Tag Archives: supplier relationships

Social Currency In Procurement: Do You Know Enough To Be Dangerous?

In recognition of how central social currency is, procurement pros are using their social networks to build, influence, and deliver results. The question is: do you know enough to be dangerous?

Connectivity is central to how we live and work in 2017. When something exciting or unexpected happens, many people immediately share the news, and a picture, on social-media. We read the updates shared by others and offer up our own. We like a post or status update to indicate support or show we are ‘in the know’ and watching important influencers. This constant sharing and consumption of information has become a global phenomenon.

Over time, these exchanges add up to a wealth of knowledge and connections that improve our decisions and elevate the weight given to our preferences – much like the exchange of ‘social currency.’

Social currency in procurement

A similar trend has begun in procurement and supply chain – perhaps in recognition of how central social currency is to us on an individual level. Procurement professionals have talked about supply intelligence for a long time, but now they are increasingly aware of how important their own social networks are to their ability to build, influence, and deliver results.

Professional social currency includes, for example, the recommendations, endorsements and likes that we assign as we go about our business online.  When combined, they create a level of trust, and contribute to organisational reputations of both buy and sell side organisations. When buyers trust that a supplier will be able meet their business needs, or when a supplier trusts that a customer is a good fit for their capabilities in both demand and culture, transaction costs are decreased and the total value potential increases.

The fact that both sales and procurement are investing in their social currency creates a unique opportunity for them to come together and leverage their collective knowledge for the benefit of both organisations.

Being Reactive Vs Pro-active

One of the strengths of social media is its timeliness. Trust is not just about the source or location where information is stored. The more real time information is, the more confidence it gives to decision makers. Having real-time access to information allows procurement to meet the businesses’ needs faster. Timeliness is also at the top of the stakeholders’ priority list when deciding whether or not to engage procurement. When procurement can provide information proactively in real time, identifying which suppliers stakeholders should look at or having the pulse of specific industries, it goes a long way towards demonstrating their value – and adding to social currency.

Having instant access to trusted information alters the range of project options available to a procurement professional. They are no longer in the position of having to be reactive, where the business comes to procurement and says, “We have these new suppliers that we would like to engage – NOW” forcing procurement to scramble, trying to vet them. When procurement has access to real time information, they can readily identify potential suppliers and quickly access industry peer endorsements on those suppliers.

Do you know enough to be dangerous?

Procurement professionals need to know enough to be ‘dangerous’. They should have a foundational understanding of the category or commodity they are supporting, and be able to translate business needs into procurement best practices. This way when they get a seat at the table with stakeholders, they are able to engage in intelligent discussions around what stakeholders are trying to do and what is happening in the industry. Having access to intelligence allows procurement to be the engine driving category or commodity strategy to achieve sustainable value for an organisation.

Today, people call or email each other for supplier recommendations. This manual way of accessing trusted “social currency” is not scalable or visible to the rest of the organisation. The procurement technology user experience has come a long way. With collaborative or social technologies, the data becomes smarter and benefits everyone today and in the future.

The concept of trusted data is not new… the same instant knowledge that allows people to prioritise news shared by their circle of friends or pick a restaurant that has been highly recommended by people with similar preferences… today, decisions are made faster and the outcome is often more successful as a result of social currency.

The insights in this article comprise one of the main takeaways of a supplier intelligence-focused Executive Roundtable Series hosted by tealbook which brought together over 40 forward-thinking procurement leaders from across the country.

What’s The Catch-22 In Procurement Technology?

From here to eternity: what does the future of procurement technology  look like? Download Wax Digital’s Procurement 2020 report here

Procurement technology has undergone a long road of change that has consequently altered procurement functions, processes and the very nature of the business itself. But while we spend much of the time understanding how technology is governing what we do today, it’s how technology is shaping the procurement role in the future that should be our focus.

