Supplier partnership is an integral part many procurement policy. However how do we measure these partnership and is it bringing to the buying organization benefit?
Partnership beside bringing in better competitiveness to the transaction in term of pricing, quality and delivery, also involve innovation and new ways of handling information, resolve situational problem and bringing added value to both parties.
As a buyer and decision maker in organization, i would want to see supplier and buying organization work out the parameter involve which will sustain the business relationship in the long term and these are:-
a) Supplier Performances which is a very basic condition to any organization. How can a supplier able to sustain it performances every year in term of delivery, pricing, excellent communication, quality control and able to understand the customers business.
b) Transparent costing which most suppliers, especially in Asia and certain extent elsewhere. As a buyer, you will need to be confidence with the cost you are given by suppliers. Counter check on pricing with new sourcing of vendors will help but this by itself is self defeating in any business partnership as the trust is been placed on a very thin line. I myself will want to check and see a genuine reporting of material usages on the part and the actual cost use. Labor cost and other overhead cost will be expected to contain variance but all i need to see will be a percentage figure which will be a industry average.
c) Offer Innovative New Design which keep up to the market trend. Suppliers who does this make them more valuable to any customer and as a buyer I always appreciate such suppliers and of course they is a take here of better value to the supplier in term of cost
and profit but if any supplier able to do this innovative things, they and the customer will be able to stay above compare to the competition
d) Supplier who can offer insight to their customer supply chain system and help to offer some improvement will be extremely valuable. These type of insight can be from mutual discussion on how to improve efficiency and their ability to take some measure to improve their customer performances and lastly i will value supplier which ......
e) Able to improve costing of their product. Most supplier when they begin to supply new material to customer will incurred investment of people and equipments assets and this sunk cost will need to be recover from the sales of the material to the customers. I would expect them to try to recover the investment in terms of number of months or few years depending on the cost of investment versus the expected sales. If the suppliers are able to reduce the cost and remove this element later after the cost has been returned, but maintain a very small portion of it for maintenance and improvement, these are the type of supplier we will tend to value most.
These five element need to be there most of the time and we will sure value such suppliers. However as a customer ourselves, we need to play an important role as well and these roles are as followings:-
a) Be transparent with your policy and keep our suppliers aware of happening in your organization as a assured supplier will be able to add more confidence on their part to support any buying organization.
b) Behave like a supplier. All business organization will have their own customers as well as their own supplier. Think what your customer will do for any action or reaction your organization take.
c) Offer analysis of your business situation and seek understanding for any expected slow down or increase in business to assure your supplier understand the situation. The first instance any supplier will react when they see a slow down in business is to suspect they have lost it or their customer in trouble. Preempted this thought from their thought.
d) Give ample lead time to ensure your suppliers able to act efficiently. One reason for cost to go up is due to the need to perform extraordinary tasks like overtime and secure expensive material to meet unexpected short lead time orders.
e) Pay on time.
Tuesday, 7 June 2011
Thursday, 2 June 2011
PASSIVE NEGOTIATION
Negotiation is an art of war in subtle form.
Sometimes, as a buyer, the position you are taking in negotiation will determine the strategy you will apply and the other party will also be on the prowl to carefully study your real position. If as a party involve in a negotiation, and you have done your thorough research on the issue and strength and weakness of your position and the opposition position,you tend to be either very confidence or you may be aware of the traps and hurdle you are going to face and adopt a cautious approach.
Undertaking a research to your negotiation case and be prepare will be the best defense or attack strategy you will choose to make.
What is passive negotiation strategy?
As the word "passive" by itself, it mean to be taking a quiet or low or no response strategy and keep all your thought to yourself. In passive negotiation, you may either participate in the negotiation by being a listener and reserve your statement of intend or proposal to a later stage. You may also not directly involve in the negotiation but are represented by your subordinates or appointed agent.
Sometimes this strategy may come as a lucky break.
Recently i am lucky enough to apply this strategy!
A particular supplier came calling for appointment with me and the key agenda was to propose a price increase. As normal to myself, i reserve any commitment to this proposal and let the supplier calling the rule of the game.
I let this matter to be digested by more then a week and ignore the demand.
But in the meantime, i ask my assistant to review other proposal and check if we can change the specifications of the material and demand for a review with other suppliers. True enough, a number of potential suppliers willing to propose better costing.
With this information, i ask my assistant again to write to this particular supplier that since there a demand on price increase, we have decided to review the specification and ask for a line review. They may lose the businesses if based on the costing, other suppliers are much lower then them with this new specification.
You know what?
They decided that they shall not take any risk and maintain current prices without any increase for the short term!
I did not say a word to them on this but uses a subtle strategy of attack later which caught them off guard. Seem the homework not properly research by them!
