They say it comes in like a lion and March 2018 is no exception. President Trump announced he will apply across-the-board tariffs or import taxes on steel and aluminum. Trump argues that the measures are necessary to protect U.S. national security. Generally, the consensus is the impact of this will be increased prices for consumers of steel and aluminum. While the full impact has not yet been analyzed by many companies while they await the final ruling, category managers for steel, should be building an analysis of capacity, securing domestic supplies and reviewing all contracts to minimize the immediate effect of this action.
Wages are on the rise and the Federal Reserve is conditioning us that interest rates will be rising as the economy heats up. This situation translates to price increases from suppliers who have funded extended payment terms while money was virtually free. Are you prepared?
Many suppliers have an inventory position on steel, so it’s prudent to conduct an analysis of inventory carrying cost vs a 25% increase due to tariffs. This would require a rapid action, should the analysis validate a decision for increased inventory.
When it comes to cost containment, it’s critical to constantly update category portfolios, monitor cost inputs and proactively condition suppliers against raising prices. Savvy category managers keep cost profiles up to date and have data readily available to challenge the price increases to ensure that if increases are warranted, they are pass-through and not an opportunity for suppliers to increase margins.
Many category managers have not lived through a time where sellers have power in the market place. I believe that time is around the corner.
Dust off the cost containment tool kit and prepare for the changing winds.
Are you prepared if the advisory is raised to a warning to batten down the hatches?
I read an article that reminded me of an incident that is worth sharing. I was working in a very large food company and as a consultant and we recommended a new organization structure for procurement. We had evaluated a purchasing director who was talented, respected by his team and technically very good. As I approached the CEO and recommended the employee for the promotion, he objected and responded, “no way”. We discussed the employee and he agreed that my observation of his skills was correct. Then the CEO commented that the employee gave an awful presentation in front of his team and lost credibility. He was concerned that the senior staff would be disappointed with the appointment. The decision was made to recruit from outside the company.
Sometimes you only have one chance to make a first impression. Many of us are not comfortable making presentation or speaking in front of large crowds. While this is a soft skill it is essential for success in a career in procurement or supply chain. The ability to logically present a business case, influence and persuade others could help you to either elevate or sink your career. When conducting training classes, I often encourage all participants to take the leadership role and make presentations for the team. I’m always surprised that many people are comfortable taking a back seat when it comes to presentations. I’ve had people outright refuse to participate. Once a participant told me, “I don’t do presentations.” Unfortunately that was said in front of an HR and Management representatives auditing the class. I don’t think they survived the incident. The class room and meetings with peers are perfect places to perfect this critical skill.
The moral of this story is that everyone needs to take inventory of the soft skills and develop them. Business presentations are a critical skill, don’t neglect it.
Will the soft skills enhance or sink your career?
As I reflect on 2017, I’m grateful that I’ve had a great year and have met some wonderful people. This year, I’ve worked in the food, aerospace, coatings, chemical, automotive, integrated circuit, engineering/construction, homebuilding, elevator and packaging industries and enjoy the continued learning and insight. My domestic travel was enough to keep top elite status on two airlines, but global travel was down a bit although still I travelled several times to Europe, Asia and Mexico and managed to fly one to my dogs to shows. Lucky for me he fits in a carrier under the seat and is also a seasoned traveler; he was born in Spain and his first flight was trans-Atlantic when he was a puppy. That’s my dog and me in the photo at a show in Wichita last Spring.
I got to see many friends and colleagues this year. It’s always a great experience to see people you’ve taught in classes and mentored in their careers achieving very senior leadership roles in the procurement profession. The profession has been great to me and I feel an obligation to give back to the many professionals and practitioners I’ve have met along the way.
I am looking ahead to 2018 with great enthusiasm and energy as I begin my new role as Vice President, Americas for CIPS (the Chartered Institute of Procurement & Supply) to help meet the increasing demand from corporate clients across the US. This will be an exciting chance for me to support the entire procurement profession with new opportunities to enhance their careers and performance excellence.
I will still support my clients with advanced programs and tools previously unavailable in the US. Thanks to everyone who supported me in 2017, I wish everyone a happy, healthy and prosperous new year!
And I hope my dog and his handler have a successful show career in 2018.
After a career working with sourcing managers, I’ve had a chance to observe great practices and others that should be avoided. These 5 tips keep coming up when I work with teams in procurement.
- Too Much information – Suppliers are constantly collecting information about you, your organization and your interests, all for the sake of building strategies to motivate decisions in their favor. Beware of Facebook, Instagram and other personal social media outlets that provide details about your hobbies, family and interests. I often see posts by sourcing managers, sales reps and marketing reps on Facebook and Instagram that discuss travel and negotiation activity – I do suggest that you search Facebook for your company name and representatives’ names to see what they’re thinking; just don’t post that type of information yourself! In my case, I use LinkedIn for business, avoid friending business contacts on my personal Facebook account and am mindful of what I post.
- Failure to truly understand supplier motivation – Most sourcing managers understand the profit motivation of suppliers, but they fail to account for cash flow, capacity, business information, global footprint, your company’s reputation, being associated with an industry leader, capacity utilization, impact on fixed cost, ease of doing business and many more reasons that your business is desirable. These factors are the keys to unlocking the supplier’s true interests in doing business with your firm. In my case referrals are a motivating factor since 80% of my business is the result of a referral.
- Emphasis on supplier’s gain in negotiation – We’ve all done this in our lives–trying to negotiate with a supplier on why it is to his/her advantage to meet our targets. We seek win-win and list myriad positive what-you-have-to-gain reasons for coming to agreement. My wife says “If I were only one-tenth as motivated by the benefits of healthy habits as I am by the consequences of not saving my work on the PC every 5 minutes, I’d weigh 120 pounds and run marathons.” We tend to approach suppliers with what we all gain rather than what we have to lose by not meeting the targets. We certainly want mutual benefit, but sometimes we fail to talk about what we could lose. Are you more motivated to do things meet your “win” goals than you are to do things to avoid a loss?
