Sellers vs Buyers - “Tactics and Strategies from the Front Lines”

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SELLERS vs BUYERS
“Tactics and Strategies from the Front Lines”

A definitive guide to techniques for conditioning the “Seller” and techniques for conditioning the “Buyer”

Aims and Objectives
 Generation of Supplier Positioning Model
 Categorization of Suppliers
 Tactics and Strategy applied to relative positions
 Buyers Overall Aims
Material Strategy Model
Analysis Considerations
Spend Matrix
Procurement Profile Strategies
Supply Positioning: Portfolio Analysis
Supply Positioning: Analysis
Supplier / Buyer Conditioning
Supplier Conditioning Aims
Techniques
Customers' Expectations and the Supply Chains
The Buyer’s Influence cycle
Conditioning the Seller
Procurement Marketing

Published in: Business, Economy & Finance
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Sellers vs Buyers - “Tactics and Strategies from the Front Lines”

  1. 1. Gerard B. Hawkins Managing Director
  2. 2.  Generation of Supplier Positioning Model  Categorization of Suppliers  Tactics and Strategy applied to relative positions  Buyers Overall Aims
  3. 3.  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?
  4. 4. 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 HighLow 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
  5. 5. 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
  6. 6. 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 SupplyExposure
  7. 7. 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
  8. 8. 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 SupplyExposure
  9. 9.  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.
  10. 10.  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
  11. 11.  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.
  12. 12.  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.
  13. 13.  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.
  14. 14.  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.
  15. 15. 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
  16. 16.  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.
  17. 17. The Buyer’s Influence cycle Prelim. Discuss Selling Phase Detail Discuss Negotiate Order Issued Goods Received Payment Due Influence on Supplier Procurement Cycle
  18. 18.  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.
  19. 19.  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.
  20. 20.  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.
  21. 21.  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
  22. 22.  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
  23. 23.  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

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