Before you even think of demanding a discount from your suppliers, try these avenues first – they’re far less treacherous routes
An essential part of procurement’s job, and something that will always be required of procurement, is to negotiate the best supplier deals for the business. And as much as we talk about strategic procurement (and this is really important), procurement’s success will always be measured by cost savings. Those savings are not the only way our success is measured, of course, but they are one of our raison d’etres.
So we know we need to save money for the business, but what is far from settled is how. Is a demand letter appropriate, especially in this year’s challenging business environment? Or should we use a more relationship-based approach? We’ve tackled the topic from a number of angles this year, so here is the very best advice from industry influencers and experts.
In a nutshell, many people thought that this approach was a little arrogant, and that it gave the impression that you were a ‘big brand, doing it just because you can.’ And while this approach may have been acceptable 20 or 30 years ago, now it most certainly is not.
More than that, though, many people didn’t like the idea of generic demand letters simply because they didn’t work. Discounts depended on good relationships, and demand letters did not cultivate those, as one procurement professional noted:
“Customers depend on suppliers and vice-versa. It’s a big ecosystem, and [we all need to remember that] if you squeeze out small suppliers and competition lessens, costs will inevitably increase.”
According to Joe, many of us take the attitude of ‘if it’s not broke, don’t fix it.’ But when it comes to relationships, we shouldn’t be taking this attitude, but instead always be looking for the opportunity to improve relationships, streamline processes, and change cost models. In a nutshell, we need to challenge the status quo.
This starts, he believes, with asking your suppliers the simple question of: ‘What can we be doing better?’
Beyond this, we should aim to improve on the following with all of our suppliers:
Trust and loyalty (treat your suppliers as much more than just vendors)
Technology and automation
Adherence to payment terms
Creation of a dedicated Supplier Relationship Manager
Internal alignment between Procurement and Supply Chain category leaders
Continually improving the above will drastically improve our relationships with our suppliers, which will, in turn, enable us to ask for further discounts.
Potential areas for discounting
If great relationships enable us to ask for a discount, should we then just ask for one? Not quite, says Corcentric’s Joe Lazzerini. In fact, there’s so much more to discounting than simply hammering down the unit price.
When asking for a discount, Joe recommends that you do as much preparation as possible, including considering how you can make discounting a win-win, and remembering that you need to collaborate, compromise, and at all times work with a partnership in mind. Here are 9 talking points to begin your discussion about cost optimisation:
Reduced future cost increases with caps
Better reporting, more transparency, communication plans, etc.
This year, more than every other year before it, we’ve learnt that relationships, partnerships and people form the basis of success in just about everything we do. Asking for a discount is no different: if you first focus on developing a strong strategic relationship, everything after that will be more successful.
Negative and contentious supplier negotiations ruining everything for you? Here’s how to negotiate in a positive and effective manner.
We’ve all been privy to supplier negotiations that have gone awry. The supplier begins to look uncomfortable. They avoid eye contact. Perhaps they even break out in a sweat, despite it being a sub-zero day. Alternatively, they get angry or perhaps they don’t say much at all, but then your relationship takes a nosedive and never recovers. They become the bane of your existence and you start wondering how the best deal could have turned into the very worst.
No one likes negative and contentious supplier negotiations, and they often are the beginning of a poor partnership (not to mention relationship!). But are they necessary? Corcentric certainly thinks they may not be, and in fact, saying goodbye to this type of negotiation is one of the big supply chain and procurement ideas we think will change everything in 2021. But how do you do it?
How to build trust in negotiations
The key to avoiding negative and contentious negotiations, says Corcentric, is to use trust-based and positive reinforcement based negotiations tactics. In order to build trust in negotiations, experts recommend six tactics:
Speak the supplier’s language
Supplier relationships are all about fostering an environment that feels like a win-win, and an important way to establish this in a negotiation is to speak the supplier’s language. What this essentially means is that you go beyond the facts of what you are being told and profile your supplier by trying to understand the perspectives, concerns, cultural and business implications, and even the less-than-obvious messages that a supplier might be giving you.
In a nutshell, you listen a lot, and take the time to understand your supplier’s history, current business position, concerns, and even a bit about the person you are dealing with personally. A lot of this can also be industry-specific, and when learning about a supplier you also need to take into consideration industry norms and conventions, as well as industry terminology. Details that may seem small to you, include a unit of measurement (for example, a hectolitre), may be extremely significant to a supplier, so you need to be able to speak their language – literally and metaphorically. Doing so will help foster an emotional connection, and send the message that you’re committed to the supplier and the outcome, and will help build trust.
Manage your reputation
As many of us in the global supply chain and procurement community know, the world is certainly not as big as it seems. For this reason, your supplier’s reputation isn’t the only one you need to think about.
Suppliers talk, of course, and what they say about you counts. So if you have a reputation for going hard on cost and squeezing out supplier profit, you had better believe that your supplier may already know this. Similarly, if you haven’t kept your word in a particular situation, or done something else detrimental that damaged your integrity, that supplier will have likely discovered this. In summary, if you’re known for any of these seven supplier negotiation fails, your reputation may be in trouble.
As such, always be careful of your reputation in the market.
Create an environment of mutual dependence
Regardless of your spend, if you’re bringing a new supplier onboard, it’s clear they will depend on you to some degree. And from your perspective, that dependence is power. But have you ever thought about it from the other perspective, insomuch as you need that particular supplier?
Dependence is an uncomfortable psychological prospect, but research shows that its mutual existence does increase trust in a relationship. For this reason, try to establish the idea of mutual dependence by highlighting to your supplier the benefits of working with you and the positive mutual outcomes you’ll work towards.
It’s something that many of us may feel uncomfortable with, but it is essential in gaining trust, and that is: make concessions. And not just any concessions: one-sided concessions.
In negotiations, it’s difficult to not think that you, as the buying organisation, should have the upper hand. But in reality, what you are building is a long-term relationship in which you should be less focused on tit-for-tat concessions, and more on good outcomes. Before you concede, ensure that your organisation doesn’t suffer as a result, but you’d be amazed at what a single concession can do for trust in negotiations (and beyond).