- Using power, threat and coercion when you are unprepared to take action – If you are going to use this method of persuasion, you need to follow through with your threat. If you say that the supplier is likely to lose business by failure to comply with your request, be prepared to take action. Never make a threat you can’t back up. If suppliers are truly strategic to your business, they will call you out and you could lose all credibility with the supplier. Of course, power, threat and coercion are tactics you should only use in very specific applications under very specific circumstances, right?
- Managing suppliers via text messaging –Text messaging works great if you need quick answers or have a simple question. If overused or abused, you become a nuisance. Nothing can replace a quick call to gain alignment on a complex issue. Unfortunately in today’s fast-pace environment we look for quick solutions. It’s easy to decline a request on an email or text message; it is a lot more difficult if you are making the request in person or on the telephone. Remember that negotiation begins long before you sit across the table.
Think about all communication and actions when working with suppliers and avoid the pitfalls and mistakes that can cost your organization dearly.
Have you ever screwed up a negotiation?
Yesterday I read in a Bloomberg article by Christopher Jasper, Benjamin D Katz, and Julie Johnsson that “General Electric Co., the world’s biggest jet-engine maker, said it’s not prepared to enter a three-way race for turbine production on Boeing Co.’s planned mid-sized plane because a fragmented market wouldn’t justify the investment needed. Should Boeing opt for more than two suppliers, “we’re out,” David Joyce, head of GE’s aero-engines arm, said at the Paris Air Show, adding that his company still carries “scars” from being one of three engine providers on the Airbus SE A330 two decades ago.”
Often procurement professionals are quick to drive for cost reduction by leveraging competition among suppliers. When there’s more than one supplier, they go forward without thinking of the position of the category in the portfolio segmentation analysis. In an industry like aerospace where suppliers must deliver capacity, investment and innovation value, there is extreme risk in losing a strategic partner when procurement tries to leverage those suppliers. Yesterday Boeing revised its 20-year industry forecast to 41,030 jetliners; to send the capacity of a key supplier to a competitor could result in a costly failure to deliver.
It’s always important to assess the strategic nature of suppliers when adding competition. It’s especially important to understand the relationship and value that is received. In strategic procurement, it’s critical to assess the industry 5- 10 years into the future. If the supplier has built a strategic relationship and is delivering significant value, you could really undermine or kill the relationship by adding competition. The best rule of thumb is to maximize competition when you are confident you are dealing with a commodity.
Corporate memories are long! One client I worked with used competition incorrectly many years before and, when the industry consolidated to two suppliers, this company was stuck with a sole source (the wronged supplier would not do business with them) for 17 years until the management of the alternate supplier retired.
Do you threaten strategic suppliers with competition?
Over the past two decades procurement teams have focused on price and cost reductions leading to improvement in their company’s shareholder value. We’ve done a good job perfecting our cost models and developing our skills to zero-in on should cost and have been successful using these models to strip supplier margins and lean out the supply chain. To combat the drive on price and cost, many industries have consolidated, matching capacity against demand. Are these price reduction and cost modelling efforts creating value?
We’re now in a new digital revolution; the world is changing rapidly with unlimited data, speed and computing capacity resulting in dynamic pricing models developed by bots and computers using artificial intelligence. These models can assess global capacity, demand, pricing and competition in fractions of a second. The old procurement tools need to be sharpened and greatly enhanced. The days of swapping value from supplier to customer, then back again are gone. Customers and suppliers will be required to create optimal value. Speed, velocity, shortened lifecycles, innovation, revenue generation and other value creation activity will need to be in the core skillset of the future buyer.
Savvy procurement professionals are working on value creation models and educating their corporate management teams that there’s a major shift from price reduction to value creation. One example of the principle of value creation is in homebuilding where labor is the critical resource. Homebuider Procurement must select the best crews and manage the relationship since it is critical to complete the unit on-time to get a return on capital. Another example is in industries using refractory bricks: the buyers are working with suppliers to extend the life of the bricks in furnaces to delay costly shutdowns when bricks need to be replaced.
How will you support value creation?
I’m presenting a webinar May 31, 2017 at 1:00 PM Eastern time
Webinar: Building a Strategy for Tomorrow- 10 Megatrends that will shape Procurement’s future
Registration Link: http://tiny.cc/billmichelswebinar
Please Join me!
May 31, 2017
10:00 AM in Pacific Time (US and Canada)
The changing requirements of customers and CEOs have a dramatic impact on the changes required in our profession. This webinar will assist attendees in understanding needed skillsets, trends to watch and strategies.
The fast-paced 30-minute program will cover influences and forces of change, digital disruption, the future of work, globalization, social responsibility and redefining industry. The webinar is designed for procurement leaders who are responsible for architecting the supply chain, selecting suppliers, developing talent and building successful strategies.
The presenter of this webinar is Bill Michels. Bill helps companies transform business strategies into sustainable value. He is dedicated to maintaining a reputation built on increasing business impact, shareholder value, quality, customer service and uncompromising ethics. In consulting, he has worked with some of the world’s greatest companies across a wide spectrum of industries and countries transforming procurement and the supply chain. Bill has a B.S. in Business Administration from Rochester Institute of Technology and an MBA from Baldwin Wallace University. He has CPSM, C.P.M. and FCIPS certifications.
Join me in taking a glimpse into the future, which begins now!
Click here to register or cut and paste this URL in your browser: https://zoom.us/webinar/register/ecfffb9bc1d7813b34538d7d4481ef37