Tag Archives: supply management

Hostage Negotiation –What can supply management learn from the FBI?

hostage

I read an interesting article from one of SourcingChick’s favorite blogs (Eric Barker’s Barking up the Wrong Tree) on how hostage negotiation gets people to change their minds. The more I thought about it, the more it applied to what sourcing people do every day. The article points out six key elements to success.

Ask open-ended questions

This is something that I have done and witnessed for years. Anyone who has participated in the negotiation classes I have taught knows it’s a key technique I encourage everyone to get better at. In reality, we usually don’t want the other party to answer a question with a yes or no. In negotiation the skilled negotiator is effective at open-ended questions striving for understanding the key issues and interests of the other party. By understanding the issues and interests, you can structure a deal that marries the interests of both parties. Think of the Colombo character in the old TV series, “Just one more question.”

Silence and Effective Pauses

Rarely does anyone like silence and pauses, but for the skilled negotiator these are some of the best tools in our toolbox. These techniques encourage the other party to continue dialogue. A pause can be used when emphasizing a point. In the hostage article, silence and pauses are used to diffuse when the other party is highly emotional. This works because it is difficult to sustain a one-sided argument.

Minimal Encouragers

These are brief statements to acknowledge to someone that you are listening and paying attention. It is words like yes, OK and I see. Active listening in negotiation is the core skill of any negotiator whether the negotiation is tactical or strategic. It is not just hearing or thinking of your next statement. It is hearing, listening and giving feedback.

Mirroring

This technique is one that again shows your empathy and listening skills by repeating some of the dialogue that you have just heard.

Paraphrasing

This technique is where we demonstrate that we heard and understand what our negotiation partner said. This is best done by repeating what the person said in your own words. I think it is a great way to insure that you are onboard with what has been said and clarify any misunderstandings or miscommunications.

Emotional Labeling

The FBI suggests that you give their feelings a name. This shows you identify with how the other party feels. Statements like “you seem pretty hurt about being left behind” or “it just doesn’t seem fair” are examples of emotional labeling.

Overall these are clearly skills that will aid in any negotiation. The core skills from the FBI are active listening, empathy, building a rapport, using influence skills, and creating behavioral change. I think this is a good process for procurement managers who are involved in a tough negotiation. While I have taught these skills, it always good to keep them up-front in your challenging negotiation.

We can learn a lot from behavioral negotiation!

Congratulations on your 100th, ISM

ism-conf-2015

Milestone for Supply Management

Today I’m dedicating my blog to the Institute for Supply Management, a group that I have been a member of for over 40 years. Next week at the ISM2015 Conference, the organization will celebrate its 100 year anniversary of serving purchasing and supply management practitioners and their organizations.

The backbone of the organization is the large volunteer group that supports the organization. These volunteers have recruited, educated, and supported the organization with countless hours throughout their careers with many continuing into their retirement. These active volunteers come from all career levels from student through CPO. When I first joined as an entry-level buyer, it was the volunteers of the Central NY PMA who helped me find the right educational events and are the reason I continued my membership as my career took me from central NY to Watertown NY, then to Cleveland and to Detroit and to the opportunity to be an ISM employee for 3 years. The networking and volunteer experience helped me develop leadership and presentation skills that enhance the skills learned through my work experience. I am extremely grateful and owe these volunteers a lot.

As an organization, ISM has provided educational programs, certification programs, conferences, seminars, research and practices that drive the organization and the profession forward. In the last 10 years especially, the profession has experienced rapid growth, technology change, process change and integration into larger supply chains. The Institute for Supply Management has always been at the forefront of these changes, providing global reach with local touch through the volunteers and affiliates to the profession moving forward.

As I look to future, the role of the ISM will no doubt change with technology, business practice and talent changes in a rapidly changing environment. The organization faces stiffer competition than ever with many new entrants into the education and certification association space and the membership growing globally as supply chains become more integrated.

