous article I talked about the supplier selection process and the use of cultural fit rather than the traditional supplier selection methods, for some projects. I wonder how they would cover the cultural issue with this one. Would Romulans and Klingons be prohibited for instance? Would the Jedi be able to use the force to deliver the goods?

This leads us nicely to an article about the draft report into tenders for the Australian government. 

In summary the article and report states that “Tender documents have traditionally been written prescriptively and with an overarching focus on value for money. While risk management and value for money are both important considerations, too narrow a focus on these factors can constrain choice, innovation and responsiveness in the government-commissioned provision of goods and services.”

Will this lead to a change in evaluation criteria in general for use of tenders, will this lead to more thought about the way of interacting with the supply market in general? I wonder what innovations NASA could tap into?

On the subject of evaluation criteria a recent blog article by Kelly Barner highlighted that sometimes trying to do the right think in evaluation (in this case diversity actually backfired. She stated that:

“In 2013 the Massachusetts State Lottery Commission awarded a contract for $5 million in advertising services. Like many public sector agencies, the lottery commission has diversity targets and required that a portion of the work be sub-contracted out to a minority- or woman-owned supplier.

The lottery commission evaluated all bids on cost and presentation as well as the diversity requirement. The contract was awarded to a firm that did not earn the highest score for cost or presentation but did commit to sub-contract 0.24 percent of the contract’s value, to a woman-owned supplier. The firm that earned the highest scores for both cost and presentation was, itself, a certified woman-owned business and therefore did not commit to sub-contracting work to another business.

Had that company been awarded the contract, 100 percent of the $5 million would have been awarded to a diversity supplier that also scored highest in the price and presentation criteria, and the state would have gotten a better result for less money.”

There has been a rash of benchmarking reports released recently:

Procurecon Europe

  • 20.7% of you believe  you have a poor level of supplier contract compliance
  • 74.1% of you approach recruitment for your organisation’s procurement teams in a combination of functional and non functional way
  • Relationship management is the biggest skills gap in your procurement teams today
  • 58.6% of you are investing in consultants as a third party solution/service for your business

Hackett Group

  • Management priorities in 2014 center on innovation-led growth
  • In 2014, procurement’s top priority is to expand its spend influence
  • Rebalancing supply risk
  • Recalibrating procurement’s technology and tools
  • Reinventing procurement’s value proposition

KPMG

  • Supply chain was the number one area where respondents said they will increase investment the most over the next 12 months.
  • Supply chain also topped the list when companies were asked which issues would be most challenging over the next 12 months
  • Human resources development will be ‘very’ or ‘critically important’ to their company’s strategy over the next 12 months.

Mckinsey

  • More and more companies are addressing sustainability to align with their business goals
  • Company leaders and all others increasingly see sustainability as a top CEO priority.
  • Companies’ current approaches to reputation management vary by industry
  • The reputation-management activities viewed as most important are not necessarily the most pursued
  • Sustainability ‘leaders’ set themselves apart through target setting and a clear strategy
  • Organizations excel at creating a culture and direction for their sustainability programs, but they struggle with elements of execution.

The last point on the Mckinsey report talks about creating a culture which brings us full circle back to where we started, and to round-off this piece I came across this article from Procurement Leaders. 

In it Steve talks about creating a cost conscious culture, which reminded me of something my organisation discussed earlier this year at our CPO forum. How to create that culture, Chris Lynch the CFO at Rio Tinto gives his 14 points here.

Strangely couldn’t find any mention of interplanetary co-operation on either of them…

For readers in Australia, I will be attending the CIPS Australasia conference in Sydney on 15-16 October and if you wanted to catch up please get in touch via the usual channels and I’ll be delighted to grab a coffee. Alternatively you can follow me on Twitter as I’ll be live-tweeting the highlights during the conference.

As ever you can subscribe directly to the sources I have identified here (nothing is my copyright), and if you wanted to discuss please feel free to contact me via Procurious, or follow me on Twitter.

Procurement: The new and improved model?!


Procurement Professionals on LinkedIn

The following article originally appeared on the Procurement Professionals LinkedIn Group.  Join and view other articles here.

In 2011 the Coalition Government launched their ‘new’ Government Construction Strategy with its aim to improve the industry whilst reducing whole life cost and carbon by 20 per cent by 2015.

Procurement: the new and improved model

A major part of the strategy focused on reforming public sector procurement, and in particular trialling a series of new procurement methods to drive these improvements and efficiencies by effecting behavioural and cultural change. The models intended to draw on established best practice and drive an ‘evolutionary, not revolutionary change’ across the public sector. They utilise a range of common principles which emphasise the need for collaborative working and early contractor involvement, where the supply chain responds to an outline client requirement and declared budget rather than a pre-determined design.