There is a widespread belief that procurement ‘intelligence’ could significantly change the goalposts for the profession, and go beyond informing and processing data, to predicting, learning and deciding.

Procurement technology’s Catch 22

With analytics and intelligence comes a dilemma. Do you outline the questions you need to answer before you perform analysis, or use the data to work out the answers to ‘what you didn’t know, you didn’t know’? It’s a catch 22 scenario.

Thanks to big data and artificial intelligence (AI), this dilemma is becoming easier to manage. A procurement system using intelligence exhibited by machines can learn from users’ mouse clicks, purchases, and line of information to make its own choices, rather than requiring approval from users.

That doesn’t necessarily mean that procurement skills and knowledge will become any less sought-after. But those in demand are likely to change, perhaps even for the better, if cognitive technologies allow experts to think, consult and use their human skills more wisely.

Our panel’s three key intelligence priorities were:

  1. Anticipating supply and demand decisions

    The power of big data enables procurement systems to foresee the needs of the business, such as anticipating demand based on historical spending or seasonal demands. And the data that systems are based on will only expand as new internal and external dimensions are added to the mix, such as social media and newsfeeds, assessing demand more accurately. Intelligent systems may then begin to question human decisions, such as the validity and need for supplier orders and assessing the risk and ongoing performance of suppliers. Supercomputer IBM Watson’s ability to answer questions shows AI’s and sophisticated analytical software’s ability to surpass a human’s ability to answer high-functioning questions, and to work as an instructor to human processes.

  1. Uber-personalisation

    From marketing to IT, departments across the organisation use purchasing systems, meaning that there are different roles and backgrounds to accommodate. Through machine learning, procurement could lead the way in uber-personalisation, in which its systems are integrated with others such as ERP and CRM to determine and define each users’ preferences and needs.

  1. Intelligent supply relationships

With the introduction of AI comes a potential new landscape of supplier management, as eTendering, eSourcing and contract management have the potential to become more automated. This could see systems monitoring supplier behaviours and performance based on buyer feedback, or keeping a close check on adherence to contract terms; and possibly even interpreting eAuction behaviours and leading negotiations to make sourcing decisions on the procurement professional’s behalf. 

Even with vast use of intelligence, the procurement department will still require human involvement. While intelligence can be used to purchase everyday office products such as paper, strategic projects like building a new office will require procurement’s involvement in business planning and meetings, meaning that procurement professionals should strengthen their strategic skills in this area to ensure that they’re indispensable. But a new type of ‘colleague’, which is highly efficient and has extreme attention to detail, could well be on the way. Combining intelligence with vital people skills is how you can make procurement a strong and effective force in the business.

Learn more in Wax Digital’s Procurement 2020 report, a set of future gazing in-depth interviews with global senior procurement professionals and experts.  Integration of procurement technology in the wider business was the first topic. 

Real Relationships Really Matter

It doesn’t matter what technology your organisation adopts, or what digital transformation you endure; procurement relationships will always be essential for success. 

At the Big Ideas Summit 2017, we once again challenged our thought leaders to share their Big Ideas for the future of procurement. Chris Cliffe discussed why relationships really matter.

The world around us is changing. You can’t turn anywhere these days without hearing the phrase ‘Digital Transformation’. Everyone’s writing about technology and the race to automate and use augmented intelligence in business.  IBM’s ‘Watson’ is soon expected to be in regular use within procurement teams across the globe. But, the reality is that the vast majority of organisations, be they Private, Public or Not-for-Profit Sectors, are only at the start of this adventure.

Of course, it is crucial that our organisations do focus on adopting technology. The role of the CIO, for example, is at least equally important to that of the CPO. Yet the technology focus cannot be at the expense of the human focus.

Relationships really matter.

In fact, in the next decade or so, relationships will increasingly be the differentiator as ‘process’ and ‘transactions’ become automated and ‘value adding’ activities become the sole human focus.