Point out your concessions
Cringing at the idea of conceding? You might not like this news, but it’s a necessary evil. If you’re going to go to the trouble of conceding, you need to ensure that you deliberately point out what you have done.
Why? Because pointing out your concession, including exactly how much you have given away and what that sacrifice will mean for your business (and hopefully, not just for your ego), shows that you are serious about looking after your supplier. Fortunately, doing this should also trigger their desire to look after you, further engendering trust.
Explain your reasoning
Unfortunately, humans are simply not that trusting, especially in a situation which can be perceived as conflict, like a negotiation. For this reason, your supplier may assume the worst of you (and you the worst of them), before conversations have even begun.
That’s why, when negotiating, it’s important to explain your reasoning for any demands you make. For example, say you require a certain percentage discount on volume orders. Instead of simply asking for this, explain that you need it to make your manufacturing feasible. Understanding your drivers will help give your supplier better insights into your business and how they might be able to help you. There is another, all-encompassing reason that we all need to avoid negative supplier negotiations. Discover what it is here, as well as many other game-changing ideas, in our compelling whitepaper 100 Big Ideas for 2021.
Classifying your spend data? A big waste of time, surely … or a crucial step that needs to be taken without delay? The Classification Guru Susan Walsh explains why this needs to happen immediately.
So, picture the scene: it’s budget time and as far as you can see everything is under control, the bottom-line balances out, you’re in the black and life is good. But, are you really getting the full picture? You’ll never know unless you accurately classify your spend data.
You may already be thinking about it; or can’t justify the time or resources; or it might be something that you think is just a complete waste of time or money. Let me tell you why it isn’t, and you should have your spend data classified as soon as possible…
First things first, there’s that full picture I mentioned. If you’re only using your General Ledger codes, I can guarantee that they are wrong! Now, I know that’s a bold claim, but it is based on years of experience of working with GL codes. More often than not they’re used by people who don’t necessarily understand or know what they’re logging or the importance of accuracy. The result? Items logged under random GL codes.
Now, have a think about your department budgets: Karen in marketing’s maxed hers out, but she’s just placed an order for 5000 new leaflets to be printed. How? In my experience, it’s been snuck into someone else’s budget. Think about marketing and sales, would an order for 5000 leaflets really look out of place in a sales budget? Probably not, unless you look a bit closer. And this means you’re not really getting a true picture of what’s going on at ground level or what you might need for specific areas of your business. You can’t increase the marketing budget if you don’t know they’re spending it all.
We also, unfortunately, need to mention the possibility of fraud or embezzlement. It’s not pleasant to talk about and no one wants to think the worst of their staff or suppliers, but it can and does happen. Someone may have tried to mislead or take advantage of you in some way and if the spend data is messy or they’ve been clever it can be very difficult to spot. This is why it is also a very good idea to have an external party look over it, because then nobody has a vested interest in hiding what’s in the data – they’re just classifying it!
Now, I’m not saying it is a quick and simple process, good classification can take weeks and weeks … and weeks! But it’s worth the wait when you get back your brand new, shiny data set with all this new and organised information. Then you’ll probably say to me, what do I do with this now?
Well, the first thing you do is actually look at what you really spend your money on and find out if you could or should be negotiating better rates with your suppliers because the data’s shown you’re actually spending a lot more than you thought you were or have been automatically accepting price increase when there’s much better deals out there!
Then once you’ve done that, you’ll probably want to review your processes because, as I said before, I can almost guarantee something will have been flagged up during the classification process which indicates spend isn’t being accurately logged.
Ultimately, it’s all about saving you money and that’s no bad thing for anybody. Now, more than ever, it is so important you know where your businesses’ money is being spent and I am sure every single person who has their spend data classified will find at least one hidden surprise – like a data Kinder Egg! (Sorry my American friends, they’re not banned in the UK!)
So, although you may be put off by the upfront cost of having your spend data classified, it will save you money in the long run and the benefits to your business are pretty massive.
The Statement of Work (SOW) is the heart of any contract – so ensure you get it right the first time, thanks to this expert guide by Lawrence Kane, COP-GOV, CSP, CSMP, CIAP
The Statement of Work (SOW) is the heart of your contract. It defines requirements and success factors for your supplier, describing what services, tasks, and/or resources must be delivered along with metrics that govern whether or not those obligations have been met successfully (such as acceptance criteria, Service Level Agreements, and the like).
It is costly to change a SOW once set in place not only because your negotiating leverage is reduced after contract signing but also because any modifications can drive operational, financial, legal, and reputational risks for both parties. Unfortunately unresolved disputes harm the relationship and may even end up in court, so it is imperative to get your SOW right the first time.
A quality SOW will be distinctive for each type of contracting relationship (such as supplemental staffing, managed services, outsourcing, or Vested outsourcing) and will vary substantially depending on the type of work acquired (such as labor, hardware, software, services, etc.). The document itself tends to have some background information that levels the playing field for non-incumbents during the bid process along with your requirements for such things as request fulfilment, governance, implementation, transition, innovation, transformation, technology, operations, knowledge management, business continuity, incident management, security, performance management, information protection, change management, etc.
All SOWs should be aligned with your sourcing strategy so that you’re buying the right things (and retaining the appropriate functions). SLAs and other metrics must be reasoned, reasonable, and achievable so that you’re paying for a solution that meets your business need without costly over- or under-engineering.
Since the people who negotiate the deal often change roles and/or companies before the contract expires or is terminated it is important that the original intent is clear regardless of who reads the document. That means using clear, unambiguous language and enforceable terminology.
Choose your verbs carefully. “Shall” is a requirement the supplier must follow whereas “will” shows intent, “may” is optional, and “expect” is aspirational. I may expect to win the lottery, for instance, but that’s unlikely to happen unless I buy a ticket and probably not even then… As you can see, grammar matters in contracts. To reinforce that point, there’s a huge difference between the following three sentences:
Lets eat grandma.
Let’s eat, grandma.
“Let’s eat,” Grandma.
