Gerard B. Hawkins Managing Director

Generation of Supplier Positioning Model

Categorization of Suppliers

Tactics and Strategy applied to relative positions

Buyers Overall Aims

Demand analysis - current/future, region/company, seasonal, etc. Technical Analysis - patented/expiry, specification, alternatives, cost/benefit of change S.H.E. - legislation, transport, storage, disposal (present/future) Logistics - payment terms, currency, lead time, transport, COA- Stock - how, where,

why associated cost Market Analysis

- SWOT analysis for suppliers & consumers Risk Analysis

- evaluate the options based upon the level of risk and the expected benefits, contract length?

Risk

High Risk Low Spend

High Risk High Spend

Strategic Security Strategic Critical

Low Spend Low Risk

High Spend Low Risk

Tactical Acquisition Tactical Profit

$1M

Low

High Low

High

Total Spend/Year

A key question in developing the material strategy will be: “How do we lower the risk?”

Having determined the material spend and the level of risk we can position the material in one of four quadrants on a supply positioning matrix

Procurement Profile Strategies

“BOTTOM 80%” (etc) usually represent 5-10% of

spend, but 80% of orders (if not careful) aim to reduce the hassle

“MID-GROUND” worth some effort to

get good deals

“TOP 20%” (etc) usually represent 50-70% of

spend concerted “plan of attack”

Relative Cost

Leverage

Critical

High

Supply Exposure

Supply Positioning : Portfolio

Critical Few major sources Few alternatives Quality/support critical Low cost

Strategic Few sources/monopoly High cost Quality/support critical No alternatives

Acquisition Many sources Many alternatives Low cost

Leverage Many sources Many alternatives High cost

Specialist Raw Materials Process Control Equipment

Stationery Control Valves

Relative Cost

Supp

ly E

xpos

ure

Each quadrant has very different purchasing goals and objectives

High risk/low spend materials but critical to success of business Ensure continuous supply (even at a price premium) Review frequently to avoid costs increasing Review market/technical opportunities to reduce risk

Low spend/low risk Simplify purchasing processes Delegate responsibilities Minimise attention Low opportunity of any significant cost improvements

High spend/high risk materials Ensure continuous supply but with close price management Continual revisions to identify opportunities to reduce risks and supply chain costs Work closely with suppliers to ensure supply and identify mutual benefits High spend/low risk materials Continuous review to identify opportunities to reduce cost in a competitive supply market Knowledge of the marketplace allows buyers to ‘wheel and deal’

Ensure supply

Strategic Security

Manage supply

Strategic Critical

Minimise Attention

Tactical Acquisition

Drive Profit

Tactical Profit

Supply Positioning : Actions

Critical Long Term contracts Buffer stocks Price indexation Find alternatives Contingency planning

Strategic Medium or long term contracts Supplier information Supplier development Price Management Continuous review

Acquisition Simple purchasing procedures Supplier rationalisation Stockless purchase Credit card purchases

Leverage Short term contracts Active sourcing Market knowledge Benchmarking

Relative Cost

Supp

ly E

xpos

ure

Is the material in short supply? - The supply market is at full capacity and global demand is growing. - There are less than 5 suppliers in the supply market. - - The supply market is volatile in terms of continuity of supply or price

stability. Is the material specification such that a very high quality level or tight

tolerance is required by the GBHE, manufacturing process? - The supplier has an enhanced manufacturing capability capable of

supplying GBHE, overtaking to an alternative supply is not a short term option.

Are there overriding and important safety / environmental reliability considerations over and above the high standards already practised by GBHE?

If the answer to any one or more of these questions is “yes” the material can be defined as high risk.

Demonstrate the tools and techniques used by salesmen to win business

Demonstrate tools and techniques for buyers to

get a good deal Explain the need to promote GBHE to our

suppliers

Introduction to conditioning Salesmen are trained to condition the behavior of Buyers so

that they will react in a predictable way which is favorable to the seller e.g. accept a price rise.

Few Buyers are aware of this subtle process and few of them have developed techniques to counteract and reverse it.

Everyone tends to react in a predictable manner when given lengthy exposure to certain physical and mental stimulae.

Price Lists Suppliers strive to make their asking prices appear to be legitimate by issuing

a Price List. Buyers must challenge all price lists. Discounts Suppliers combine the formalized Price List with the offer of a “special

discount for a special customer” in order to make the buyer anxious to buy and reluctant to question price further.

VPA’s and Price Breaks When suppliers want Buyers to purchase larger quantities, they resort to the

use of Volume Purchase Agreements and Price Break Mechanisms. The other purpose of this system is to inhibit further discussion on absolute prices.

Special Deals Some deals may indeed be special but more often than not it turns out that it is

really no more than a routine business deal “dressed up” to look like something different.

Claiming Limited Authority. A technique sometimes used to good effect is for a salesman to claim that he/she has only

limited authority e.g. to give discount. An excellent counter ploy is to ask who does have the authority and then demand to meet them.

Claiming Low Profits. To avoid a Buyer’s move to seek price reductions, Seller will often claim that they are

already supplying at prices close to cost and that their profits are therefore low. Question/investigate Suppliers profit levels getting them to open the books.