Buyer Supplier Relationships

It might seem an obvious place to start but buyer supplier relationships are so often overlooked.  I think we can, in the main, agree that a ‘tender’ process in itself delivers zero value. Value for Money can only be obtained from good performance of the resulting contract. If we put ‘procurement’ theory to one side for a moment and look at ITIL Service Management, it clearly states that “good people can make a bad contract work, equally, bad people can make a great contract fail”.

Having the right relationships, between the right people, on both sides of a contract is how you get best value. Investing time and effort into building, nurturing and maintaining good relationships between buyer and supplier teams will facilitate far more value from contracts. It doesn’t pay to   let and forget!

Let’s assume a big problem happened last week.

Scenario 1: You call your account manager to complain, having not spoken to them in months, because ‘someone’ messed up.

Scenario 2: You call your account manager that you spoke to recently. You know they’ve just returned from their first family holiday in five years. They’ve had an awful couple of years for various personal reasons and, in fact, they’d even booked a restaurant you recommended. Whilst they were away, a junior member of their team was covering and they may have dropped the ball.

In both scenarios, the same issue has arisen and it needs fixing.  But I suspect the majority of us will approach those two calls differently and outcomes from these calls may also be different. Think about whether you could start both calls with the phrase, “How can I help you fix this problem?”

Stakeholders

Stakeholders: An increasingly over used, catch-all term to dehumanise people who we go to work with day in, day out. Investing time and effort into establishing relationships with the key individuals within our businesses will pay you back in spades. Ask questions. Be interested. Get under the skin of the challenges your colleagues face. Don’t be constrained by the perception of silo’s.

We must always remember why we do what we do. The purpose of Procurement is not to further the cause of procurement. Of course, a very happy side effect of an effective, modern, highly engaged and enabling procurement team is that the reputation of the profession will increase to everyone’s benefit, but that cannot be the motivation. The role of Procurement is simple. It exists to facilitate and enable the organisation(s) it supports in achieving its vision, mission and goals.

In human terms, we are there to help our colleagues enjoy work through enabling their success and in achieving their objectives. This is a differentiator between good and bad procurement in my mind. Establishing relationships with stakeholders based on a genuine interest in understanding their challenges and seeking to support them overcome obstacles proactively, will lead to game-changing relationships rather than relationships based on reactively promoting procurement process, policy and procedures.

Career Development and Credibility

Relationships really matter for professional development, career development and credibility. Take a look at the Deloitte CPO Survey 2017, or any recent recruitment agency survey. There will always be analysis pointing out how the procurement profession is dogged by a lack of soft skills and how there’s a real talent shortage with regards to interpersonal capabilities. I believe we all need to take  responsibility for learning and development; it is up to individuals to own the preparation for longer term career aspirations.

Relationships really matter with those in your network. The aim isn’t to collect as many LinkedIn connections as you can, but it is to connect to as many people as you can. Connect in this sense means to talk, ask, listen, learn, impart knowledge and most importantly follow up on conversations. Being market aware and having your finger on the pulse is an incredibly important part of being a credible professional in terms of managing contracts and suppliers and with developing productive relationships with colleagues.

Investing time and effort into building, nurturing and maintaining productive relationships really matters.

Negotiation, Trump-Style – The Winner Takes It All

Negotiation with suppliers can be done using hardball tactics, so long as there is no genuine need for an ongoing relationship.

In the New Yorker last year, Tony Schwartz, the ghostwriter for Donald J Trump’s The Art of the Deal said:

‘He lied strategically’.

‘I put lipstick on a pig’.

Rather than inviting more in-fighting than a Taiwanese parliament, let’s focus on the negotiation trap inherent in Trump’s behaviour.

