RETAIL DISCOUNTS ARE DISTORTING THE REALITY

I went out Christmas shopping today. In the mall, every -- and I mean every -- store has signs 40%, 50%, 60% off. Wow, what deals! Or are they really?

Let's face it. Retailers are making healthy profits. They are not in the business of saving us money. They are in the business of taking money from us for their advantage. So, why are they giving us such "great deals?"

When I was younger, I worked part-time in a store. Nothing was discounted prior to Christmas. Well maybe a few items on Christmas Eve day to entice those last minute shoppers (which were often desperate husbands, to whom we could pretty much sell anything. We actually had some sport with that, trying to figure out what the wife's expression would be Christmas morning when she opened up the big package, only to find a ratchet set and drill -- yes we convinced men that the wife would love it! :)

Now, everybody goes shopping with the expectation of deep, deep discounts, all the time. Have we been such intelligent consumers that the retail industry just buckled under the pressure? Not so much.

Yes, there is increased competition. No question about that. But I actually believe that the answer lies elsewhere. The "original" retail prices have been severely inflated, and the "real" cost has come down significantly with all the off-shore manufacturing that is taking place.

The retailers are still making a bundle, and consumers are paying higher prices, that have the illusion of being discounted. We are probably paying more, not less, than in the proverbial "good-old days."

This attitude morphs into the business world as well. The old style of negotiation was the seller would go high, the buyer would go low, and inevitably they would meet in the middle -- an arduous, adversarial process but everyone usually got what they expected. Then buyers (not all but many) were hit with an epiphany of realization that this was just some silly game and that it was better to be more upfront, partner oriented and negotiate openly and transparently. This is how I always liked to negotiate -- I wasn't into the gamesmanship nor in making a supplier bleed for my benefit, because inevitably they are there to support the business and we need their support.

Unfortunately I see the tide reverting. Buyers are looking at sellers and stomping their feet and saying we need more from you. They don't differentiate between products or services. Everything is painted with the same brush. Buyers will often get some short term gain, but their business will inevitably suffer with this approach -- because there are so many value-add things that sellers offer, which will make your business better.  But not if you put them in a choke-hold. I will tell you that I have predicted the comeuppance of some companies that I have dealt with in the past who thought it was appropriate to hit suppliers over the head with a 2x4. Karma is a bitch!

But why are we reverting. Today, in the mall, I felt I had the "AHA" moment. Buyers don't trust sellers anymore, because everywhere they turn outside of their work life, everyone is offering huge discounts. Which means, ergo, that at every other time of the year, when you shop and you pay retail price, you are obviously being ripped off. So buyers in corporations are probably figuring that their suppliers are holding back some secret stash and that they are not being honest with them when they say that this is the best they can do -- and still be viable.

I know a lot of these companies who are trying to do right by their clients. They are going into sell the cost savings  which is being pushed on them from on-high because, well their leaders go to the malls too!

best possible product/service, at a total cost which ensures that the client gets what they need, plus the service that goes along with it. These sellers though are in a conundrum because it is unclear to them how they can appease the sometimes ludicrous asks of the buyers. And the buyers are making ludicrous asks, because their metrics are stilted towards the demon

I know it is not this simplistic, but we do live in a discount society. I fear however that we are going to go back in time when we stop being honest with our partners and begin the silliness of "you offer the high price, and I'll give you the low. And we all know it's a game but hey, if I can tell my boss that I got a severely discounted price, I'll get accolades and a bonus!"

As Kurt Vonnegut wrote in Slaughterhouse-5…and so it goes!

"I'LL GET A BETTER DEAL" AND OTHER MISCONCEPTIONS

If you are in Procurement, you will have heard, more than once, an internal client say that they can get a better deal than procurement. They believe they negotiate better, and they know better than procurement what their needs are. And to boot, they will often then add "and I can get it done faster!"

Let me tackle these comments one by one with a real life example that happened years ago, in a corporate environment where I was in the procurement team. 

We discovered that one of our internal clients had chosen to buy two servers on his AMEX expense card. The supplier was a firm that we did purchase servers from, on a regular basis for the company as a whole. This individual though felt that they had gotten the best server, at a cheaper price and it was processed much faster than having had to go through procurement and our "tedious" process.

 Pricing

• Was the price quoted to this individual cheaper than the one that we would have had on the purchase order issued by procurement? Yes, absolutely it was! But there were a number of issues with this price:
• The price quoted was in US dollars, not Canadian. At that time the Canadian dollar was trading about 10 cents below the US dollar. So the "real" price would have to be converted to Canadian dollars for comparative. When this was done the price was equivalent to that in our database
• The price didn't include freight. The way it was ordered, this was being shipped from the US to Canada and you can imagine for this type of product, shipping is not chump change
• Because of the way it was ordered, on a credit card, and outside our company's contract, once it crossed the border, there would be no warranty. The person ordering said he thought that because it was on an AMEX card, that there would be a provision of warranty. Actually, I don't think he ever even thought of warranty and this comment was a Hail-Mary pass to justify his questionable behaviour.