To delve a little deeper, proven practices vary with the type work you need to buy. The following are some tips for assuring first time quality when writing your SOW for supplemental staffing, managed services, outsourcing, and Vested outsourcing deals:
Supplemental Staffing is used to acquire qualified workforce from a supplier. This is “pay-for-effort” work, so onboarding and off-boarding processes must be predetermined and followed, and integration with retained efforts well thought out. For supplemental staffing SOWs:
Focus on job descriptions and daily management
Normalise requirements with industry benchmarks, describing any certifications or bona fide occupational qualifications necessary
Include badging, background checks, and other vetting requirements and processes that help assure the supplier employees will be capable, competent, and appropriate
Clearly specify any non-labor elements provided by both parties (supplier and buyer)
Describe how and where the work will be performed, establishing governance for daily management
Managed Services contracts are used to put a performance agreement in place with a supplier. This is “pay-for-unit-of-service” work, so clarity in service obligations and performance levels is essential. For managed services SOWs:
Focus on transactions, business rules, measurable objectives, and acceptance criteria
Levy only minimal requirements for interoperability or security to the extent feasible so that your supplier can do what they’re best at (which is why you hired them after all)
Specify any export controls, legal, security, or badging requirements that apply to supplier’s on- or offsite personnel
Describe the “what,” and also the “how” where necessary
Develop clearly defined and measurable outcomes (but not too many) to set SLAs and other key metrics
Optimize cost/service trade-offs
Establish governance for oversight
Outsourcing is a long term, results-oriented business relationship with a supplier. This is “pay-for-result” work, so deliverables must be closely aligned with business needs. For outsourcing SOWs:
Focus on business outcomes and most significant service levels
Facilitate supplier’s ability to do what they’re best at by not over-prescribing obligations, levying only minimal requirements for interoperability or security
Specify any export controls, legal, security, or badging requirements that apply to supplier’s on- or offsite personnel
Describe outcomes, not transactions, focusing on the “what,” not the “how”
Identify inputs, outputs, and interfaces, and develop clearly defined and measurable service levels (but not too many) to set SLAs
Optimize cost/service trade-offs
Establish governance for insight more than oversight
Vested Outsourcing is a long term business relationship with jointly designed solutions to a business imperative. This is “pay-for-outcome (solution)” work, so innovation is mandatory. For Vested outsourcing SOWs:
Must be linked to a shared vision (often outlined in a statement of objectives instead of a traditional SOW)
Focus on innovative solutions to your business imperatives
Requires extensive “open-book” collaboration to design an affordable solution that simultaneously meets both buyer’s business needs and supplier’s objectives
Solution taxonomy includes processes managed by both parties to show an end-to-end view
Uses flexible Statements of Objectives rather than a traditional SOW and architect the details together
Guard against constraining the scope too tightly, allowing supplier to accept all work scope (and risks) that are not core to the buyer’s business
Develop clearly defined and measurable outcomes, focusing on the “what,” not the “how”
Establish a governance for joint insight, not oversight
It can take 4 to 6 months to write a quality SOW (and associated SLAs and other key metrics), but the end result is worth it. For example, the US Air Force saved 50% by specifying that their floors must be clean, free of scuff marks and dirt, and have a uniformly glossy finish, rather than requiring that their contractor strip and re-wax their floors weekly. Seems obvious, perhaps, but this simple example shows why good, clear requirements matter.
Putting it into action… Let’s pretend, for a moment, that you are a busy professional and need someone to cut your lawn rather than doing it yourself. Here are three possible ways of writing the SOW to buy a lawn-cutting service:
A bad SOW would be, “Cut my grass.”
A better SOW would be, “Supplier shall cut my grass to a height of 1” and trim along the walkways once a week between the hours of 10:00 AM and 6:00 PM local time.”
The best SOW would be, “Supplier shall provide care and maintenance for the lawn at [address], including all fertilization, weeding, trimming, edging, thatching, and debris removal necessary to keep it healthy per American Lawn Care Industry organic lawn care standards. Supplier shall assure that the height of the lawn remains between 1” and 2” at all times, there are no bare patches, and that it does not overlap curbs or walkways or spread into flowerbeds. Supplier shall perform all work that creates noise levels over 100 decibels between the hours of 10:00 AM and 6:00 PM local time. All Supplier employees shall pass a criminal background check and conform to OSHA safety standards while on the job site. Supplier shall provide all tools, equipment, and ingredients necessary to perform the work. Buyer will provide water, power, garden hose, and sprinklers.”
It takes time and effort to get it right, but the better the SOW you write the more likely you are to receive all the value you expect when engaging with a supplier. Ultimately an investment in first time quality leads to a better, more affordable outcome.
What are the essential skills you need to possess or develop if you want to become one of tomorrow’s supply chain leaders? Is it enough to have a business-related degree and a little supply chain experience, or is supply chain leadership a vocation for which you must work hard to acquire specific qualities?Rob O’Byrne from The Logistics Bureau shares his expert advice.
In reality, it’s probably a little bit of both. Indeed, many elements of supply chain leadership can’t effectively be learned through academic channels alone.
In any case, an excellent place to start is by knowing what the most vital supply chain leaders’ skills are and, of course, why you need them.
That’s what you’ll find in this article, so you can check which essential skills you already have, and which ones you might wish to enhance with some pragmatic supply chain education.
These Are the 7 Supply Chain Leaders’ Skills You’ll Really Need
1. Information Technology and Automation Knowledge
Before getting into this first section proper, I want to make one essential point, which I’ll expand on later in this article. Supply chain leadership is all about people using technology as a tool. Nothing is more important than working on your people skills if you want to be a successful supply chain leader.
Nevertheless, few supply chains run successfully today without the support of sophisticated technology tools, like warehouse management and enterprise resource planning (ERP) systems. For that reason, you need at least a modicum of IT understanding to work in a supply chain environment, particularly if you intend holding a leadership position.
To be a supply chain leader, you will need to be familiar with the use of enterprise software applications like WMS, TMS, and ERP, not to mention analytics software, which is increasingly becoming a staple source of leadership decision support.
Enterprise IT Skills at User-level
There was a time when supply chain leaders could rely on subordinate employees to do the hands-on work with business information systems, and be content to receive reports and Excel spreadsheets containing data for decision-making.