You are a small customer. In a attempt to resist claims for better treatment, suppliers will often try to discount the

importance of the customer to their business. Talking to users and management. Sometimes salesmen will seek to get into negotiation with users and/or managers in order

to have a greater probability of getting valuable information and concessions out of these groups. They will then often make reference to these conversations when talking to buying staff inferring that certain agreements have already been made and that the buyer is merely obstructive.

Differentiating the Product Good salesmen will spend considerable time and effort in making the buyer

believe that the product on offer is quite different to all other competitive offerings.

Service and Commercial Favors. Suppliers may help Buyers in difficult times with commercial favors which

serve a valuable purpose to make the buyer reliant and sometimes dependent on the incumbent supplier.

High Levels of service are an essential part of any contractual relationship but not if they cause a buyer to ignore overall costs and prices.

Conditioning statements. Suppliers try to condition buyers by giving apparently unrelated information

like changes in exchange rates, increases in production costs, market trends etc.

Buyers should be on the lookout for conditioning by extraneous information.

Today's Customers' Expectations Put Significant Demands on Companies' Supply Chains

Innovative services/products Broad product line - complementary products Flexible order of quantities Global source of supply

Lead "Excite"

Demonstrated market focus High quality of relationships Product information - in depth Technical service

Compete "Differentiate"

On-time delivery Price/performance Product availability Product information - basic Product quality Responsiveness Supply reliability

Availability/Quality "Expect"

Customer Criteria for Purchasing Decision/Supplier Selection

Appealing to “fairness”. Suppliers will sometimes appeal to their customer on the grounds that it is not

fair that their competitor won an order when it was “their turn”, or that the price required is too low to be fair - if it really is too low, they will not sell.

The Comfort Factor. Many salesmen try to make their competitor’s products seem to be a risky

choice, and their offer seem the “safe” option, and in this way prevent customers changing to better, cheaper products. For years IBM promoted the motto “No one ever gets sacked for buying IBM”.

Ethics and Hospitality. Salesmen use hospitality and entertaining to build subtle links with their

customers, and will use these to obtain information and even exert pressure on customers to buy from them. Ultimately, customers are paying for this “hospitality” along with the product. Anyone involved in the buying decision is at risk from the accusation of being influenced by these gifts or favors.

The Buyer’s Influence cycle

Prelim. Discuss

Selling Phase Detail Discuss

Negotiate

Order Issued

Goods Received

Payment Due

Influence on

Supplier

Procurement Cycle

Control Information. Salesmen will always seek to obtain information which enable them to

plan their sales campaign. Buyers should try to control such information if at all possible.

Varying Buying Methods. The supplier’s conditioning plan work best when the buying

organization behaves in a predictable manner. The weakness is to always follow the same procedure.

Buyer should strive to vary their buying methods, selecting the appropriate one according to the circumstances. If a variety of methods are used in this way, then it becomes much more difficult for suppliers to employ conditioning behavior.

Avoid Deadlines. Nothing gives a supplier a greater feeling of power than knowing the buying

organization is working under some form of deadline. Good negotiators know that the party which does not have a deadline usually has a negotiation advantage.

The Buyers first task is to determine the true deadline and its degree of flexibility.

Even when deadlines exist, these should not be communicated to the Seller. Sometimes Businesses try to save time by not involving Purchasing

professionals, which can give an advantage to the professional supplier. Time is money!

Claim Limited Authority. Like Sellers, Buyers should claim limited authority in order to discourage

further attempts to improve the deal. But this should encourage Sellers to request to meet the person who has the

authority. So Buyers should try to relate it to the Company’s management systems in such a way that it is not possible to identify where the true authority lies.

Marketing ourselves as a “favored buyer” Suppliers will select companies to do business with

Progressive companies need to make themselves “attractive” to the supply

base. Promote: Opportunity to Grow Prestige Simple Procurement Systems Straightforward / Open Minded Approach Accessibility Prompt Payment Technique applicable for “Strategic” rather that “Tactical” purchases.

A move to “Strategic Positioning” requires good Buyer / Supplier relationships which are built on:

Honesty, openness and accessibility Mutual trust and respect for other’s capabilities A desire on both sides to work together for mutual benefit Assertiveness, not aggression, during contract negotiation.

Enthusiasm. Attention to detail Good interpersonal skills Close involvement of the decision makers within each organisation

Suppliers generally look for the following in their dealing with a customer:

To make a profit To be paid on time Clear definition of the goods and services to be provided. Clear definition of supplier responsibilities Reasonable payment without large retentions Clear understanding of who the buyer is Access to people who can help them understand more fully what is

needed Clear escalation route for resolving and difficulties To be seen to deliver value for money and hence increase their

chances of winning further business

To be able to understand, manage and match the customer expectations

To create a reference site for future sales opportunities Reasonable timeframes in which to deliver the goods or services To incur minimal overhead in supplying the goods or services No surprises Issues raised early Minimum exposure to risk Feedback at all levels on their performance An open and honest approach from the customer respect for their industry and business