Whether you’re for or against him, Trump’s negotiation tactics are more obvious than a bogey hanging out of your left nostril on a video conference call. Let’s look at his top five tactics:

  1. Huge ambit opening positions – if he wants $2.50, he asks for $1 Billion.
  2.  Flattery – ‘You’re a good guy, a great guy, the best’!
  3.  Bluster – ‘This is going to happen my way, it always does … believe me’.
  4.  Anger (feigned or real) – ‘This deal is so bad, so wrong, you’re making me really mad’.
  5.  Insult and intimidation  – ‘You’re a loser, you’re crooked, you are going down big time’.

These tactics may or may not have worked, but it’s fair to say that at best, they are transactional.

The Winner Takes It All

A deal can be done using these tactics as long as there is no genuine need for an ongoing relationship. The winner takes it all, the loser’s standing small. (Sorry, too much ABBA in adolescence).

Interestingly, a lot of people have asked me if I think Trump’s tactics could be useful for them.

My short response is ‘If you plan on renewing that client, want referrals or would like to be treated as a trusted adviser for a while, then probably not’.

However, when I ask them if they’ve been subjected to these, and other, tactics from clients including senior managers and Procurement, most say ‘All the bloody time’.

Many sales managers and sales people are aware of these tactics being used against them, yet are so keen to get the deal that they succumb, subjecting their company to poor margins, ridiculous stress to meet deliverables and a culture of subservience.

How to address the key tactics in Trump’s playlist

  • Huge ambit opening positions: Plan your own positions, especially your walk away. Politely refuse to discuss offers outside that range. Get back to discussing what the client is trying to achieve
  • Flattery: If you’re desperate for approval, ring your best friend, your mum or ask your dog if he loves you mid-lick. You don’t need approval and validation from clients.
  • Bluster: Ignore or say ‘thanks for sharing that, so let’s look more closely at the issues on the table’.
  • Anger: Keep asking questions like “Why is this so bad? Why do you want to still pursue this then? What would you like to do from here? (my personal favourite).
  • Insult and intimidation: See Anger, or coolly refuse to continue until the behaviour stops.

Unless you don’t care whether your client gets a great result or not, transactional negotiation styles won’t work very well.

Equally, whether they are the President of the United States or the Chief Procurement Officer, you should build a skilful, tactical wall and get them to pay for it.

Elliot Epstein is a leading Pitch Consultant, Keynote Speaker, Corporate Sales, Negotiation and Presentation trainer who gets sales results rapidly. He has coached and trained high profile corporates globally in presenting, selling, negotiating and pitching. Visit Salient Communication for more information.  

This article was first published on LinkedIn.

Big Ideas Summit 2016: Big Idea #31 – Successful Supportive Relationships

Is procurement too focused on risk in contracts? And is this view point harming its ability to build good relationships?

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Building Successful Relationships

Chandru Dissanayeke, Deputy Director at the UK Government Commercial Function, argues that procurement focuses more on the risk aspect in contracts, rather than building on successful outcomes for both buyer and supplier.

Chandru believes that procurement can build good relationships by being interested in the success of the supplier as a business. However, at the same time procurement should be supporting the supplier to manage risk where applicable.

The final factor for the relationship needs to be sharing information and lessons openly with all parties.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 19,500 like-minded procurement professionals from across the world.

How To Solve The Extended Payment Term Problem

Extended payment terms can be a huge burden for buyers and suppliers. Not to mention the negative press. But there is a solution at hand.

extended payment

In response to the financial recession of 2008, many supply chain and procurement departments began pushing their suppliers for extended payment terms as a means to improve cash flow and limit the need to acquire credit, which was in short supply.

While the recession has long since past, the practice is still very much in use today. In fact, major companies such as AB InBev, Kellogg, Diageo, and Mars commonly establish payment terms that extend anywhere from 90 to 120 days. Additionally, a 2016 study revealed that buying teams are planning to extend their payment terms even further.

This push for extended payment terms makes sense for buyers. Extra cash in the coffers can be used to fund R&D, buy back stock, and invest in strategic initiatives. It also never hurts to have more free cash as working capital.

