Supplier management unlocks additional value once strategic sourcing is complete.  There are many routes to incremental benefits after the contract is signed:

  • Savings through continuous adaptation of the statement of work
  • Joint income growth by working with suppliers to identify better solutions for customers
  • Higher customer satisfaction through root cause analysis and corrective action planning
  • Continuous improvement through problem solving and setting stretch goals
  • Innovation through supplier development to expand capability and capacity
  • Sustainability improvement agenda in every aspect of supply

The main barrier to achieving these benefits is supplier management skills.  Post-contract activity is typically the responsibility of functional professionals where supplier management is only a small part of their job.

Business professionals need support to grow their supplier management expertise.

They need to know what are the conditions that allow their suppliers to excel.

A recent supplier management benchmarking study conducted by ADR International investigated how best practice organizations achieved higher value from vendor relationships.

These four principles were demonstrated by world class practitioners of supplier management.

Principle 1:  Sequence Category Management before Supplier Management

Before we start to tier / segment / classify suppliers, we must have a category strategy.  The category strategy is a long-term vision of how interventions in groups of spend will support the triple bottom line of people, profit and planet.  A category view assesses cost, market conditions and customer needs before deciding on the optimal sourcing, contracting and relationship strategies.

Principle 2:  Make listening to suppliers – individually and collectively – a good habit

Listening with intent is a good habit for any business professional.  Fostering this among Supplier Managers, Stakeholders and Procurement demonstrates to suppliers that we care about helping them meet their business goals.

Best in class supplier managers create opportunities to listen.  Regular calls, dedicated time to brainstorm improvement, collecting feedback, discussing trends and surveying the supply base.

Listening…

  • is courteous, encourages contribution and problem solving
  • ensures that the buy-side team adopts a common style towards a supplier
  • helps us navigate the market to our advantage through supplier insight

Principle 3:  Use the customer’s needs as the basis for behavior and reward for suppliers

Organizations that start strategy planning with the end customer’s needs focus on what is important.  We demonstrate to the supplier what really matters through performance measures.  If we have the mechanisms, we can reinforce this through our approach to reward and compensation.

Reward must match the behavioral style chosen for the relationship.  Best practice supplier managers choose a relationship style (often in collaboration with suppliers) that matches their relationship objectives in terms of cost, quality, sustainability and customer value.

Principle 4:  Guarantee success – because everyone likes to win

You know the difficulty with putting Procurement people and Sales people in the same room?  They both like to win.  This can also be a benefit, when it is a cross-company team.  Allow, enable and encourage teams to win through small or major project initiatives.  Those organizations that recognize that people like being on the winning team are the best at finding joint wins.

To drive value from supplier management, best practice organizations apply these principles daily.  They succeed most when suppliers and stakeholders tell their peers the great outcomes they have experienced.  Supplier management is best driven by great role modelling and positive behaviors rather than a systems-imposed solution.

Highlights from ADR’s Development Needs Analysis Skills Assessment

ADR’s online skills assessment tool has been in use for over 15 years. More than 30,000 assessments have helped professionals from around the world gain objective insight on their capability profile.

During that period, the challenges that the Procurement professional faces have shifted massively.

Compliance, cost reduction and supplier performance remain core themes. But most people are also striving to positively impact the “triple bottom line” of people, profit and planet. Procurement performance and continuous improvement is the first theme that emerges from our results.

The second topic that features relates to data analysis, use of analytics and insight. The broader aspirations of Procurement in the 21st century are set in the context of the opportunities presented by the digital age. Rich data, enablement of functions by machines and better visibility in supply chains give the procurement professional greater scope – and greater pressure – to drive bigger rewards.

The third area of note is sustainable procurement practices and supply chain analysis. Application of these techniques was not familiar to many professionals operating outside of the “critical few” strategic supplier relationships.

The following topics are the global highlights of ADR’s procurement skills assessment from 2015 to 2019.

Top Areas of Success

Managing adherence to policy
Stakeholder engagement
Negotiation planning
Negotiation execution

Top Areas for Development

Continuous improvement
Procurement data analysis, supply chain analysis and supplier financial analysis
Performance contracting
Sustainable sourcing practices

The other topic that appeared as a capability gap in some clusters of professional roles was best practice sharing. Feedback from our classroom learners tells us that this is partly explained by their leaders not recognizing the value of this and partly by a lack of facilitation skills.

About ADR’s Skills Assessment

ADR’s Development Needs Analysis is a skills survey that asks procurement professionals about their current approaches to day to day supply-related issues and challenges. Based on their responses, a profile is built of their skills strengths and areas for development. The survey is built uniquely for each organization, to suit their sourcing process, terminology and priorities. The core topics of the survey are used to compile anonymised results about global skills across more than 30 competency groups.

To find out more about how your organization can benefit, contact info@adr-international.com

The scope of this white paper is supplier relationship management.

The aim of the white paper is to explore the negotiated collaborative supplier relationship. This description is suited to a subset of strategic suppliers where the relationship has been jointly created in an intentional, behaviours – driven manner.

Each organization may have its own terminology, but the relationship features are common.

The first element of the negotiated collaborative relationship is the “negotiated” part. The relationship has been designed by the relationship contributors in a formal, considered way. The contractual, performance, and behavioural parameters are aligned, agreed and documented.

Secondly, the negotiated collaborative relationship is characterized by its collaborative nature. Multi-functional team work, transparency of information and problem-solving activities are the norm between the buy-side and sell-side.

The white paper will explore the reasons why such a relationship may be considered, what is required to resource these relationships and what benefits they can offer the buying and supplying organizations.

1: Why choose a negotiated collaborative relationship?