I’m looking forward to seeing ISM strategically move to serve the future needs of its members and their companies. Congratulations, ISM on 100 years and

I’ll see you at ISM2015 in Phoenix next week!

The cost of being a bad customer

If John Henke’s calculations are accurate, General Motors could boost its operating income by $400 million per year just by improving its relationships with its suppliers. For Ford the number is $327 million, and Chrysler, $308 million.

We are not alone in claiming that suppliers don’t give their best stuff to their worst customers, but Henke, who is a Ph.D. and president and CEO of Planning Perspectives, Inc. has finally projected a dollar cost for bad relationships. He’s been studying supplier relationships and cost concessions within the automotive industry for many years, and he developed an index to measure it.

For the first time ever, however, Henke used proprietary data his firm has collected, public records, and media reports to calculate the costs when suppliers do such things as shift their innovations, A-Team support, or added value service to other customers. Foreign automakers have been able to take advantage of those shifts and have saved significantly over time as a result, according to Henke.

You might quibble with Henke’s formula, but the conclusion is pretty solid for any manufacturer in any sector. Beating up suppliers on price is a short-term tactic, not a long-term strategy for profitability. Are the Big Three listening? Here’s an Automotive News video report with Ford’s chief purchaser sounding like he’s read the study and is trying to catch up, while Toyota’s purchasing chief is taking steps to shore up his declining supplier scores.

 

White House endorses quicker supplier payments

One of the maxims of this blog is, “Suppliers don’t offer their best ideas to their worst customers,” and one of the quickest routes to the category of “worst customer” is stretching out payments to 60, 90 or  120 days — as has been fashionable in the automotive and other industries. We generally applaud the idea of thinking like a CFO when you are a supply manager, but too often the finance-department led idea of pushing the cost of money onto suppliers by delaying payments results in tighter margins for the supply base that stifle reinvestment in equipment or research and development.

Apparently President Obama has come around to our thinking on the topic because he recently endorsed an organization of companies that have pledged to pay suppliers quickly, or help them find lower cost working capital.

In the White House announcement, the Administration claims its QuickPay program of paying small government contractors quickly has saved them $1 billion since 2011. The private business version of the program, called SupplierPay is an opportunity not just to save money, but to create better relationships that foster innovation.

 

Thoughts on the Chinese economy

The Chinese version of the ISM PMI® has ticked up from negative to positive territory, according to reports such as this one on Bloomberg.com.

A preliminary June Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.8, up from 49.4 in May. An index above 50 signifies expectations of growth, and Chinese leaders are giving themselves credit for stimulating the economy without resorting to drastic measures.

A survey of analysts by Reuters came to a similar conclusion about the growth of the Chinese economy. More reporting of a stronger Chinese economy comes from the South China Morning Post.

We do a significant amount of work in China and the business environment there is unique, but it has matured since the days when U.S. automakers, for instance, were almost demanding that suppliers source from there. Large Chinese companies are not just focused on exports, but meeting growing domestic demand. They are adapting more sophisticated sourcing strategies of their own, and even investing in manufacturing plants in the United States, as described in this article in The Detroit News.

The strength of China’s economy and the rapid change in sophisticated sourcing is evident in  increasing  demand for development programs, certification programs and alignment with key universities in China.

The maturation of Chinese companies does tend to reduce their cost-competitiveness, but it also introduces elements of stability that mitigate some risks from sourcing at a great distance. Economic indicators that show slow, steady growth are also good signs of stability.

 

Move over Big Three

A seismic shift may be coming in the automotive industry.

“Not even two years after the delivery of the first Model S, Tesla Motors has transformed from fledgling start-up to arguably the most important car company in the world.  We are not joking,” said Morgan Stanley analyst Adam Jonas in a quote to the LA Times.

According to the article, suppliers who once dismissed this manufacturer are now considering building dedicated lines and facilities solely for Tesla’s business.