Yes, it seem catching the opposition off balance but in negotiation, the element of surprise is very important. It no benefit to bark but without a bite isn't it?
Sometimes, as a buyer, the position you are taking in negotiation will determine the strategy you will apply and the other party will also be on the prowl to carefully study your real position. If as a party involve in a negotiation, and you have done your thorough research on the issue and strength and weakness of your position and the opposition position,you tend to be either very confidence or you may be aware of the traps and hurdle you are going to face and adopt a cautious approach.
Undertaking a research to your negotiation case and be prepare will be the best defense or attack strategy you will choose to make.
What is passive negotiation strategy?
As the word "passive" by itself, it mean to be taking a quiet or low or no response strategy and keep all your thought to yourself. In passive negotiation, you may either participate in the negotiation by being a listener and reserve your statement of intend or proposal to a later stage. You may also not directly involve in the negotiation but are represented by your subordinates or appointed agent.
Sometimes this strategy may come as a lucky break.
Recently i am lucky enough to apply this strategy!
A particular supplier came calling for appointment with me and the key agenda was to propose a price increase. As normal to myself, i reserve any commitment to this proposal and let the supplier calling the rule of the game.
I let this matter to be digested by more then a week and ignore the demand.
But in the meantime, i ask my assistant to review other proposal and check if we can change the specifications of the material and demand for a review with other suppliers. True enough, a number of potential suppliers willing to propose better costing.
With this information, i ask my assistant again to write to this particular supplier that since there a demand on price increase, we have decided to review the specification and ask for a line review. They may lose the businesses if based on the costing, other suppliers are much lower then them with this new specification.
You know what?
They decided that they shall not take any risk and maintain current prices without any increase for the short term!
I did not say a word to them on this but uses a subtle strategy of attack later which caught them off guard. Seem the homework not properly research by them!
Yes, it seem catching the opposition off balance but in negotiation, the element of surprise is very important. It no benefit to bark but without a bite isn't it?
Friday, 13 May 2011
How to negotiate a supplier demand for price increase?
How often do you as a procurement or purchasing manager receive price increase demand from suppliers?
Receiving such demand is not unusual as a buyer as this is the norm rather then any sign of abnormality. How do you handle this situation?
Actually, your sucess in procuring proactive supplier which understand the trade and able to work closely with your organization will make this issue less of a stress. The sucess of this action will actually help you to a certain extent where this paticular supplier will tend to listen to your woes and needs for justification by them before any increase can be accepted.(refer to my previous blog on cost saving strategy)
However, you may also or rather you will normally received request from suppliers who just need to capture thier own respective profit margin and this demand for increase can be very harsh and hard on your organization and yourself. How do you handle this situation?
There could be a number of options available to you. Analyse a number of potential advantage and disadvantage to your organization.
a) Analyse if your organization is stronger in term of trading value to this supplier. If you are, your chances of slashing the increase or stopping the increase is higher as the supplier will not want to lose a good and loyal account provided the cost impact is minimum to the supplier.
b) If your organization is not a key customer to this supplier,then it is good to plan quickly and use the following strategies:-
(I) Delaying strategy by asking for cooling period of a few weeks to few months and use this period to source other suppliers to compare prices and quality of the material
(ii) Enter into a negotiation to reduce the impact. Example a 10% request can be slash to 5 - 7% for example
(iii) Review material use at present and check for substitute material with same supplier or other suppliers and this can be quite threatening to the supplier itself
There are a number of other potential strategies to be consider as well and you may review this as a team project internally for brainstorming session before engaging the supplier itself with one singular strategy.
To ensure that there is proper rule of engagement, it will be very tactical to have procedure and rules in place and introduce and implement to all suppliers which include procedure on price increase or decrease and this rule of engagement will benefit your organization as a customer.
Receiving such demand is not unusual as a buyer as this is the norm rather then any sign of abnormality. How do you handle this situation?
Actually, your sucess in procuring proactive supplier which understand the trade and able to work closely with your organization will make this issue less of a stress. The sucess of this action will actually help you to a certain extent where this paticular supplier will tend to listen to your woes and needs for justification by them before any increase can be accepted.(refer to my previous blog on cost saving strategy)
However, you may also or rather you will normally received request from suppliers who just need to capture thier own respective profit margin and this demand for increase can be very harsh and hard on your organization and yourself. How do you handle this situation?
There could be a number of options available to you. Analyse a number of potential advantage and disadvantage to your organization.
a) Analyse if your organization is stronger in term of trading value to this supplier. If you are, your chances of slashing the increase or stopping the increase is higher as the supplier will not want to lose a good and loyal account provided the cost impact is minimum to the supplier.
b) If your organization is not a key customer to this supplier,then it is good to plan quickly and use the following strategies:-
(I) Delaying strategy by asking for cooling period of a few weeks to few months and use this period to source other suppliers to compare prices and quality of the material
(ii) Enter into a negotiation to reduce the impact. Example a 10% request can be slash to 5 - 7% for example
(iii) Review material use at present and check for substitute material with same supplier or other suppliers and this can be quite threatening to the supplier itself
There are a number of other potential strategies to be consider as well and you may review this as a team project internally for brainstorming session before engaging the supplier itself with one singular strategy.