A negotiated collaborative relationship is a model where buy-side and sell-side representatives agree to a team-working style. It is a resource intensive but high-reward approach that is only possible with a small number of relationships. Collaborative suppliers are typically formed with strategic vendors where:

  • The supply market has little or no credible alternatives, and / or:
  • Quality failure relating to purchase presents a significant risk to safety, security or reputation and the likelihood of detecting an incident before it occurs is low, and / or:
  • There is greater benefit to both parties through a collaborative relationship compared to one that is characterised by leverage-type behaviours (a tactical relationship).

The relationship is chosen because it is evident to both supply side and buy-side parties that there is significantly more value available from this type of relationship than a traditional buyer-supplier relationship and it is therefore worth the additional effort.

Figure 1: How buy and sell-side expectations differ for supplier relationship types

 

Tactical Relationships Negotiated Collaborative Relationships
Focus on price not total relationship cost and value

Performance management is about earned value – doing what the contract says in exchange for money

Value-shift – “if you have more, I have less”.

Focus on total relationship value from multiple perspectives – financial, sustainability, business development etc.

Performance management is about team problem solving and generating ideas to optimize the relationship outcomes

Value create – “let’s grow the team benefits”

Bargaining-style behaviours – if  you do this, then I will do that Team working behaviours – When we achieve this, then we will benefit in that way

 

Collaborative supplier relationships are typically borne out of commercial necessity rather than sentiment. They are not a soft option and will seldom present an easier management task than tactical suppliers.

2. How is the Negotiation Collaborative Relationship formed?

The relationship may be established at any time throughout the life of the total relationship. It could be at contracting stage for a new supplier, or mid contract for an established one. For incumbent suppliers, it is likely that a new commercial framework will need to be set up that reflects the new dynamics in terms of performance management, compensation and commercial outcomes.

Expert supplier managers never allow supplier relationships to elide from tactical to collaborative. It is always intentional and negotiated in the same way that a commercial agreement is discussed.  Such discussions look at three aspects of the relationship, all of which have commercial implications – thinking, practices and behaviors.

Thinking: the relationship strategy – why do both parties want this, what do they hope to achieve from it? Incremental financial reward, reputation, risk management, business development sustainability and quality improvement are all potential aspirations. This requires documenting and revisiting just as much as the legal agreement.

Practices: the relationship tasks – how will the outcomes be achieved and when? The tasks, responsibilities and approach should form the basis of regular discussions and meetings, rather than routine performance management.

Behaviors – this is both the style and the associated behaviors to be adopted. They will be applied consistently during contract management, performance challenges, solving problems and addressing reward and sanction.

Internal stakeholders must be part of agreeing these elements with the supplier because they will often be the main party who is implementing them on a day to day basis.

3: Brainstorming in strategic supplier relationships

Brainstorming ideas for improvement should be an expected, routine part of the negotiated collaborative relationship activities. This could occur during regular online meetings or face to face reviews.

The usual brainstorming rules apply – all suggestions are positive, worthy of compliment based on the effort made to devise them, and worth discussing. The more ideas, the better. Most importantly, the supplier should feel that the more input they have to the idea’s generation, evaluation and execution, the greater the chance of success. It is the buyer’s job to make that statement the truth by appropriately resourcing the selected ideas through senior sponsorship, motivation and appropriate commercial response, if appropriate.

Investment should:

  • Be shared (or not) between the buy and sell side in whatever split matches the relationship goals
  • Be proportionate to the return
  • Allow enough emotional distance that if it fails, it does not damage the relationship or belief in the concept of continuous improvement.

If either party does not appear to be engaging with the problem-solving approach to the previously agreed extent, the reasons should be discussed. It may be an institutional issue (e.g. my boss won’t sanction this) or it could reflect an unwillingness to make personal change by the account manager (it inconveniences me). It is the buyer’s job to enable problem solving and tackle these challenges with the cross-organization team.

Whose job is it to generate ideas for improvement? Both parties, of course. But if the expectation is for the supplier to propose more ideas, then it is only fair that buyer should contribute a higher level of enthusiasm and personal commitment for attainment of the goals. As long as everyone on the team is inputting something – expertise, resource, insight, or excitement. It all has value for relationship quality.

4: Managing power imbalance

Many strategic relationships take a vested relationship model, where negotiation is left behind as “old-style” thinking. However, the main difference in a negotiated collaborative relationship is that that it doesn’t matter if there is relationship imbalance between the parties.

Negotiated collaborative relationship are not equal relationships.

Problem solving and creative thinking are required by all parties, but not necessarily in the same proportions.

In fact, it is may be a healthy thing to acknowledge it and to build a relationship that uses that imbalance as a source of strength. It is not so much a “partnership” as a “dynamic”.

Many elements could contribute to a sense of imbalance. It can be a cause of frustration in strategic relationships that our partners are not “treating us well”. This can be driven by many issues, for example:

  • Capacity or capability gaps
  • Fit of relationship to business goals
  • Friction between personalities
  • Company culture or application of leverage behaviours

The negotiated relationship occurs when the parties agree that it will help the relationship and its outcomes better if one of them is the “driving” party and the other is the “supportive” party. This power dynamic might be temporary, or it could mark the entire character of the partnership.

This does not reflect a sense of precedence, superiority or intellectual dominance. It is just an acknowledgement of what will be effective for everyone. Once it is negotiated, a framework of practices and behaviors can be established that match the agreed style.

This example shows how a negotiated collaborative relationship might operate with an imbalanced approach:

The Driving Party’s Responsibilities The Supporting Party’s Responsibilities
Working with the supporting party to identify their capability gaps and improve those that would benefit the relationship outcomes. Taking responsibility for the root causes of capability gaps and doing things that eliminate barriers to improvement.
Assigning tasks to the supporting party that help them to grow.

Asking the supporting party to identify the ways that the driving party can be a better relationship leader.

Being forgiving of the supporting party’s failures and not giving up on them.

Finding alternatives to reward/sanction models that suit the dynamic.

Accomplishing tasks agreed with the driving party without questioning their efficacy.