So when taking all of these items into account the "price" became significantly higher than the one we had negotiated.

I know what I need

Actually, I accept the fact that the business unit will be able to articulate and even identify what they need, perhaps in the server case even down to the vendor and model number. So as a procurement organization it is not our role to say "no you should buy this, not that." However, if  procurement is doing their job, they will be up-to-date on what is happening in the market, across a realm of various suppliers and be able to advise on other alternatives than the one presented. 

Procurement personnel have taken a vaccine against sales pitches and are pretty immune to the "this is the best for you pitch." A lot of others are not and they may be mesmerized by the shiny new toy, and want to buy the space shuttle, when a VW bug would do. They may have developed a more fluid relationship with a salesperson from one organization vs. another, so this company has a clearer understanding than another. So inevitably procurement will get the comment "the other supplier doesn't understand out business needs." 

And you know what? All of these things might actually be true, but I have found multiple times that when providing other options/alternatives that the original "must-have" isn't. 

Procurement is never there to dictate to an internal client what they should or shouldn't do. The role of procurement is as an advisor to the business. An influencer if you will, and never the final decision maker. Working hand-in-glove with the business to proactively define their needs ensures that the company as a whole benefits.

Faster

I think by now you probably realize that faster in the front end, is highly problematic and becomes a lengthy "fix it" situation on the back end. In the case above, we could have probably actioned the server buy in about 24 hours -- of course that would have been dependent on the approval hierarchy that would be required (note, this person did not get any approvals -- was just going to expense the servers). I have yet to be in a Procurement organization, where if something is identified as urgent, that it won't be actioned extremely quickly, and often faster than if the individual does it themselves, because, procurement has the relationships within the vendor's business to make things happen -- because procurement represents the entire spend, not just a one-off buy. 

The problem is though, is that when a group always advises Procurement of the urgency of their situation, it becomes like the Boy Who Cried Wolf. We don't believe it anymore and then action it in a regular manner. And if everyone says everything is urgent? Well, then urgent becomes routine and again, not necessarily the outcome that is desired by the end client.

Granted, if urgency reigns supreme, then it is up to Procurement to engage with the internal client and discuss their needs and put together a plan to ensure that they are getting what they need when they need it. 

By being proactive and when Procurement is involved at the beginning, in the planning stages, at budget time etc., then again the entire process becomes mutually beneficial.

You are probably wondering what happened with the server scenario. We didn't find out about it until the hardware was delivered and the expense report was filed. It was Procurement that fixed this mess, and it wasn't easy. We went to our supplier reps in Canada, and indicated that the US never should have excepted an order from a company that they knew to be a client, on an expense card (without a PO). We also stated that we were sure that considering the millions of dollars of business we do with the supplier it would be worth their while to find a solution to this issue. We accepted that our company didn't follow proper protocol either, and we would put checks in place that this would not happen again.

The outcome was our vendor, on paper, took the servers into their inventory in Canada, reversed the charges on the AMEX, we issued a PO, which was based on our contract and pricing terms, and the issue was resolved. It took about a month to unravel this, but we did it.

And the rogue individual who did this? Well, he just got a slap on the wrist and was told never to do it again. Why were there not more consequences? Because at the end, we fixed it, so it was considered "no harm, no foul," because no one knew the number of hours and negotiation it took in the back room to make the fix.

Most of the internal clients in this corporation came to rely on procurement and our expertise. We listened, we understood their needs and we became part of their teams. Hand-in-Glove. We respected each others' knowledge and experience. The individual who had ordered the servers was new and who knows what kind of procurement group he had been exposed to in his former company. Probably not one like we had.

The next blog entry will be about what Procurement teams need to do to make themselves valued partners in the business and how to market their value proposition.

WHAT'S IN A WORD?

The estimates of how many actual words there are in the english language vary greatly, but let's say there are anywhere from 250K to 750K words available to us at any given moment. On average, in speech, we use between 6000 to 10000 words every day, the lower side of that range being gender specific, men use less words than women do, but of course, women have been accused of talking more than men :)

So have you ever thought about how many of these thousands of words you use daily are actually delivering the message you want them to convey? The inadvertent use of a word, a phrase or a sentence could either commit you to something you didn't expect or result in the fragmenting of a relationship -- either personally or in business. Words can be used as weapons or as entreaties. 

Words are powerful!