At least four southwestern states are vying mightily to become the home of Tesla’s $5 billion gigafactory which will employ more than 6,000 people to produce enough battery packs by 2020 to supply 500,000 vehicles.

But suppliers and states aren’t the only ones to sit up and take notice. One of the largest automakers in the world, General Motors, established an internal “Team Tesla” to analyze that company’s culture and success. Managing and collaborating with suppliers is one key to success.

Dare we say the current may be shifting toward electric cars?

Reactions to new EPA regulations run the gamut

Reactions this week to the new EPA regulations to cut carbon pollution from power plants ranged from the most dire to the most delighted, depending upon one’s industry, state or inclination for all things environmental.

On one hand, the new regulations will result in lost jobs and higher electricity rates.  On the other, they will improve our climate, our health and ultimately lead to greater innovation.

The energy space is a complex one, and the effect of these regulations will not be as cut and dried as some might think.  For example, weren’t we headed in this direction already?  Industries have been shifting to natural gas because it’s cheaper, and wind and solar are bringing up the rear.  In addition, each of the states will be able to select their own method of implementation from a menu of policy options.

This is a long way out and we’re just getting started.  There’s a public comment period, and the regulations themselves could be challenged in congress as well as the courts.  States have two years to submit their plans to achieve the targets, and it’s always possible they could get extensions to their timetables.

I’d like to hear your thoughts on the regulations.  Is the sky falling as Chicken Little squawked or is this the best birthday ever?

Source Responsibly

Consumer pressure for sustainability has become so powerful that even a company that is dedicated to celebration and partying – Bacardi –  is taking a socially responsible position on sourcing. It has released a very detailed list of actions it’s taking.

These actions range from sustainable packaging to recycling waste to building a green-certified distillery in England. Bacardi even exclaims its goal to obtain 40% of the sugarcane-derived products used to make its rum from certified, sustainable sources by 2017 – and 100% by 2022.

Bacardi is using social media to promote its branded initiative, artfully called “Good Spirited.” So it obviously believes the initiative has marketing value. That tells us two things:  One. Sustainable sourcing is generally accepted as good for the company. Two. It’s still considered something that’s unique enough to set Bacardi apart.

The question is, how long until sustainable practices are so widely adopted and universally expected that touting them isn’t even worth it. What do you think?

 

Big Data Reality

We’re hearing a lot about big data. Marc Herman raises the question – can big data investment in big data will this help prevent huge distributions in supply chain like it did in 2011 in Japan during its earthquake and tsunami?

A better way of assessing the risk of earthquakes and tsunamis would be the straightforward (but tedious) task of mapping your supply chain all the way back to raw materials. That map  ensures you are aware of every step along the way which will explain your risks a lot faster as opposed to crunching huge numbers to evaluate your risks.

Having more information is useful for better calculating financial impact of those risks, however good ol’ fashion common sense and leg work will go a long way toward mitigating risk.

What do you think of big data?

Back to basics with three R’s

Strip away all the sophisticated software, instant communications tools and reams of data we can now incorporate into our decision-making and a simple truth remains: people are still the key to good procurement, and relationships among people still count.
Chris Jones at DC Velocity reminded me of that recently in a column he wrote about the three Rs of supply chain competitiveness. He says he heard them from a former professor nearly 20 years ago, and they haven’t changed much since. They are:
> Responsiveness
> Reliability
> Relationship
These are good principles to guide decisions about how we use all the procurement tools we have at our command. Will a big data analysis really help us respond quicker to changing conditions or anticipate possible risks? Does the vendor management software package make us a more reliable customer? How do faster communication channels help us build our relationships?
We often assume that whatever is new or “trending” is better, and data can often obscure as well as uncover a truth. So it’s good to have a few basic principles to guide us through all our metrics, and these are three that have stood the test of time.
They aren’t just good for supply management, they apply in general to business — and life.