Assessing the relationship stewardship of the driving party and providing non-blame style feedback.

Loyalty to the supporting party commercially and behaviourally.

Demonstrating to the relationship leader that reward and sanction are not effective motivators.

 

When the team is balanced in terms of complementary skills, motivations and commitment, the source of these elements is irrelevant. The teamwork model of supplier relationships means that both parties accept that a negotiated relationship is appropriate. They then establish a suitable relationship style that helps to maintain the momentum towards the agreed relationship goals. That style needs considerable exploration to set up, experiment with and freeze.

5: Setting up a performance management framework

Negotiated collaborative relationships typically represent high risk, high spend suppliers. It makes sense that they would have a robust performance framework so that supplier managers can target and track outcomes. Yet performance frameworks are often not collaborative, by virtue of being:

  • Based on buy-side business needs, not things that are important to the supplier’s business.
  • Imposed, with first sight being at the competitive bidding, negotiation or contracting stages.
  • Associated with sanctions (at the extreme, termination for breach of contract)

This is not in keeping with the interest-based negotiation that should accompany the launch of a strategic relationship. Realistically, negotiating the performance framework together with suppliers can sometimes drive the sort of defensive, cautious behaviours that are not collaborative at all.

Not having a performance framework is hardly an option: the business (and sometimes regulators) expect that relationships that could involve catastrophic consequences to safety or security must be monitored carefully. This often drives the use of performance motivators such as financial sanctions, growth limitations or some form of relegation in the buyer’s organization. Minor infractions that do not cause jeopardy may incur smaller negative consequences.

The thing is, suppliers have a choice about performance: either commit fully to excellence or decide whether the punishment for non-performance is worth it.

And it might be worth accepting the buyer’s sanction if

  • A more valued customer needs the resource that is required to address the performance issue
  • A new prospect or sale is diverting the supplier.
  • The supplier deems the account not worthy of the investment, or nearing its end of life

Buyers get quite insulted by these sorts of excuses, but instead of foot-stamping, the buyer can remind the supplier that letting the team down damages the agreed relationship infrastructure. Buyers must also take responsibility for performance management and its associated behaviours. “Managing the KPIs” is not enough. Suppliers need

  • Personal attention to issues that concern them such as payment
  • An open channel to share feedback
  • Reward for behaving within the agreed relationship style

Regular meetings, checking in to see how the agreement and the people are and deciding how to celebrate successes are all team activities that support relationship-building.

Performance frameworks usually involve punishment. Punishment of any kind can encourage “hiding the truth” in an effort to avoid the consequences. This secrecy does not suit collaborative relationships, and it can be a bold choice to avoid rigid performance measurement with strategic suppliers. If suppliers demonstrate that they need sanction (due to repeated breach of performance conditions), the relationship should be demoted in style back to the tactical model (e.g. you are not mature enough to work in the teamwork way, so we’ll have to build back up to it through practice).

6. Managing suppliers using behaviour modification

Most buyer are familiar with the concept of conditioning. It is about the use of messages and behaviour to create a desired perception in a current or prospective supplier.

It Is applied frequently during competitive bidding to enhance the motivation of suppliers to win or keep business and magnify their concerns about losing out on opportunities. This is a tactical use of conditioning because it is short-term in its focus and it is best suited to suppliers in competitive markets.

Conditioning is a form of behaviour modification that is just as important – maybe even more so – for strategic suppliers.

Behaviour modification of suppliers through buyer-driven initiative suits negotiated collaborative relationships, where a team work model supports strategic supplier partnerships.

For example, maintaining an upbeat, energetic tone underpins joint problem solving and continuous improvement. It demonstrates optimism that the team will find solutions together and overcome obstacles. It is the buyer’s job to drive this positive tone and monitor if it is being effective in contributing to the mutually agreed outcomes.

Where the supplier does not appear to be as proactive as the buyer would expect of a partner, the buyer will also use behaviour modification techniques, perhaps ignoring supplier behaviour that is unwelcome (where it is not damaging to do so) and praising any contribution made.

Just as the buyer needs to examine what motivates the supplier, the smart supplier will do the same of the buyer. Suppliers will consider whether behaviour modification would benefit the relationship and in what ways suppliers should seek direction from the buyer about how to challenge and change this.

For example, the supplier could be encouraged to ask the question “how does that meet the milestone set?” if the buyer reverts to a price-focused discussion during a review meeting. The total cost implication could be relevant, but price-talk tends to be tactical in its intent. Nagging to remind us of how we agreed to behave is 2-way.

7. How to set up the negotiated collaborative relationship

If you have decided that a teamwork model is correct, it is useful to start the meetings with a session dedicated to documenting the reasons for that assessment. Brainstorm why you feel this relationship is superior to alternatives or the other party offers more value than their peers. These are your relationship strengths, and they are what you can come back to in difficult times. They are also the foundations of your first initiatives. If you feel that the team has great cost analysis skills to customer service focus, use these themes as the basis of your first projects. This is also a good way of practising the skill of “letting someone else drive the bus” because you may need to hand over the wheel temporarily while the person who is most suited to take the lead at that time takes over. Resources are complementary in a team. Stick to your knitting.

Blame is not useful in buyer / supplier discussions. It is better to be effective than “correct”.

When a supplier is immature (but you have no choice but to use them), it is not useful to point out their deficiencies repeatedly. Instead, remind the supplier that they must prepare for the events where their gaps are likely to cause performance problems and get on top of that through regular self-assessment of capability and performance output. It gives the supplier time to review, risk-assess and respond.

Conclusion

The negotiated collaborative relationship is visible in many modern Procurement teams, often with other titles. When it is working well, it is a showcase relationship that demonstrates the value of team working. Power imbalances are not a cause of concern. It is the contribution of many different personalities and capabilities that is the source of strength, if they are utilized in a coordinated way in the relationship.