When you are about to present a "pitch"  or negotiate with a potential client, how carefully do you choose your words? Perhaps you ensure that all the words with which you wish to convey your message are written down, but when presenting and negotiating most of the communication is verbal. 

So let me just provide a few examples of words which you may want to avoid when trying to put forward a confident, competent option to your potential client.

• Never lead with a negative . Ok, so I did here, but I chose it specifically for effect. When you say "no, never, not, can't...." people tend to shut down. They hear very little after the negative, because, well, why should they? You've just indicated that things are a "no-go". This is when people start either challenging the comment or just shut-down and  checking their watches.

• "We hope that..." Well, there is a big difference between hoping and knowing. If you are presenting to a client or negotiating, these are words which signal lack of confidence. Because hope is not a strategy and I prefer to deal with people saying "We're sure that...." Whether I am or not, at least you've conveyed you're convinced you did your job!

• "This should..." Will it or won't it? Should is from my perspective one of the most wishy-washy words on the planet. But think of how many times a day you probably use this word. For me it is a signal that there is something I need to probe deeper on, because "should" is a big red flag for me.

• There are words that make people lean in and take notice and surprise, surprise, these are powerful, positive words such as success, goals, will, sure, can, together well you get the idea. 

Maya Angelou said "At the end of the day, people won't remember what you said or did, but they will remember how you made them feel."

Your words, can either make someone feel positive and pumped and thus people who have heard you will feel good. And we all prefer to be around people and companies who are capable of this!

So when you are using your 6000 to 10000 words today, stop for a moment and consider what it is you are actually saying -- the result might surprise you!

DID I REALLY SAY THAT? THE LANGUAGE OF COMMUNICATION

At one point in time in my career, I taught  public speaking, presentation and negotiating skills. And even though there seems to be a resurgence of interest in what we say, without knowing, it is still, unfortunately, a little developed skill set.

When negotiating a deal, you know that you are engaged in a poker game of sorts with often very high stakes. So if you are good at it (either from the buy or sell side) you should be constantly looking for the "tells" which can be in words, body language or eye contact, as well as utilizing aspects of the same in an effort to provide the message to the "opposing" side that you wish to convey.

I usually like to start a negotiation with being very friendly, talking about inconsequential things to the folk from the "opposing" side. This provides me with a three-fold opportunity. It allows me to create an environment where the other side might believe "Oh, this looks good. This might not be a tough negotiation." It allows me to baseline the body language and words people will use when not negotiating and thus I can determine as the negotiation goes forward, how these aspects of behaviour change under stress. Thirdly, what I have found is that when creating this initial friendly, warm space, people will often tell you things that they really shouldn't have exposed. And I make sure that my body language mirrors my friendly words.

For example, in a negotiation a supplier was trying to assess a $750K payment on my firm for product that was destroyed at our behest. We knew we owed some monies, but couldn't remotely find justification for this amount.  During this pre-negotiation the supplier let drop that they had been going through a massive system change and it had caused lots of issues throughout their company including record-keeping and accounts receivable. I kept this in my back pocket and during the negotiation when they pulled out their sheets of numbers etc. which conflicted radically with ours, I just said "you know, you were just telling us how difficult the transition to this ERP system was and how you had to have lots of verification and validation through this timeframe, so considering you went through all of this and that you've indicated there are still issues, can you tell me why I should trust your numbers over ours?" They were flummoxed and we finally settled at $250K. Not bad for a two hour negotiation!

What about body language? Again best to set a baseline before interpreting too much into body language but there are some standard "tells." Unless the room is very cold, people with arms crossed are assuming a defensive position. I watch during a negotiation how the body language changes. Are the arms open, until I ask a question and then the arms cross and the body leans back? Then I know I hit a nerve and you can be sure that I will probe further on that point. If they are open and leaning forward then this is usually an area that we are in agreement on, or they may be willing "to give" on. But be careful to see if your "opposing side" is mirroring your behaviour. As a seasoned negotiator, I will mirror behaviour to make the other side believe that I'm "in tune"with them. Maybe I am, maybe I'm not, but always be on your guard.

What are the other members of your entourage doing while you're speaking/negotiating? I don't only pay attention to the person that is in front of me. I look to see how other members of the team are reacting to what is being said. If all of a sudden I see a team member put their hands up to their face and maybe even put their finger on their lips in a "shushing" position, I know that something is being said that is not quite truthful, or the "speaker" has given away something that he/she shouldn't. There are other things I look for as well, but just ensure that the entire team has been briefed on how to behave and not to give anything away.

When looking at communication and what we are truly "saying", it is not just the words or the body, or the eyes. The language of communication is a 360 degree one. So be aware of every aspect! If you are not sure how you are coming across, role play and video. You'll be surprised at what you see.

(note: I'm going to write about a few other types of communication throughout this week. Stay tuned!)