Those days are gone, however. Today you’re expected to find your way around the modules of your company’s ERP and business intelligence applications on your own. Furthermore, your need for technology understanding extends beyond hands-on use.
Understand IT as a Buyer
As a supply chain leader, your input into IT procurement will be crucial, and you must know enough about your company’s technology needs to discuss them with vendors. You’ll need to understand the relationship between ERP workflows and physical processes, for instance, to help prevent classic mistakes from being made, such as applying new technology to outdated, inefficient processes.
It will help if you know automation technology, too, since more and more companies are applying automation in distribution centres and warehouses.
Ultimately, strong interpersonal skills still trump technological expertise as a supply chain leader’s forte. However, a career at the head of your company’s supply chain is not one to consider if you don’t have some affinity for technology and its application in business.
2. A Grasp of Economics and Market Dynamics
The supply chain world is changing rapidly and sometimes unpredictably, in line with the market dynamics across many industries, all of which are being affected by rapid shifts in customer and consumer buying-behaviour.
Many markets that used to be purely local or regional have become global, as have the supply chains that serve them. As a supply chain leader, you will need to focus on what lies ahead and, to some extent, predict it. That can only be possible with a thorough understanding of the market dynamics relating to your industry and your company.
Of course, each industry and the niches within them are subject to unique and specific market dynamics. Supply chain leaders can work in any industry as long as they know their stuff, but this does mean that a change of employer can require some in-depth study, especially if the market is unfamiliar.
As a basis to quickly adjust to supply chain career moves, it will help a lot to be familiar with economics’ basic concepts.
To see ahead and lead a supply chain team effectively, you’ll need to understand what drives demand, supply, and pricing for the goods and services provided by your organisation and its competitors. These forces impact a variety of supply chain management elements, including the cost of goods sold and the cost to serve your company’s customers.
3. Understanding Cost-to-serve
Supply chain leaders play a very active role in the profitability of their employing companies. If you’re running a supply chain operation, your decisions impact the costs involved in supplying your organisation’s customers.
You will have a huge advantage and the potential to shine as a leader if you can quantify how your supply chain leadership decisions affect your bottom line. For instance, too few companies focus on the real costs involved with serving customers.
The result of this inattention is often a one-size-fits-all approach to service, inevitably leading to the over-servicing of some customers and the under-servicing of others. A single service offering can even impair profitability, perhaps creating a situation where logistics costs cause some sales to generate losses instead of profits.
If you understand the cost-to-serve concept and can apply it to your company’s supply chain activity, you’ll be able to identify unprofitable customers and products.
By developing a thorough cost-to-serve understanding, you’ll even be able to make decisions that improve the profitability of those customers and products instead of taking knee-jerk measures to cut losses.
Every company wants supply chain leaders who can make direct and positive impacts on the bottom line—but not every company has such leaders. That’s why familiarity with cost-to-serve is one skill that can help you stand out as a competent supply chain professional.
4. The Skill of Flexibility
The one thing you won’t find on this list of supply chain leaders’ “must-have” skills is innovation. You don’t have to be an innovator to be an outstanding supply chain leader, but you do have to support and drive innovation. Flexibility is the skill that will help you to do that.
Flexibility gives you the ability to let others do the innovative thinking. Your flexibility will give those creative thinkers the confidence to present their ideas, since they know that you will adopt them if it makes sense to do so.
Flexibility will keep you from feeling too comfortable in the status quo ever to let it go. Flexibility will ensure that change (often termed the only constant in supply chain management) will not faze you or cause you undue stress. In turn, your team will be encouraged to embrace, rather than resist, change.
Flexibility is one of the soft skills that differentiate successful supply chain leaders. That’s not only because of the changing nature of supply chain operations, but also because things don’t always go to plan—far from it if truth be told.
For example, during supply chain improvement projects, it’s not uncommon for things to crop up, requiring plans to be changed. An inflexible leader may doggedly try to drive through with the original strategy, becoming ever more frustrated in the process and hampering, rather than helping the situation.
Inflexibility often manifests in the belief that changing a plan is an admission of poor planning, but in many cases, that is an erroneous presumption.
Don’t fall into this trap. Work on your flexibility as a leader. Accept that plans should always be work-in-progress, and adapt your approach when required. You can’t plan for every eventuality, and while flexibility is a virtue for supply chain leaders in general, it’s an absolute essential in project management.
5. Project Management Skills
Aside from flexibility, there are many other project-management skills that you’ll need as a supply chain leader. Of course, a lot depends on what leadership role you are in, but if you are headed to the top, you’ll probably hold several management positions on the way up, most of which will see you leading projects from time to time.
If you make it to the C-suite or, indeed, to any senior leadership position, it will help you and your managers do a better job if you understand the fundamental principles, pitfalls, and challenges inherent in project management.
The most crucial project management skills to acquire as a supply chain leader are as follows:
The ability to negotiate successfully for resources, budgets, and schedules
A high degree of personal organisation
A proactive approach to risk management
Of course, the above-noted skills are also valuable for supply chain leaders generally, not just as part of a project-management skill set. I’ve simply noted them here because they are the carry-over skills most likely required in a supply chain leadership role. To elaborate:
Personal organisation will be vital for keeping track of numerous projects for which you are likely to be a sponsor and meeting your obligations toward them.
You may sometimes be called upon to support project business cases, hence the need for negotiation skills.
When deciding if you’ll approve a requested project, knowledge of risk management will help you ask the right questions about the proposal and business case.
6. The Ability to Get the Best from People
So how about those people skills I briefly mentioned earlier?
I can’t put it any more plainly: the ability to lead, manage, influence, and inspire other people is the number one fundamental, essential skill that all supply chain leaders and managers should possess.
It is entirely possible to learn the necessary skills, but a word of caution is due. If you don’t enjoy team building and developing professional relationships with lots—and I do mean lots—of other people, don’t choose a supply chain leadership career.
On the other hand, if you love working with people but just don’t see yourself as a great leader, you probably have exactly the right mindset to succeed in a supply chain leader’s role.
There is nothing wrong with being self-critical, as long as you have the will to learn what you need to learn, and the energy to commit to your personal development. Being passionate about teamwork and enjoying interactions with others is half the battle in succeeding as a supply chain leader.