The three models are:

  • Cost Led Procurement – During the Cost Led Procurement process, a client sets out their output specification against a challenging cost ceiling based on their own knowledge and experience of costs . They then invite the supply chain to bring their own collaborative understanding to develop an innovative response to the brief. CLP is of particular use in a competitive framework environment where there is opportunity to continually improve on the unit costs of the programme working collaboratively with the supply chain.
  • Integrated Project Insurance – This is the most innovative and new approach. The Integrated Project Insurance (IPI) model offers clients the opportunity to create a holistic and integrated project team (an ‘Alliance Board’) to eliminate the “blame/claim” culture. The innovative “integrated project insurance” package limits the risk for the individual members of the team, fosters joint ownership of the project, and thereby reduces the likelihood of overrunning in terms of cost and time.
  • Two Stage Open Book – This model improves on an established approach often used in a framework environment. At the first stage a client invites prospective integrated teams to bid for a project based on their ability to deliver an outline brief and cost benchmark. The appointed team works alongside the client to build up a proposal after which the construction contract is awarded – this is the second stage.

In 2012 a trial programme for the new models was established which included projects from the Ministry of Justice and the Environment Agency, and more recently the procurement of the Education Funding Authority regional framework. However the trials have so far only focussed on CLP and Two Stage Open Book, as due to the innovative nature of IPI it has taken more effort to initiate a trial project.

Also in line with the development of the new models and in order to bring about further reform, the GCS reinforced the need to improve the public sector procurers skills. It has backed the creation of a Major Projects Leadership Academy run in partnership with the Saïd Oxford Business School and Deloitte, and ‘encouraged’ the dissemination of best practice across central and local government. Finally the GCS also provided an updated version of the Common Minimum Standards for procurement. Although the impact of these initiatives is more difficult to measure.

Despite all of this I still hear from contractors on a regular basis that clients are more concerned with lowest price tendering. Or are too reliant on their advisors producing a design before they procure a contractor and then expecting innovation and value engineering to further reduce their spend. So for me the big question now is – three years on, and (perhaps more importantly) less than twelve months to the next general election, have all of these reforms made any difference in the industry?

Based on the evidence provided in the trial projects the potential benefits of the new procurement models are demonstrable for all parties. However the trials have been restricted to a small number of high value central government projects. And whilst anecdotal evidence suggests that things are improving generally in construction, this is more than likely related to an upturn in the economy as a whole.

 

Could Uber’s business model tackle procurement’s next challenges?

In a week that saw the CIPS Conference juggernaut roll into town, and Tesco (still) reeling from overstated first-half profits [more on that here] – you might have missed the following nuggets of news:

Copy Uber’s model to tackle procurement’s next big challenges

  • According to CIPS economist John Glen, speaking at the CIPS Annual Conference in London last week, Uber is not actually in the business of taxis.
  • “Uber is in the business of looking out into the world where there is excess capacity and resources that are not being fully utilised and matching the resource with customers who want to use it,” Glen told delegates.
  • “How do you look at capacity that exists within your own business that is not being currently fully utilised, that you could rent out to someone else or use in imaginative ways?”
  • He continued: “We now have to start to be very clever about how we form alliances with our supply chain, how we understand what it is our customer wants, how we use technologies that are out there cleverly with assets and customers in different geographies, and that is going to be our world in the next 12 months and beyond.”

Read more at Supply Management

Rating agencies’ demands pose threat to commodity supply chain

  • Commodity-price spikes could become more common if credit rating agencies drive up the cost of capital for leading trading houses, forcing them to hold less inventory, a leading consultancy has warned.
  • In a new report on the commodity trading industry, co-authored by Graham Sharp, one of the founders of Trafigura, the consultancy says that by including debts associated with trading in its calculation, the agencies could drive up the cost of traders’ capital. As a result, these companies would have “significantly less incentive” to hold high volumes of inventory and resolve potential supply disruptions.

  • The big commodity traders are drawing greater attention from investors as they issue more bonds and financial instruments to help finance the acquisition of assets that range from coal mines to storage terminals and petrol retailers.

Read more at the FT.com

California launches high-speed train procurement

  • The Californian high speed rail programme envisages provision of a ‘one seat ride’ between Los Angeles and San Francisco by 2028 within a budget of $68bn.
  • Expressions of interest are to be submitted to the California High Speed Rail Authority by October 22 from potential suppliers of high speed trainsets for the planned 836 km network that would link the San Francisco Bay Area with the Los Angeles basin by 2028.
  • ‘We are going to have the first true high-speed rail system in America and industry leaders from around the world are eager to talk to us about why their trains should be running on our tracks’, commented CHSRA Chief Executive Jeff Morales. ‘This is a big moment for our programme.’