To ensure that there is proper rule of engagement, it will be very tactical to have procedure and rules in place and introduce and implement to all suppliers which include procedure on price increase or decrease and this rule of engagement will benefit your organization as a customer.
Wednesday, 11 May 2011
Cost saving strategies
One of my favourites strategy with suppliers on cost saving is to find proactive suppliers who knew what need to be done to ensure a win-win formula instead of just passing cost increase to thier customers.
Method of indentifying such supplier is not very difficult but need careful analysis and key pointer would be as following:-
a) when discussing business opportunity, throw to them issues on price trend and how they could help and by thier answers, we can gauge thier attitude toward such matter. a proactive supplier which will assist thier customer to overcome issue on price increase is to counterpropose solution on design or alternative materials which can be considered for the material supplies.
b) have a R n D department and has work closely with customers on projects. such companies will have a open minded concept and good knowledge on overcoming this issue
c) a efficient control system in place in term of thier own procurement excercises, production and quality control. such supplier more often then not control thier cost very well to ensure optimisation of cost and these will be the supplier to look for.
Normally during audit and pre business development checks via discussion, one of your aim should be catered to these pointers before making a decision.
I will try to share more of my own experiences via practical approach to cost saving solutions.
Method of indentifying such supplier is not very difficult but need careful analysis and key pointer would be as following:-
a) when discussing business opportunity, throw to them issues on price trend and how they could help and by thier answers, we can gauge thier attitude toward such matter. a proactive supplier which will assist thier customer to overcome issue on price increase is to counterpropose solution on design or alternative materials which can be considered for the material supplies.
b) have a R n D department and has work closely with customers on projects. such companies will have a open minded concept and good knowledge on overcoming this issue
c) a efficient control system in place in term of thier own procurement excercises, production and quality control. such supplier more often then not control thier cost very well to ensure optimisation of cost and these will be the supplier to look for.
Normally during audit and pre business development checks via discussion, one of your aim should be catered to these pointers before making a decision.
I will try to share more of my own experiences via practical approach to cost saving solutions.
Monday, 9 May 2011
Top 10 Nightmare in Supply Chain Management
I will ranked the nightmare of a procurement / purchasing / material planner as following:-
No 10 - Forecast by customer less then 10% accurate in term of order not coming in as plan
No 9 - High stockpile with no order as plan which mean that high investment of stock with no short term return of investment
No 8 - Price increase which affect budget on material
No 7 - Material pilferages in warehouse due to poor recording, this will create other worst nightmare to follow
No 6 - Change of plan by manufacturing without sufficient notice which may create shortfall in supply on time to meet the demand
No 5 - Suppliers not able to deliver on time
No 4 - Low yield by manufacturing compare to budget creating production shortfall and need to rearrange more material
No 3 - High customer orders compare to forecast which create material shortages and not able to meet requirement to supply on time
No 2 - Suppliers deliver substandard material which create cost to manufacturing and elsewhere
No 1 - No material to fulfil order causing late shipment
No 10 - Forecast by customer less then 10% accurate in term of order not coming in as plan
No 9 - High stockpile with no order as plan which mean that high investment of stock with no short term return of investment
No 8 - Price increase which affect budget on material
No 7 - Material pilferages in warehouse due to poor recording, this will create other worst nightmare to follow
No 6 - Change of plan by manufacturing without sufficient notice which may create shortfall in supply on time to meet the demand
No 5 - Suppliers not able to deliver on time
No 4 - Low yield by manufacturing compare to budget creating production shortfall and need to rearrange more material
No 3 - High customer orders compare to forecast which create material shortages and not able to meet requirement to supply on time
No 2 - Suppliers deliver substandard material which create cost to manufacturing and elsewhere
No 1 - No material to fulfil order causing late shipment
Sunday, 8 May 2011
Challenges facing procurement professional
I was starting my new job 8years ago and i remember very well at that period, the oil prices was moving upward toward USD50.00 per barrel and everyone was so pessimistic and worry about the future. Now the oil price is >USD100.00 and everyone (at least most of us) are still around and surviving!
As a purchasing manager at that period, i was worry what will the increasing cost of purchased material will do to the bottom line of my employer bottom line. Well, eight years has passed by and the challenges is getting and will be getting more challenging.