The 3 Cs of Supply Chain Leadership
Communication: First and foremost, you need to communicate well … to articulate sometimes complex concepts in a way that anyone within your company can understand, regardless of whether they have supply chain knowledge or not.
Dependent on whether your company operates internationally, you might benefit from communication skills that extend beyond your native language. It’s becoming ever more common for enterprises to give preference to bilingual or multilingual leadership candidates.
Collaboration: Secondly, you will need to be able to foster collaboration, a critical element in any modern supply chain.
It won’t always be easy, because sometimes you’ll be asking teams inside and outside of your business to collaborate and work together despite competing priorities and expectations. To ensure these parties collaborate, you’ll need to draw on communication, persuasion, and relationship building skills.
Change: Change management is another people skill in which you might wish to receive some special education or training. If you are planning to graduate from a role where you’ve been used to participating in, but not leading change efforts, experience alone may not be sufficient to help you take people through challenging changes. Resistance to change can be hard to overcome.
The impact of changes within your supply chain can affect employees on a very personal level. You’ll need to know how to empathise and to listen actively to what people are telling you. Without these skills, your leadership can quickly be rejected during periods of change, purely through fear of the unknown and a sense that you don’t appreciate employees’ concerns.
Get the Best From Yourself
Finally, while the need to interact effectively with other people might seem obvious, you shouldn’t neglect the development of the person most impacted by your skills and abilities—yourself.
Supply chain leaders should be able to conduct regular self-assessments and identify their areas of weakness.
We never stop learning and developing, but by having the ability to self-appraise your skills honestly, and work on those areas that need it, you can acquire new expertise at a rate that keeps pace with the ever-changing supply chain environment.
Getting the best from yourself also means having the ability to curb your ego. Learn to recognise when somebody else in your team exceeds your aptitude for a specific task or responsibility.
Let that individual take the lead, and be happy to follow and learn from her. Not only will that free you to play a part in which you can use your strengths, but you’ll also be empowering the other person and helping her to reach outside of her comfort zone.
7. The Know-How to Negotiate
As a modern supply chain leader, it won’t only be your reports and colleagues that you need to interact with effectively and skillfully, but also those outside your organization. Moreover, both internal and external interactions will often involve the need to negotiate.
Supply chain leaders must negotiate often, and even if you’re not doing so on a one-to-one basis, you’ll probably find yourself in scenarios where you’re part of a team of people trying to broker a deal or arrangement.
Negotiation Scenarios for Supply Chain Leaders
Some examples of possible negotiation situations that you might get involved in, and in many cases, lead, include:
Procurement of IT services and solutions
Contracts for logistics services
Brokering deals with product vendors (for direct or indirect supplies)
Putting together contracts or service level agreements with customers
Negotiations with employee groups or trade unions
Business merger/acquisition negotiations
Why do Negotiation Skills Matter?
Negotiations are typically transactional, but often take place between entities or teams engaged in long-term business relationships. Whether you are the lead or a mere participant in the negotiation, your skills will influence the transaction’s outcome and the trajectory of the broader relationship.
It’s easy to make mistakes during negotiations, but with relevant training and education, you can hone your skills to avoid some of the most common errors.
For example, skilled negotiators know that the process does not have winners or losers. They don’t go into a negotiation aiming to win as many concessions as possible, and they don’t feel that they have failed when they have to give ground to arrive at a settlement.
A win/lose type of attitude will lead to negotiating mistakes. Even if you come out of a negotiation feeling that you have won, you might find further down the line that your “win” has done nothing to strengthen what might be a vital partnership.
Mistakes that Skilled Negotiators Avoid
If you have developed your negotiation skills, you will always enter into discussions looking for an outcome that will satisfy both parties. You’ll also be able to avoid other common mistakes such as:
Failing to prepare by identifying what the deal-breakers are, which outcomes are essential, which ones are useful to achieve, and which ones don’t matter in any concrete way.
Asking only for as much as you expect… It is better to ask for more than you expect.
Modifying an offer you have made before getting a response to the original. It’s important to understand that the other party may use silence to bait you into relaxing your conditions.
Offering compromises before you have heard all the demands of the other party. By getting all the facts first, you can be selective in identifying where compromise may be possible.
Focusing too much on your party’s input and achievements. Strong negotiators pay close attention to the opposite party’s behaviours, ask plenty of questions, and take time to understand and analyse the answers.
How to Boost Your Supply Chain Leader’s Skills
Your business degree and/or hands-on experience in a supply chain role will undoubtedly help you gain and maintain a supply chain leader’s position in your current company—or in a new organisation if you should be planning a move.
However, supply chains have become so complicated that an extensive toolkit of required skills is required if you want to thrive and make a difference as a supply chain leader.
Some of the skills in that toolkit can be difficult to attain without many years of supply chain experience, simply because they are rarely taught outside of the workplace. Your best option might be a program of specialised supply chain and logistics education.
Our Supply Chain Secrets program, for example, was developed and designed by people who work in the industry. It can help you learn about each supply chain area pragmatically, using real-world problem-solving and relatable examples of commonly made mistakes—and methods to avoid them.
If you’ve read this blog post, perhaps you’ve been searching online for ways to enhance your supply chain leader’s skill set. If so, you don’t need to look much further. Join Supply Chain Secrets today, and access the skills you need to be a supply chain leader of tomorrow.
Ever been to a therapist and felt like they’ve read you like a book? Uncover their secrets in this article and harness your own superpowers. Got a big meeting or negotiation coming up? Learn how your adversaries and your team tick to make sure you stay in control.
My partner has a superpower.
When he opens the front door to a stranger he can tell what kind of day they’ve had, how they feel about themselves and what they think of him. He’s a therapist, and honing these skills day after day through years of human interaction have saved him (and his clients) hours of questions and warm up chit chat.
He can cut straight to the chase and use their shared time in the most effective way that meets their needs.
They often feel relieved, understood and grateful that they don’t have to take the first step of opening up and being vulnerable.
It gives him a steer on what tone he needs to take, what topics they may need to explore and what the weather is like in their emotional forecast.
A therapist has an arsenal of tools ready to deploy – this super quick scanning ability means he’s on the front foot and taking charge before he’s even said hello.