Read more at the Railway Gazette

H&M’s environmental sustainability coordinator on sustainable materials

  • The Guardian spoke to Erik Karlsson, H&M’s environmental sustainability coordinator, about the environmental credentials of the new line and the H&M partnership with Jeanologia.
  • He revealed: H&M has been working with more sustainable materials for many years now. Currently, we are the largest user of organic cotton. Our ambition now is to be able to close the loop on textiles, ie produce new fibres from old clothes. In this collection we have two products with recycled cotton from our garment collecting program.
  • To create Conscious denim, washes have been scored red, yellow or green (where green indicates the toughest criteria) for water consumption and energy consumption. To meet Conscious denim standards at H&M, garments must be made with organic, recycled or climate smart cellulose materials and the washing process should score ‘green’.

Read more at The Guardian

Hermes on equality in the supply chain

  • Retail Week has published an article that highlights the success Hermes has had in bringing about equality across the business.
  • The writer – Carole Woodhead, is CEO of Hermes.
  • Women hold a third of the main board positions at Hermes UK. In addition, 25 per cent of all senior management positions are females, as are more than 60 per cent of our field team leaders. In terms of the supply chain sector, women are extremely well represented at Hermes and the company is above the industry norm.
  • We have also recently welcomed Clare Bottle to Hermes who has taken up the position of head of courier service. Clare brings more than 20 years of industry experience to the team, previously working as national logistics manager at Lafarge Tarmac. Clare is also vice-chair of Women in Logistics UK and a trustee of Transaid.

Read more at Retail Week

Coca-Cola green branding devalues the colour’s ethical heritage

  • The cola wars are back on again with the launches of Coke Life and Pepsi True but their use of green branding leaves a sour taste in the mouth, says Chris Arnold, creative director, Creative Orchestra and author of Ethical Marketing & The New Consumer.
  • It’s packaged in a green container which implies it’s some kind of natural, ethical, environmentally-friendly product. What’s more, Coke has spent over 100 years associating the brand with the colour red, so this seems a betrayal of the brand to suddenly go green.
  • With two brands, that aren’t exactly seen as ethical brands, their use of green just devalues the use of the colour green and it’s association with natural and environmental products. Coke claims the green is inspired by the green leaf of the Stevia plant. Seriously?

Read more at Marketing Magazine

Tesco scandal shines a light on the retailer-supplier relationship

All is not well at Tesco HQ… Amid tales of the supermarket’s accounting scandal, a colossal 4 billion pounds has been wiped from its stock market value. The trouble stemmed from an overstatement of its first-half profit – a full 250 million. Not a small drop in the ocean by anyone’s standards.

“The Financial Conduct Authority has notified Tesco that it has commenced a full investigation following the overstatement of expected profit for the half year which was described in our announcement of 22 September 2014 and which is currently the subject of an independent review by Deloitte. Tesco will continue to cooperate fully with the FCA and other relevant authorities considering this matter.”

It’s not simply a tale of accountants getting their sums wrong… the wounds of deceit bleed deep, and it’s the suppliers on the other end that will hurt the most.

According to this story on The Grocer, a supplier with close ties to Tesco has revealed that buyers are “desperate” and are artificially bringing forward huge payments in order to fill the “huge gaps” left.

Tesco scandal has suppliers divided

Luckily the suppliers have the ears of the government-appointed watchdog – namely Christine Tacon, an Adjudicator of the Groceries Code. The Adjudicator’s motivations focus on whether the supermarket has breached code that adversely affects suppliers. Such breaches can include payment delays or changes to supply agreements.

David Sables, CEO at Sentinel Management Consultants told The Grocer that he believed this was merely “an extension of what was always going on.”

Graham Ruddick, Retail Correspondent for The Telegraph, writes: “There is currently no code, regulator or set of rules controlling the relationship between suppliers and retailers in the UK. In addition, there is nowhere to turn for a supplier if it feels it is being bullied by a retailer. Many suppliers are too scared to speak out against a larger retailer for fear of being delisted or replaced by a rival, so they suffer in silence and agree to the unreasonable demands being placed on them.”

He further states that the Tesco scandal could spark a long overdue shake-up of the retailer-suppler relationship – noting that: “Last year this lack of regulation resulted in the horse meat crisis.”

If one good thing is to come out of this sorry debacle, maybe it should be this?