The style is a potential template for a greater number of suppliers, where the return on investment if evident for all parties.

What do the best Supplier Managers get right?

A 2019 supplier management benchmarking study conducted by ADR International investigated how best practice organizations achieved higher value from vendor relationships.

We found that while most Procurement and Supply teams work hard to manage performance, best practice exemplars of supplier management focus on the conditions that allow their suppliers to excel. These four principles were demonstrated by world class practitioners of supplier management.

Principle 1: Sequence Category Management before Supplier Management

Before we start to tier / segment / classify suppliers, we must have a category strategy. The category strategy is a long-term vision of how interventions in groups of spend will support the triple bottom line of people, profit and planet. A category view assesses cost, market conditions and customer needs before deciding on the optimal sourcing, contracting and relationship strategies.

Principle 2: Make listening to suppliers – individually and collectively – a good habit

Listening with intent is a good habit for any business professional. Fostering this among Supplier Managers, Stakeholders and Procurement demonstrates to suppliers that we care about helping them meet their business goals.

Best in class supplier managers create opportunities to listen. Regular calls, dedicated time to brainstorm improvement, collecting feedback, discussing trends and surveying the supply base. Listening…

  • Is courteous, encourages contribution and problem solving
  • Ensures that the buy-side team adopts a common style towards a supplier
  • Helps us navigate the market to our advantage through supplier insight

Principle 3: Use the customer’s needs as the basis for behaviour and reward for suppliers

Organizations that start strategy planning with the end customer’s needs focus on what is important. We demonstrate to the supplier what really matters through performance measures. If we have the mechanisms, we can reinforce this through our approach to reward and compensation.

Reward must match the behavioural style chosen for the relationship. Best practice supplier managers choose a relationship style (often in collaboration with suppliers) that matches their relationship objectives in terms of cost, quality, sustainability and customer value.

Principle 4: Guarantee success – because everyone likes to win

You know the difficulty with putting Procurement people and Sales people in the same room? They both like to win. This can also be a benefit, when it is a cross-company team. Allow, enable and encourage teams to win through small or major project initiatives. Those organizations that recognize that people like being on the winning team are the best at finding joint wins.

Conclusion

To drive value from supplier management, best practice organizations apply these principles daily. They succeed most when suppliers and stakeholders tell their peers the great outcomes they have experienced. Supplier management is best driven by great role modelling and positive behaviours rather than a systems-imposed solution.

What do modern procurement professionals want from training?

Procurement professionals want to learn and to develop themselves. It is something they look for when searching for new roles. It is also critical for attracting people into the function and keeping them there.

Organizations must offer growth opportunities for Procurement people that appeal to their interests as well as meeting organizational requirements.

At ADR, we work with organizations to design blended learning programs that address a range of needs. Many use competency assessments to determine the key skills gaps. However, some still say that the learning has not met their needs fully.

Competency assessment is best used as part of a wider review of needs, using this stepped approach:

1. Understand Business Needs that define your function’s goals

Business Needs will come from various sources

  • Organizational strategy and vision
  • Stakeholder and supplier feedback
  • Organizational culture and team working
  • Procurement department current and future strategy and targets
  • Succession plans and future organizational structure
  • Shareholder expectations

These needs help to define the priorities of the team and this needs to translate into daily practices and behaviors through good training.

2. Set Learning Objectives

Ultimately, Procurement will need to have a clear understanding of how they bring value to the organization and how its people underpin that. This will then drive the learning objectives. Like all good key performance indicators, they should be a few SMART metrics that are critical to success. It does not matter if they are not finance-related. Many Procurement teams define their impact in other ways like customer satisfaction, or circular economy metrics. The objectives should do the following:

  • Link to organizational goals
  • Clarify department target and individual contribution
  • Have resources and pathways available so everyone knows how they are going to be able to contribute

3. Identify Skills Gaps

Self-assessment accompanied by line-manager discussion is a valuable method to understand the gap from the current state to the desired state. It is much more helpful to perform skills assessment against the future organizational model than against current role descriptions. An aspirational target sets the right tone – future state, not current state.

4. Create Learning Interventions

Learning interventions are training activities. The 70:20:10 learning model shows that 70% of learning should be on the job, 20% through informal learning and 10% through formal learning. Formal learning includes video, podcast, classroom, webinar and eLearning courses and discussions.

Procurement people often tell us that they feel their L&D offering is not suited to their needs – that training is “one size fits all”. At ADR, we find that the most common requests from procurement professionals are:

  • They want to find out how future trends and technologies are going to help them.
  • They want access to modern tools and resources, and support to become expert in them.
  • They want choice about when, how and what to learn. This means a blended program of instructor-led classroom, webinar courses plus self-directed eLearning and micro learning on a range of topics, frequently updated.
  • They want on the job and social learning efforts like peer learning, mentoring and experience sharing (the 20%) to be facilitated, recognised and rewarded in the same way as their formal training (the 10%).

5. Measure Learning effectiveness

L&D efforts must be measured against the stated learning objectives rather than a generic goal such as “save more money”. If incremental cost improvement from application of new techniques is expected, then the individual must be responsible for tracking and demonstrating the technique and its direct impact.

This requires a tool that records outputs AND outcomes not just inputs. This can be a challenge of the traditional learning management system.

When approached with a 70:20:10 mindset, procurement learning and development is not an “edge of desk” activity, it is the day job. It represents a cultural belief that doing things in the same way will not get better results. Continuous learning application is the most reliable route to improvement.

Sustainable procurement looks at how sourcing and supplier management activity supports sustainable development, where economic and social growth is encouraged in ways that does not negatively impact life. Environmental, social, economic and health topics all fall under this banner.

ISO 20040, the quality standard for Sustainable Procurement was introduced in 2017. This gave organizations a framework for understanding and monitoring the impact of their procurement activities on individuals, communities and the environment.