Master your own superpowers
The good news for procurement and supply chain pros around the world is that these skills can be learned. We’ve all seen the TedTalks and infographics reminding us of how much we communicate nonverbally through posture, eye contact and even vibes. A therapist’s superpower helps to demonstrate how much untapped potential there is in the way we hold ourselves and once you learn the signs, you can feel like a mind reader.
Imagine walking into a negotiation clocking every single person in the room based on the seats they’ve chosen to sit in, the set of their jaw, their gaze (fixed, nervous, darting around) and the colours they’re wearing. This includes your own team as well, it can help show who might need a bit of support, who’s at risk of spilling the beans and who might be the over-sharer.
Having the best negotiation plan in the history of procurement does not mitigate against the might of the ever unpredictable human being. We’re people, not machines and that means we can be unpredictable but paradoxically we will often have a billboard above our heads announcing our inner emotional state. We just need to learn to read the signs.
Experiment in your everyday life
Start practicing in your daily life by observing people around you. Look at how people hold themselves, their posture, their eyes, their energy levels, their expression when they’re talking to someone else. You can do this in the lift, on the bus, in conversation with a loved one and when you’re walking down the street. Observing people is not the same as judging, don’t make this mistake. It’s important that you are approaching this exercise from a place of detachment, objectivity and kindness.
David Attenborough ain’t got nothing on you
Once you’ve narrated your own nature documentary about humans you’ve stared at on the bus, then progress to unpack what they’re telling you nonverbally. Start to think about what the expressions might mean, what they could be communicating and what this means for you.
Posture: slouching, or intensely concentrating – furrowed brow, arms crossed
Look at the symbol beneath the gestures. Slouching conveys being relaxed but too relaxed comes across as unreliable. Concentrating can come across as angry which can put you in the box of “unapproachable” Arms crossed means the person is not buying in to what you’re saying or they feel defensive
The slouchy person can’t be relied on to win people over when the razzle dazzle is needed but would be good to talk to before you do a presentation to make sure you’re feeling relaxed
Fast talking and being overly friendly may indicate someone that feels the need to have everyone like them.
A people pleaser can be great for assisting with establishing connections and winning people over but they may not be best placed to head to head on the details or key issues.
The ultimate survival guide (we got you)
Follow these neutral gestures and postures to ensure you’re the cool, calm and collected procurement pro at all times.
Always sit up straight.
Relax your face and voice. A tip is to take a big breath, smile, put your tongue behind your top two teeth (and keeping your mouth closed) exhale gently but firmly, it’s a great way to calm yourself down on the spot.
If you’re a fidgeter, then restrict yourself to only one item on the table.
Maintain direct, but relaxed eye contact. If you smile it will soften your gaze.
Be comfortable in silence and don’t feel the need to fill the space.
Level up and feel the power!
Got a huge presentation or meeting to nail? Then lock in these two strategies from Forbes:
Power priming. Think of a past event where you were successful, recall this event and spend time in that feeling. Soaking yourself in this feeling means you can recall it when you need to.
Power pose. There is a lot of research that shows if you strike a particular pose like standing with your legs and arms wide open for 2 minutes, it will stimulate the hormone linked to power and dominance (testosterone).
Follow our body language hacks to ensure your negotiation or big event goes down as a winner.
Do you have any tried-and-true strategies? Comment below!
Is it acceptable – or not – to send your supplier a letter asking for a discount? You would be surprised…
Here at Procurious, we’re always trying to be progressive, challenge the status quo and push for our profession to be more innovative and value-adding. And in good news, we’re starting to see that many in our community feel the same. How do we know?
In a now-viral post on LinkedIn, our Founder, Tania Seary, posited the question: Is it fair, or not okay, to send your supplier a letter asking for cost cuts? 50,000 views and 60 comments later, we now know this is a hot topic for our community!
It’s something we’ve debated before, but not to this degree. So in times where businesses all over the world are struggling, and there’s more pressure on procurement than ever before to secure discounts and keep organisations moving (or afloat?), is it fair game to demand cost cuts from your suppliers? Here’s a snapshot of what everyone thought … see if you agree.
‘A stuck in the nineties’ approach
The vast majority of people who commented on our post did agree that this year has been a particularly challenging one for businesses and by association, for procurement. One Senior Procurement Director summed it up when he said:
‘Procurement leaders need to be looking for cost reductions to support the strained financial positions of their organisations.’
Yet should those cost reductions come from a demand letter sent to your supplier? Many people did not think it was okay to send your supplier a letter demanding cost cuts, regardless of the organisation’s circumstances. In the main, procurement professionals thought this approach was akin to a ‘power play’ and was a little arrogant, giving off the attitude that a big organisation is simply ‘a big brand, doing it because they can.’
Many procurement professionals recognised that while this tactic may have been appropriate at some other time, it no longer was. In fact, many people made reference to the nineties as a time where this may have been acceptable … but realised that those days were far gone. One person noted:
‘This practice [the practice of demanding reductions] was used at Volkswagen in the 90s under its famous CPO. Though it showed a lot of success at the time, I believe such a practice belongs to the 90s – a lot has changed since then.’
Why doesn’t this approach work?
Beyond the fact that the practice of sending a letter asking for a discount seemed ‘old-school,’ many professionals noted that for at least a few reasons, this tactic doesn’t actually work.
The first reason why people thought this wouldn’t work was because essentially, demanding a discount goes against all the good work that procurement usually does in developing meaningful and strategic supplier relationships. Procurement professionals always need to remember that suppliers exist within a delicate business ecosystem, and it’s best to manage this responsibly:
‘Customers depend on suppliers and vice versa. It’s a big ecosystem, and [we all need to remember that] if you squeeze out small suppliers and competition lessens, costs will inevitably increase.’
Beyond this, though, when making demands of suppliers, procurement professionals need to remember their negotiation training, insomuch as:
‘Blind one-size-fits-all letters are a forced outcome, not a negotiated win-win discussion.’
What’s the alternative?
It seems that within the procurement community, sending letters requesting discounts is absolutely a no-go. But in a time where discounts might, for some companies, be needed more than ever, what is the alternative?