However, while buyers benefit greatly from extended payment arrangements, they can pose a tremendous burden to suppliers – especially small- to medium-sized businesses (SMBs).

How Extended Payment Terms Hurt Suppliers (And Buyers)

Extended payment terms can be detrimental to suppliers for a variety of reasons, including:

1. Curbed Productivity

Many SMB suppliers have limited resources in terms of manpower and production capability. As a result, they can only take on so many projects and contracts at a time before reaching capacity.

When funds are tied up waiting for cash to come in, these companies are precluded from investing in new equipment, replenishing stock or adding to their workforces. This brings the company to a standstill, and could put it out of business altogether.

2. Lack of Financial Flexibility

While large corporations and buying teams have the purchasing power to demand extended payment terms, smaller suppliers do not.

As a result, these suppliers are forced to receive payments late while paying their own suppliers early. This creates a cash flow crunch in working capital that many can’t escape.

In fact, most firms operate on a month-to-month basis with cash reserves built to last only 27 days.  

3. Lower Employee Morale

In addition to the financial consequences of extending payment terms, the practice takes a human toll as well. Going three-to-four months without receiving payments from buyers makes it difficult for businesses to make their own payroll – usually the largest expense for a SMB.

As a result, small suppliers suffer from reduced morale and engagement. This can, in turn, lead to a decline in quality and production delays.

4. Limited Credit Options

With limited cash on hand, the only financial lifeline available to many SMBs is to apply for more credit. However, 50% of small businesses receive no money at all when they apply for credit loans.

SMB Credit
Source: Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia

Extended Payment Terms Can Hurt Buyers, Too

In the end, buyers end up paying the price for extended payment terms as well. That’s because it introduces risk into their supply chains. If a trusted supplier is forced out of business or suffers a decline in productivity, it hurts the procuring organisation.

In addition, suppliers have long memories. Many will compensate for extended payment terms with higher costs, while others include steep late-payment penalties in their contracts.

Lastly, a high quality supplier whose products or services are in-demand supplier may simply choose to work with other companies that offer friendlier payment terms, and forego bidding new opportunities that come with onerous payment terms.

Reverse Factoring May Be The Solution

Reverse factoring allows a buying organisation to leverage its strong credit rating to acquire favourable financing, which is used to pay suppliers in a more timely manner.

Here’s how it works:

  • Supplier submits the invoice to the buyer.
  • Buyer approves the invoice and submits it to a 3rd party financial institution or factor, who bases interest terms on creditworthiness of the buyer.
  • Financial institution pays the supplier at their desired early term of net 30 days, discounting the invoice payment by the agreed-to discount rate.
  • Buyer pays the financial institution the face value of the invoice at their agreed-upon date, say net 90 or net 120 days.

The concept is fairly new, but it is already proving to be a great solution for buyers that want to reap the cash flow benefits of extended payment terms without putting their suppliers in jeopardy.

That’s because it is beneficial to every participant in the process. It allows both buyers and suppliers maintain cash flow while forging positive working relationships in the supply chain. The financial institution also benefits by generating a return on the funds lent to the supplier and reimbursed by the buyer’s payment.

Offering friendlier payment terms is just one way to build stronger relationships with suppliers. Discover more on how to improve your relationships with SMBs in our latest tip sheet.

Ed Edwards is Audience Outreach Manager at THOMASNET.com. He leverages his extensive experiences in engineering, manufacturing and procurement, to educate procurement and engineering professionals on how to streamline and improve their work.

Ed provides customised training to organisations’ engineering and sourcing teams and helps buyers with their challenges and finds them new opportunities.

Power Dynamics: Emotional Conflict in Indirect Procurement

Indirect procurement implementations are tricky. Take into account power dynamics, and there’s an emotional conflict that needs to be overcome too.

Power Dynamics

At a recent CIPS event in Zurich, the topic was disruption in indirect procurement. There were some excellent presentations and lively discussions afterwards on working with business functions.