Some organizations focus on the Dow sustainability indexes, which provides a global measurement of corporate sustainability performance across multiple sectors.

Many organizations seek the coveted Industry Leaders title. These organizations are the top performing companies in each of the 60 industries represented in RobecoSAM’s Corporate Sustainability Assessment (CSA) and the Dow Jones Sustainability Indices.

However, many Procurement teams are not embedding sustainable procurement practices in their daily work. These three areas should be a key focus for sustainable procurement activity:

1. Strategy development

Category and sourcing strategies should identify the specific sustainable procurement issues that are most relevant to the category being purchased, and actively demonstrate that research and creative thinking is being used to improve the sustainability impact of the acquisition.
For example, a life cycle sustainability assessment would include the identification of solutions that minimize energy usage, extend pro-social procurement and enhance life opportunities in the communities where  the organization buys from.

2. Supplier selection

Supplier selection and evaluation criteria should highlight that  prospective suppliers who can evidence proactive development in economic, environmental and social issues (both in their own organization and in their supply chain) will be recognised as part of the competitive bidding process.
For example, there may be a high emphasis and weighting of services suppliers that can demonstrate that their recruitment policies are supporting local workers, creating apprenticeships or enabling SMEs to become a greater proportion of their supply base.

3. Contract management

The ongoing review of supplier operational and business performance should include sustainability improvement as a key element of  continuous improvement activity.
For example, a supplier of goods, equipment or materials may work in collaboration with the buying organization to reduce waste in the production, storage and distribution of the items.

By working together with stakeholders, procurement professionals can extend sustainable practises into many elements of the sourcing process and contribute to the organization’s sustainable credentials in its overall supply chain management.

Find out more about how you can improve your sustainable procurement practices in ADR’s Ethics and Sustainability Course, available as an Instructor-Led Classroom or Virtual Classroom Event.

Often buyers are expected to negotiate commercial agreements with third party suppliers with very little support to prepare them.

The suppliers are often represented by well-trained professional sales people who have negotiated hundreds of successful deals, usually to the detriment of the buying organization on the other side of the negotiating table.

How do buyers try to even these odds and generate value for their organization?

Certainly not through any of the following:

  • Using their power
  • Bullying the supplier into making an agreement with false promises or threats
  • Using negotiation like it is magic, where certain “tricks” will somehow charm or persuade the supplier into submission and agreement.

Like any art, negotiation is about understanding the very precise and technical rules to maximize your effectiveness; and making the appropriate choices about the right techniques to make use of and when in any given negotiating scenario.

1. The best negotiators know when to negotiate and when not to negotiate

The first question in negotiation preparation must be “is there a need to negotiate?”.  Negotiation can be – at best – resource intensive.  At worst, it can expose the organization to risk by having to give damaging concessions that were not fully thought-through.

Alternatives to negotiation may be:

  • Keeping the status quo
  • Choosing an alternative solution to the problem in hand
  • Presenting a unilateral proposal that is unconditionally accepted

Some buyers view the last item on this list as a form of negotiation. They await an “offer” from their supplier and either accept it or reject it and demand an improved offer. This is not negotiation.  This is a power tactic.

2. The best negotiators don’t think “what do I want?”, they think “what do they want?”

Where objective evaluation shows that there is a need to negotiate, the next activity of the buyer is to assess the background situation of the negotiating parties. This will serve to create as accurate assessment as possible about the positions, interests, objectives and negotiating range of the buying organization and the selling organization.

Suppliers may be swayed by the buyer’s money but negotiation reviews tells us that are many other factors that are of equal of greater importance.  For example:

  • The opportunity to leverage the agreement to win other work inside and outside the buying organization
  • A consistent and reliable income source
  • A test ground for new products, services, technologies, concepts
  • Association with a brand, or a set of values, certain people or a lifestyle
  • Access to people, places, ideas that are closed to them otherwise
  • Securing a customer that helps meet the organization’s goals at that time in terms of product mix, service offering, utilization, product lifecycle, capacity, profit aspiration or any other criteria

 

3. The best negotiators know that the more power you have, the more influence you have

Best negotiators will use their preparation time to assess the relative power of each negotiating party. If it is assessed that your organization has less power actions need to be taken to determine the best approach to the negotiation. For example:

  • Strengthen your best alternative to negotiated agreement (BATNA). A strong BATNA means that if you fail to reach agreement, you have a credible alternative to fall back on. This improves your negotiation plan, and your negotiating mind-set.
  • Increase the number and quality of concessions you may use. Concessions are “trade-offs” that may be traded for what you want. You don’t have to use all of the ones you have planned for but having them available gives you more variables to move closer to an agreement.
  • Gain all negotiating parties consent to have a non-competitive negotiation. This type of collaboration works when everyone agrees that agreement is better than no agreement, even where agreement does not fully meet your initial interests. Collaborative negotiation fosters the sort of creative problem solving that drives greater value for all parties. But it only works if everyone is committed to it, and it clearly makes sense for them.

Negotiation is life skill that we all use daily. It is possible for buyers and anyone who negotiates with suppliers to improve their skills and move closer to being one of the best negotiators. But to do so first requires the humility and insight to observe and critique one’s own style, endeavors and mistakes; and then make a plan for how to do better next time.

As procurement learning professionals, our team at ADR International are often asked by our corporate customers; “what kind of training will work for our team?”

It is a good question. International businesses invest significant resources on attracting and development talent. They want to know what training will yield the best outcome.

At ADR, we find the key to designing and developing a learning program for our corporate clients is to understand from them the learning outcomes required from the training.  Learning outcomes identify what the learner will know and be able to do by the end of a course or program.
Well-defined and articulated learning outcomes provide students with a clear purpose to focus their learning efforts and direct the choice of the skills assessment strategies, curriculum and learning modes, styles and communities.