Being the savvy community that it is, procurement professionals had plenty of better options when it came to negotiating a better price.
The most popular suggestion was to employ a process to assess cost saving opportunities in partnership with your supplier. This would lead, according to a few different people, to the supplier further negotiating, and then a potential automatic reduction in expenses for both.
The other option available is to negotiate better terms, a tactic used often, but which should be done through a strategic lens. One person recommended that we all should:
‘Engage with our suppliers and explain what we need in terms of realistic cost savings and the end goal.’
‘You’ve got many tools at your disposal, including SRM and category management, so much so that you need never revert to the dreadful “give me money off or else” letters.’
Do you agree? Or would you still send a letter requesting a discount if you needed it? Let us know in the comments below.
Every procurement professional has a special bag of tricks when negotiating– let’s see if you recognise these seven tips from experts in the field…
The benefits of countless hours of negotiation experiences is that you know what you should be doing more of and what to stop doing. We discover the key traits and tools that make us perform better and are better armed for our next negotiation.
Giuseppe Conti, Founder and Managing Partner of Conti Advanced Business Learning interviewedseven procurement leaders to find out their favourite negotiation trick that played a key part in their business success.
1. Making the first proposal right away
I like to come to the negotiation table well prepared and well-aware of the market alternatives. Making the first proposal allows me to anchor conditions to a level close to the bottom of the market offer, immediately reducing the amplitude of the BATNA of my counterpart. Then I try to improve the conditions that are more valuable for me by making and requesting mutual concessions.
Francesco Lucchetta, Director Strategic Supply – Pentair
2. Preparation, Target, Value
I make sure I follow these three steps at the starting point in any negotiation where I am leading. The first is undoubtedly being well prepared. Secondly, to have a clear understanding of the desired outcome with a predefined “target range”, and thirdly, to fully understand the “value” of the business in the context of the potential suppliers being considered.
Les Ball, Chief Procurement Officer, ABB Motors and Generators
3. Profile your counterpart
Understand whom you face before negotiating! I use initial negotiation meetings to pique the interest the person I’m negotiating with – letting them discover all the potential benefits of working with my company. Then I encourage the speaker to talk as much as possible whilst showing genuine interest in their activities. I try to understand the way they work, their objectives and challenges. Having key objectives clearly in mind, I can better understand where our common interests are and how to shape the deal accordingly. From this moment onwards, I consider it the precise point where the negotiation starts.
Olivier Cachat Chief Procurement Officer, IWG
4. Asking yourself the right questions
It depends on the scenario but for mepersonally, negotiation always starts from knowing your position versus the market. You need to ask yourself ‘what you need to achieve’ and ‘what is the nature of the parties and the cultures you are engaging with’. Nothing beats preparation and being able to explain ‘what you need, why you need it and what is in it for the other party’. My go-to-guide for knowing the best methods in discussions are those from ‘Getting to Yes’ and its methods of principle negotiation. Be firm on your expectations, be open how to get there.
Jon Hatfield, Director Global Supply Management, PPG
5. Do your homework!
Preparation is the essence of a successful negotiation. Knowing your targets, your limits, and your BATNA is extremely important however it is useless if you fail to understand the other party. Put yourself in their shoes to know what they are looking for and how they would conduct research about your company. Do they really need your business? Are they looking for volume, for margin, for market share or for a combination of these? With these insights you will be able to drive and steer the negotiation to your preferences.
Christophe Schmitt, Head of Strategic Supplies, Omya
6. Make them love your vision and strategy
My preferred technique is to make the strategy attractive to the supplier and develop a common vision. Once the supplier is onboard, you can design an agreement in a very favourable direction.
Fabrice Hurel, Director Global Indirect Sourcing, Emerson
7. Questions, Questions, Questions
Asking questions, particularly the ones carefully prepared for in advance. I recall a negotiation with a professional services provider where the negotiation lasted for 3.5 hours. They started the negotiation feeling very confident about winning the business. After two hours of thought-provoking questions, they decided to substantially reduce their prices and ambitions. At the end, we reached a satisfactory agreement for both parties (good for them, great for us!)
Giuseppe Conti, Founder and Managing Partner, Conti Advanced Business Learning
The following answers were collected by Giuseppe Conti, Founder and Managing Partner of Conti Advanced Business Learning (www.cabl.ch), a consulting firm that specialises in negotiation & influencing. This article is part of a series aimed at collecting real-life negotiation experiences from Procurement executives.
How much can you learn about negotiation by sitting on the couch watching movies? Plenty.
Want to become a better negotiator? You could diligently read up on the subject or attend some negotiation training courses, but for the couch potatoes amongst us, you might just learn more by watching some of your favourite films.
Negotiation scenes come in many varieties in film. Often they’re in the form of a hard sell (think Leonardo DiCaprio selling dodgy stocks in The Wolf of Wall Street), or a hostage situation (Tom Hanks negotiating for his freedom in Captain Phillips) or other life-threatening situations such as Mel Gibson trying to talk a suicidal man down from a ledge in Lethal Weapon.
But when it comes down to the nuts and bolts of haggling, the following five scenes give illuminating examples of how to win – or lose – in a high-stakes negotiation.
Sticking to your final offer – Nightcrawler (2014)
Jake Gyllenhaal’s character Lou is trying to sell a video of a crime scene to Nina, a TV news manager. Watch for:
Lou being willing to haggle down to a certain level, after which he refuses to budge.
The power shift in the negotiation from Nina to Lou (aided in part by Lou’s creepy intensity).
Lou throwing in a number of extra conditions when he knows he has Nina beaten.
Best line: “When I say that a particular number is my lowest price, that’s my lowest price, and you can be assured that I arrived at whatever that number is very carefully.”
Doing your homework before a negotiation: True Grit (2010)
In this Coen Brothers film, 14-year-old Mattie Ross (played by Hailee Steinfeld) shows what horse-trading is all about – literally. In order to raise money to hire a Deputy U.S. Marshal to help her track down her father’s killer, she approaches an auctioneer named Stonehill with two demands – that he buys back the ponies he sold he father, and that he pays her $300 for a horse stolen from his stable. At first, Stonehill laughs in dismissal, but Ross’s perseverance and detailed knowledge of the relevant law wears him down until he yields to her demands – plus a little bit more. Watch for:
The moment Stonehill mentions the valuation of the horse and hence kicks off the haggling process.