But when I raised the fact that, in fact, successful indirect procurement implementations take away power from functional heads, the reaction was raised eyebrows.

While leading the build up of a global indirect procurement business partner organisation, I was sure that the hardest part would be getting the right talent to face off to the business. And if this match up were done correctly, all would take care of itself.

This formula worked well at first, and the team was making inroads with the business and delivering real savings.

But as we got into more controversial categories, the team started talking more and more about how difficult some business people were, especially senior ones.

Targets pressure was high, and the tension mounted both from the team and from executive management. My thinking that things would smooth out on their own over time was dead wrong!

Addressing Power Dynamics

Then I realised we were actually in the midst of three power dynamics that were holding us back. These had to be addressed.

Buyer & Supplier

The first power dynamic is the obvious one that happens when you cut across existing relationships between the business and the suppliers. It’s not just about interrupting nice lunches, but also touching the egos of the functional colleagues because procurement was:

  • Saying the business were not expert negotiators, which some colleagues took very personally.
  • Interfering with relationships where the business colleague had been the centre of attention and they now had to share airspace.

We were still at the beginning, so some good stakeholder management allowed us to work through this power dynamic by:

  • Putting in highly qualified and business knowledgeable procurement managers with great business partnering skills.
  • ‘Love and Care’ – taking time to listen and understand their concerns, which lead to better understanding but also assuaged egos.
Loss of Power

The second power dynamic was harder. The reality was that as spend came under control and savings were embedded in budgets up front:

  • Budget holders were losing decision making power over ‘their’ savings that could no longer be used to fill gaps.
  • There was more scrutiny, and decisions on re-investment were being taken at a more senior and cross-functional level.

Needless to say, they didn’t like it!

At this point, even the most fearless and confident team members were getting stressed. We needed to find a way to reduce the tension. We did it with:

  • ‘Tough Love’ management engagement – being very transparent that, yes, it was a shift of decision making, and not pretending that it wasn’t (supported by ‘Love and Care’).
  • Support and coaching of the procurement teams, so they could talk openly about difficult clients, and then work up solutions to solve it.
Senior Management Power

The third power dynamic is the trickiest. This was about very senior management and their personal skin in the game for the indirect procurement program:

  • The easy blanket ‘we support you’ was not giving enough air cover for the complex and more controversial projects.
  • We had specific blockers in the system at very senior levels that needed to be overcome to move forward.

The indirect procurement leadership discussed the issue intensely and decided to try a new direction:

  • For each of the controversial projects we presented to the senior committee, we asked for an individual sponsor from them
  • We also asked each sponsor to not only enable cut through with their own organisations, but also those of their peers

They said yes and volunteered specific sponsors right then and there.

This created space for the team and also created a peer pressure dynamic among the executives. We reported regularly, and no one wanted to be behind.

The team then took forward a series of projects closely aligned with the business functions, including transforming legal services, establishing consulting preferred suppliers, and changing the business model with marketing agencies.

Changing Relationships

In addition to delivering significant savings, there was a deep change in the relationship between indirect procurement, their functional colleagues, and the senior management, as a climate of respect and common purpose took shape.

I knew things had moved on, when at a regular update, the CFO made a classic comment that ‘his wife found a cheaper plane ticket on the internet’, and his peers looked at him and we moved on as if it hadn’t been said.

Implementing indirect programs involves strong emotions and power dynamics which need both active upward selling and strong change management. This might involve simply getting the right people together to make a fit for purpose plan for formal executive presentations and stakeholder management.

Solving the underlying emotional conflicts creates trust and delivers results.

Pauline King is the CEO of Heykins GmbH, Rapid Results Procurement, focused on working with clients’ existing teams to deliver tangible financial results.

She is a recognised expert in indirect procurement with deep operational experience in procurement transformation. Pauline also works closely with The Beyond Group AG where she heads up the Indirect Procurement Practice.