These past one year, the impact are much more worsen than previous years as the oil prices is increasing but not only due to the scarcity of supply due to political crisis in the countries concern, but due to the weakening of the USD creating a inflated prices to match the depreciation of the currency against major trading countries currency. The currency situation also directly impacted all the commodities as USD are and still will be a major currency preferred by countries trading with one another.
And if you are working for a organization that rely on the US for your market, then the situation will be much worst due to the economic situation there and a weaken currency is much to the advantage to the US for trading of goods and services. This is due to the Halo effect and buyers from the US will try not to acknowledge the reason for increasing the prices and there is many other companies willing to sell thier product to them.
Thus, as a procurement manager, your job will be more stressfull unfortunately as everyone in the organization will be looking at your position to ensure that the material cost are within the budget and if the prices are "out of this world" then you will need to explain for this situation and start looking for cheaper replacement material.
One example i can relate to this recently, the suppliers of corrugated carton boxes decided to increase the prices due to higher imported prices of Kraft paper and the impact was in the 6 figures to the company bottom line. Supplier has all the backup details for this increase and it is as genuine as a innocent baby crying for milk. To accept this increase meant that we have to increase the selling prices of our product but this at a risk of the buyers looking to review your supply base.
It is very normal for procurement professional to review thier supply base when there is a price increase coz it is (a) part of the job requirement and (b) they are the defender of the organization costing structure.
I then decided to review the supply base of the suppliers and also decided that we should look for alternative material which is available.
That will save the day for the organization. But happen when there is no alternative?
Well, if there is no alternative, the procurement professional has to convince the organization that the price are genuine and prove this by making more alternative sourcing elsewhere. Never two companies will offer exactly the same price for similiar material and that where this is extremely important. If the current price is the the most competitive, then you have done a job you suppose to do it in the first place.
We can always review and study companies financial reportings and one of the reason a company achieve higher turnover but reduce margin or even losses is due higher cost of operation and these include a big bulk of raw material cost.
Thus, handling price increase is one sensitive area facing procurement professional everywhere around the world and especially if you are based in a country where the economy rely on cheaper product exporting to developing countries.
This is a highly stressful occupation during this time and every consumers need to remember when making purchases on the invisible professional making sure thier organization stay in business by making sure the price is of fair value to the organization and everyready to go to battle to ensure the bottom line stay healthy.
As a purchasing manager at that period, i was worry what will the increasing cost of purchased material will do to the bottom line of my employer bottom line. Well, eight years has passed by and the challenges is getting and will be getting more challenging.
These past one year, the impact are much more worsen than previous years as the oil prices is increasing but not only due to the scarcity of supply due to political crisis in the countries concern, but due to the weakening of the USD creating a inflated prices to match the depreciation of the currency against major trading countries currency. The currency situation also directly impacted all the commodities as USD are and still will be a major currency preferred by countries trading with one another.
And if you are working for a organization that rely on the US for your market, then the situation will be much worst due to the economic situation there and a weaken currency is much to the advantage to the US for trading of goods and services. This is due to the Halo effect and buyers from the US will try not to acknowledge the reason for increasing the prices and there is many other companies willing to sell thier product to them.
Thus, as a procurement manager, your job will be more stressfull unfortunately as everyone in the organization will be looking at your position to ensure that the material cost are within the budget and if the prices are "out of this world" then you will need to explain for this situation and start looking for cheaper replacement material.
One example i can relate to this recently, the suppliers of corrugated carton boxes decided to increase the prices due to higher imported prices of Kraft paper and the impact was in the 6 figures to the company bottom line. Supplier has all the backup details for this increase and it is as genuine as a innocent baby crying for milk. To accept this increase meant that we have to increase the selling prices of our product but this at a risk of the buyers looking to review your supply base.
It is very normal for procurement professional to review thier supply base when there is a price increase coz it is (a) part of the job requirement and (b) they are the defender of the organization costing structure.
I then decided to review the supply base of the suppliers and also decided that we should look for alternative material which is available.
That will save the day for the organization. But happen when there is no alternative?
Well, if there is no alternative, the procurement professional has to convince the organization that the price are genuine and prove this by making more alternative sourcing elsewhere. Never two companies will offer exactly the same price for similiar material and that where this is extremely important. If the current price is the the most competitive, then you have done a job you suppose to do it in the first place.
We can always review and study companies financial reportings and one of the reason a company achieve higher turnover but reduce margin or even losses is due higher cost of operation and these include a big bulk of raw material cost.
Thus, handling price increase is one sensitive area facing procurement professional everywhere around the world and especially if you are based in a country where the economy rely on cheaper product exporting to developing countries.
This is a highly stressful occupation during this time and every consumers need to remember when making purchases on the invisible professional making sure thier organization stay in business by making sure the price is of fair value to the organization and everyready to go to battle to ensure the bottom line stay healthy.
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