Mattie’s threatening to walk out on the negotiation and go to the law, causing Stonehill to adjust his offer in panic.
Best line: “I do not entertain hypotheticals – the world as it is is vexing enough.”
Negotiating across cultures – Snatch (2000)
Warning: strong language.
When boxing promoter “Turkish” and his partner Tommy approach Irish Traveller “One Punch” Mickey O’Neil to ask him to participate in a fight, the prospect seems simple enough. The only problem is, Mickey (played by Brad Pitt) has an almost unintelligible accent. His price is the purchase of a fancy caravan “for me Ma”, and then proceeds to list off all the features he wants included in the deal … while Turkish and Tommy can’t understand a thing. Watch for:
Mickey’s impossible-to-understand list of caravan features. The video clip below includes subtitles, but cinema audiences had no such assistance when this film was released.
The bewilderment on Turkish and Tommy’s faces as they realise they don’t know what they’ve actually agreed to. The cultural barrier between the Irish Travellers and the other characters in the film is a running theme that goes far beyond the tricky accent.
Best line: “Did you understand a single word of what he just said?”
Coercion – Ocean’s 11 (2001)
“Frank”, played by the late Bernie Mac, has been tasked with sourcing the transport needed for the team to undertake the crime of the century. The dealer names his best offer, and Frank appears to accept. So far, everything seems to be going smoothly … until the handshake. Frank extends the grip to a full 60 seconds, apparently crushing the car dealer’s hand while chatting amiably the whole time. The car dealer, desperately uncomfortable and in pain, abruptly drops his price before freeing his hand. Watch for:
The range of emotions playing over the car dealer’s face as he realises he can’t free his hand.
Frank’s feigned surprise and gratitude when the dealer drops his price.
Best line: “If you were willing to pay cash, I’d be willing to drop that down to seven-SIX-teen each.”
The power of silence: 30 Rock (TV series 2006-13)
By simply sitting in near-silence and looking stern, grumpy babysitter (Sherri) is able to make Jack Donaghy so nervous that he doubles her pay for working half the time. Donaghy (Alec Baldwin) comes into the negotiation with his usual swagger, but Sherri’s silence causes him to blabber and rapidly cave. Appalled at his own performance, he confronts Sherri a second time. Watch for:
Sherri’s tactical silence when Jack pauses to let her speak.
Jack rolling his eyes when he realises how badly he came out of the negotiation.
Best line: “I made every mistake you can in a negotiation. I spoke first, I smiled … I negotiated with myself!”
Want to suggest some other films or TV shows with great negotiation scenes? Leave a comment below!
What do you do when disengagement is not an option? Alexandru Butiri shares four learnings from high-stakes kidnap negotiations that can be applied in any procurement function.
As far as negotiations go, nothing could be more high-stakes than a kidnap negotiation. How on earth do you put a price on a human life?
Sometimes a procurement negotiation can feel like a kidnapping or hostage situation. Think about the times you’ve had to negotiate with ruthless, uncompromising parties. They maximise all of the perceived or real advantages that they have.
Recently, I had the opportunity to spend time with a kidnap response consultant in a kidnap simulation exercise. We were given a case that involved sea pirates and the kidnap of a crew from a container ship. This training stayed with me long afterwards because I found it so relevant to the day-to-day negotiations we undertake in our procurement roles.
Here are four negotiation tips that I’ve learned from the experience:
1. Set up a response team
The first thing that organisations do in a kidnap situation is to set up a crisis response team of experts, which may contain negotiators, experts in the field of operations, psychologists and others.
When preparing for a critical upcoming negotiation, procurement can take the lead in setting up a dedicated team of cross-functional experts within the organisation. Everything should be coordinated through this lean, agile team. Two key tips to remember are:
Leave it to experts to negotiate. People with a stake in the game are poor negotiators. Would you let you CEO negotiate directly with your top suppliers who may subject her or him to pressure tactics?
Each team member should have a clearly defined role. Not everyone is the lead – and never underestimate the importance of the note-taker.
2. Build resilience to pressure tactics
It’s vital to be aware of pressure tactics, and (more importantly) to be aware of how you react in pressured situations. Sometimes kidnappers will ask for a big payment in a very short timeframe to “solve the issue rapidly”. But it if you give in and pay, this becomes only the first instalment in long line of payments.
In the corporate world, pressure tactics may refer to tight, unrealistic expectations, timeline pressures to make a “quick” decision. Sound familiar? Avoid an amygdala hijack by planning ahead and putting a process in place that will help you avoid making a mistake under pressure.
3. Understand the game and develop a plan around it
Kidnappers’ demands can seem arbitrary, out of control and very unpredictable, which is why kidnap negotiators make it a priority to understand their motivations and hence predict their behaviour and develop a strategy around it.
In procurement negotiations, take the time to research the other parties’ motivations and their commercial construct. Spend more time in planning and less in negotiating for a better outcome. Game theory-based tools can help in modelling various scenarios. This will help to minimise the quick “think on your feet” risk by anticipating various outcomes and knowing your best position in each scenario. Cost analysis and clean sheets will help you understand not only your commercial model, but also that of the other party.
4. Learn to influence without a mandate
We’re constantly influencing (and being influenced by) others without being aware of it. Expert negotiators know how to use influencing principles to reach their objective.
How do you influence without a mandate? There are a set of influencing principles valid in all cultures and societies that can get you closer to your objective. Notice that I’m using the word “influencing”, not “manipulating”. Here are some of them to get familiar with:
One classic influencing technique is to make a small concession (typically of very little cost to yourself) to put the other party in your debt. A kidnapper, for example, might extend a payment time-frame, or agree on a communication schedule. In a procurement negotiation, learn to recognise when the other party gives away something menial to make you feel obliged.
Procurement professionals can put these learnings to use not only in negotiating with suppliers, but in their day-to-day dealings with stakeholders in their own organisations.
What do you think? Leave a comment below, or get in touch with me if you’re interested in finding out more details.