At ADR, we find the key to designing and developing a learning program for our corporate clients is to understand from them the learning outcomes required from the training.  Learning outcomes identify what the learner will know and be able to do by the end of a course or program.  Well-defined and articulated learning outcomes provide students with a clear purpose to focus their learning efforts and direct the choice of the skills assessment strategies, curriculum and learning modes, styles and communities.

We will look at the key decisions involved in choosing the kind of learning that works.

1. Skills Assessment Strategy

It is efficient to ensure that the training provided actually matches the learning needs of the procurement team. Therefore, a skills assessment is a useful starting point to identify capability strengths and areas to be developed. The skills assessment may be a simple survey that asks learners about their perceived needs, or a more sophisticated rating. ADR’s Development Needs Analysis (DNA) skills assessment questionnaire using the organization’s own competency framework to build a tailored survey that ensures that skills gaps identified are based on the unique role proficiency level required, rather than a generic version.

Using global skills benchmarks, organizations can then set their own aspirations for where they want both the team and individuals to be in terms of skills strengths in 12 months and beyond.

Once the skills profile has been established (as-is and to-be), a fit-for-purpose curriculum can be designed.

2. Learning modes

Learning modes are the different methods that can be used to engage procurement professionals in the content of the curriculum. Procurement training often encompasses both technical and behavioral competencies which can be accessed through:

  • Instructor-led online learning (e.g. distance-led webinars)
  • Instructor-led classroom learning
  • e-Learning, typically self-paced modules of interactive content
  • Self-directed learning (reading, networking, research)
  • On the job learning (often involving assignments, or coaching from an expert

In a blended learning program, a mixture of all of these modes may be available to the procurement professional depending on their personal development needs. They all have their own merits and challenges, with associated time / cost implications.

A particularly effective way to offer the modes is through a learning academy structure, which offers recognition and / or accreditation to the learner as they progress through a structured program that is suited to their experience level.

3. Learning curriculum

A learning curriculum is a program of study involving different topics or competencies. Procurement teams often have multiple curriculum offerings, depending on the skills profile of the department, or affiliations with procurement and supply institutes.

The learning curriculum may include a variety of different topics and times for learning including pre-and post-course work and formal learning (such as classroom) versus informal learning (such as attending a trade fair).

The best way to establish an appropriate curriculum is to conduct a skills assessment to identify the learning needs of the procurement team. This will highlight strengths and development needs of the learners, enabling each person to have a personalized learning journey that focuses on specific parts of the curriculum that matches their learning needs.

4. Learning styles

A learning curriculum is a program of study involving different topics or competencies. Procurement teams often have multiple curriculum offerings, depending on the skills profile of the department, or affiliations with procurement and supply institutes.

Learning professionals often refer to individuals learning through visual, auditory or kinesthetic (tactile) means. They may refer to different teaching resources including lecture, video, hands-on exercises, games or role play to support these preferences.

Whilst learners may favor one of these means, typically a mix of resources supports most learning.

During instructor-led courses, there is the most opportunity to have a facilitated approach to:

  • Learning by listening
  • Learning by sharing
  • Learning by doing
  • Learning by teaching

However, online resources and social media can support some elements of these. The only challenge to this route is that the content may not be approved by the organization in terms of its content or message.

5. Learning communities

Learning with others is typically under-utilized by international procurement teams. Most professionals spend inadequate time on skills development through brainstorming with colleagues, sharing experiences, and discussing lessons learned. Learning forums such lunch-and-learn sessions or peer to peer reviews can be useful self-directed training.

Procurement leaders are often concerned about the mix of learners in a class. The logistics of running a classroom course may result in a mix of experiences, roles or functions. Typically, that is something to be welcomed, as sticking with one’s own immediate peers and stagnate thinking. Creative and strategic thinking is typically borne of coming together with people with different perspectives.

Conclusion

So how does this discussion help to determine what is the right kind of learning for procurement professionals based on defined outcomes?

The reality is there is no single model that will define the “right” route for an individual or team. All of the above considerations are relevant when debating the choices available, as well as the scale and scope of the content to be covered in the learning.

Most importantly, the organizational learning journey should be driven by:

  • the learning outcomes required
  • the expected timescales for change
  • the current skills profile of the team

This will help to set realistic and targeted outcome expectations for the learners themselves. And ultimately, individuals must be supported by being given actions that are required of them – both as part of the learning, and after the learning.

Here at ADR International, our team of procurement experts are currently working with supply chain professionals from more than 30 countries. Many of these are European and Asian buyers at various stages in their career who are taking part in continuous professional development.

In this article, we will explore the observations of our consultants, in their role as instructors, about European and Asian procurement learning.

We will discuss:

1. Highlights of European and Asian procurement learning trends
2. The types of learning used by procurement professionals
3. Reasons for selecting learning mode
4. Which learning mode is most effective for these learners and why

1. Highlights of European and Asian procurement trends

  • “Blended” learning is the use of a mixture of training deliver modes. Blended learning is common in Europe, instructor-led classroom training is prevalent in Asia
  • Corporate accreditations are becoming more popular in Europe, Asian learners favor university or institute accredited programs
  • For digital learning, self-directed eLearning is well utilized in Europe but Asian audiences prefer instructor-led online courses
  • Individually-driven learning like reading and attending seminars of personal interest is common in Europe. Manager-directed education is more typical in Asia

2. The types of learning used by procurement professionals

The main types of procurement learning in use in both Europe and Asia are:

a. Instructor-led classroom training
b. Instructor-led online training
c. Self-paced eLearning
d. Self-directed learning
a. Instructor-led classroom training is typically made up of structured sessions, to a pre-agreed agenda, involving a mixture of lecture, discussion and individual or group exercises

  • In both Europe and Asia, the program is often structured over 12 or more months
  • Both regions typically manage the courses in small groups of around 12 to 16 learners per class
  • ADR’s course feedback typically shows that learners value the interaction, discussion and having an expert tutor on hand to facilitate the discussion of real-life experiences

The main features and differences across the 2 regions for instructor-led classroom training are:

 

European Instructor-Led
Procurement Training
Asian Instructor-Led
Procurement Training
  • In-company training used predominantly
  • Corporate accreditation or institute accreditation often available
  • Both public training and in-company training used
  • Industry-recognized / transferable accreditation preferred

 

b. Instructor-led online training is a computer-based learning session where individuals or groups are taught by a tutor using resources visible to them on their device’s screen using specialist software

  • Often held as webinar events, up to 120 minutes in duration
  • Typically single-topic courses for “bite-size” learning
  • Virtual classroom software or online meeting tools such as Webex provide a platform for interactivity
  • Distance learning is a good format for teams who are geographically dispersed
  • ADR’s course feedback typically shows that learners value the fact that they can take part from their desks, travel time and cost is avoided, and that bite-size learning is easy to digest

The main differences across the 2 regions for instructor-led online training are:

 

European Instructor-Led
Online Training
Asian Instructor-Led
Online Training
  • Interactive features most used for experience sharing
  • Usually part of a blended learning program
  • Interactivity most used for quizzes and testing
  • Sometimes part of a blended learning program

 

c. Self-paced eLearning is individually-led, self-paced, computer-based learning

  • Topic-specific modules, usually linked to an organization’s competency profile
  • eLearning modules / courses are often up to 2 hours in duration and include interactivity such as quizzes
  • eLearning course completions, test scores and individual progress is often recorded on an organization’s learning management system (LMS). The LMS is often an enterprise-wide tool used for Human Resources and Training management

The main differences across the 2 regions for eLearning training are:

 

European Instructor-Led
Online Training
Asian Instructor-Led
Online Training
  • Participation rates vary vastly across organizations and countries
  • Typically, end-of-year “cramming” is observed, when individuals are asked to complete courses by line managers
  • A less frequently utilized learning mode
  • When used, participation is relatively consistent across countries and time

 

d. Self-directed learning is any form of formal or informal learning that is typically instigated and managed by the learner themselves. Examples include:

  • Attendance at seminars or industry events
  • Mobile learning (just-in-time information or insights accessed at a specific time of need)
  • Reading on a specific concept
  • Industry, supplier or category research
  • Role-playing behaviors in preparation for a human interaction e.g. negotiation
  • Peer review / challenge
  • Experience sharing / telling others about your knowledge or project
  • Lessons learned discussions
  • Learning by teaching

The main differences across the 2 regions for self-directed learning:

 

European Instructor-Led
Online Training
Asian Instructor-Led
Online Training
  • A popular learning method. The effort / time spent is sometimes recorded in a learning management system (LMS)
  • Sometimes undertaken following coaching with a line manager or mentor
  • A typical learning method in Singapore and Australia, less applied in other regions
  • When undertaken, it is often assigned by line managers

 

3. Reasons for selecting the learning mode

In ADR’s experience, organizations and individual procurement learners cite multiple reasons for selecting the method of learning.

 

Learning Mode
Why Organizations Select this Mode
Why Individuals Select this Mode
Instructor-led classroom training
  • Apply common ways of working
  • Enforce a consistent vocabulary
  • Opportunity to meet colleagues and share experiences
  • Some are better able to learn away from the desk
Instructor-led online training
  • Easy to coordinate geographically dispersed learners
  • Less time away from the daily work
  • Interest in focus on a single topic
  • Less time away from the daily work
Self-paced eLearning
  • Cost effective
  • Wide course topic range
  • Accessible on mobile devices for on-the-go learning
  • Less time away from the daily work
Self-directed learning
  • Encourage learners to use their initiative in planning their personal development
  • Networking outside the organization can bring new ideas
  • Follow personal interests
  • Opportunities for career development and networking

 

4. Which learning mode is most effective for these learners and why

It is often the organization that makes choices about learning mode on behalf of their teams. These decisions are driven by budget, availability of learning and people development strategies across the business. The organization must also consider what approach will yield the best outcome in terms of business benefit and employee satisfaction.

In Europe, blended learning is a popular form with a mixture of learning modes depending on location, learner preferences, budget and topic. Some of the reasons blended learning may be effective in Europe are:

  • Individual learners may expect to manage their own personal development over their careers
  • Learners enjoy collaborating with peers to discuss and solve procurement challenges
  • Learners like a wide variety of choice, to suit individual learning style
  • The learning is often part of a structured program, resulting qualification or accreditation
  • Millennial learners expect a digital offering

In Asia, instructor-led classroom training is a popular form with a mixture of lecture, group discussion, break-out exercises and role play. Some of the reasons classroom learning may be more effective in Asia are:

  • Individual learners may expect their managers to identify the learning that is required
  • Good sponsorship and support of the training from senior leaders in this region
  • Due to regional culture and school education style, a facilitated approach is preferred
  • Learners value institute or university qualifications and would rather travel to learn than receive online learning
  • Learners appreciate access to an expert tutor, to whom they can pose questions related to their own procurement challenges

 

Conclusion

Procurement professionals face common challenges regardless of their physical location, including shifting market dynamics and variability in supplier performance.

However, our ADR tutor team observe that European and Asian Procurement professionals and their managers do approach learning and development in different ways, to suit their culture and needs.

For the global procurement leader, this is a reminder to avoid a “one size fits all” approach when it comes to learning. One must take into account the learning needs, business needs and how learners learn best.

ADR’s Development Needs Analysis skills assessment shows that the biggest skills gap in procurement professionals globally is supplier cost analysis.

This article explains how this skills insight links to recent events at Carillion.

What is is required to ensure the suppliers we select are stable?

There has been much media commentary this week about the failure of the 2nd largest construction firm in the UK, Carillion. Much of this has focused on the government purchasing team who selected Carillion. Some have criticized the buyers’ lack of rigor in the supplier selection process that allowed Carillion to be chosen as a vendor despite them not having the financial strength to support the investment.

However, most major organizations have the appropriate processes and procedures to ensure prospective suppliers are evaluated in a manner that is appropriate to the scope and scale of the project that they are being considered for. Such processes include:

1. Evaluation against customer technical requirements

The extent to which the suppliers’ proposals meet the specification / statement of work.

2. Evaluation against customer business requirements

A review of the extent to which the suppliers’ proposals meet the business requirements of the buyer in terms of availability, service, quality, cost and legal / corporate social responsibly.

3. Evaluation against customer budget requirements

A review of the suppliers’ proposed prices and actual input costs.

4. Evaluation against customer financial sustainability requirements

A review of the suppliers’ financial performance is done for risk management purposes (does the supplier have adequate cash, liquidity and solvency to initiate and sustain the work?) It is also done to seek opportunities for improvement (does the supplier have profit in line with the industry norm, does it manage its operation efficiently, according to the financial data?)

5. Evaluation against customer business values

Many organizations also attempt to assess whether their suppliers meet their business values that could include areas such as social impact, ethical behavior or problem-solving practices.

Given these well-established processes that help ensure that the suppliers we select meet our needs now and in the longer term, why does supplier evaluation and selection often go so wrong? How can it result in a supplier being selected that subsequently cannot perform according to your needs and the contractual agreement?

With over 30,000 online evaluations ADR’s online skills assessment tool has shown that while tender procedures are often applied well, what is often lacking is the right cost analysis skills to support supplier evaluation and selection.

What cost analysis skills are required to support reliable supplier selection?

1. Collecting the right cost analysis data

Every supplier proposal should include a breakdown of the actual input costs that the supplier will invest in order to implement and manage their solution. This includes:

  • Direct and Indirect Labor: Wages and social costs of the number of people with the varying qualifications and skills required to perform the work. Indirect labor refers to the people performing services that are required for the project to be effected, but are not directly working on it.
  • Materials: Actual prices paid for the quantities of bought-in materials, consumables, tools, supporting equipment.
  • Overheads: The premises required to perform the work, and the premises of people, equipment and items that support the work. In addition, software and other enablers like licenses and maintenance to support the work. Finally come overheads, which are business costs like rent, tax and energy. Overhead costs are allocated proportionately across all the suppliers’ customers.

2. Analyzing cost analysis data

Analysis goes wrong when the correct information is:

  • Uncollected – either because suppliers haven’t been asked, or asked for the right thing. Or suppliers refuse to provide the data, and this is tolerated.
  • Untested – the information is given to buyers but there is no sensitivity analysis to determine what would happen if any of the conditions changed from the time of contracting to later in the agreement life. For example, market environment, currency, volume of work, political change could all impact the input costs of the supplier.
  • Unchallenged – the information is given to buyers but it is not questioned. In particular, there is a lack of interrogation of the source of funding for supplier investment, inadequate review of the efficacy of the suppliers’ own procurement approach, and a failure to question the assumptions behind the costs.
  • Unsustainable – the supplier has put forward a solution that will win them work but it is not possible to maintain the agreement without additional funding. They may attempt to get this money from buyers in the form of a price increase later on in the agreement life.
  • Invalidated – the information is given to buyers, who fail to check its veracity. The data can be checked a variety of ways including using third party sources, site visits, and benchmarking.

3. Creating a business continuity plan

Business continuity planning involves creating options for if the supplier does not fulfil their contract through interrupted or ceased operation, unavailable or late goods or services or any other form of performance failure. To address this, the buyer should prepare the following:

a. Account cost plan

Buyers should expect that all prospective supplier bids include an account plan that details the financial investment at all stages of the proposed contract. This may include recruitment and training costs, ongoing maintenance costs, costs to replace equipment that is end-of-life, and plans to mitigate adverse cost conditions in the market. The implications to the buyer should be clear, for example the associated support and resourcing costs that the buyer will have to pay for as part of their internal business costs. This demonstrates that suppliers are considering the whole life cost of a proposal, not just the element that relates to their part of the supply chain.

b. Risk plan

Buyers should create business continuity plans with the help of their prospective suppliers. This is a plan that details what will happen in the event of supplier failure for any reason, to ensure that the operation is maintained. Typically this is included in a sourcing strategy and could include options such as additional qualified sources or temporary insourcing.

c. Forecast

Buyers should also concern themselves with the customer / service user side of the project, if the purchase is being used for external stakeholders rather maintenance, repair and operations (MRO) items for internal use. Suppliers need good visibility of upcoming requirements, volumes and changing needs. This helps them to plan their business, resourcing and procurement plan. Buyers who are able to give suppliers stable forecast information help their suppliers to give cost and financial data that is reliable, with suitable caveats included.

d. Supplier Performance management plan

Buyers and suppliers work together throughout the bid and contracting stage to jointly develop performance measures that will do several things:

  1. Provide an early warning system, to ensure rapid detection and mitigation of risk elements. Such a system would highlight incidences such as suppliers extending their payment terms to their own supply chain (which is often an indication of cash flow difficulties).
  2. Give an indicator of whether current performance is on track to deliver the future performance required (hence, key performance indicators, or KPIs).
  3. Ensure the buyer is getting earned value. In other words, the supplier is doing what they promised to do, at the cost levels that were agreed.
  4. Be adaptable in the event of variation in requirements, market conditions or input costs.
  5. Motivate both buyers and suppliers to feel committed to achieving continued good performance.

Conclusion

Effective supplier selection and management requires an expert understanding of price and cost analysis combined with a robust supplier evaluation process. Organizations that train and develop their procurement people and business stakeholders in understanding price and cost will be more effective in supplier management, and are more likely to deliver sustainable, reliable supply agreements.