Continuing from part 1 of this article, and after discussing how to get tough on ourselves, our associates and prospects, in this article we discuss how to get tough on our suppliers.
Although consulting firms, as knowledge-based organisations, typically, don’t have many suppliers, but they do have some, so it’s vital to take a closer look at this relationship. They also have alliances and joint venture partners, and this addition makes the topic even more important. so And under “suppliers” we can also consider the other professionals for whom your firm is a client.
But before we emphasise our expectations of others, we have to make sure we, as clients, fulfil their expectations.
So, check yourself if you’re a “Great Client” on your supplier’s roster. Ask yourself…
Do you treat their people with respect?
Do you promptly respond to their communication?
Do you accept their fees and prices? Hagglers don’t make “Great Clients”
Do you pay their invoices promptly?
Do you involve them in your operation? What I mean here is that when you talk about improving office effectiveness in your company, do you invite your office supplier to share their expertise on the topic?
I would go as far as requesting a Perfect Client profile from your suppliers, and asking them how you could live up to their expectation and asking them to help you to become a Perfect Client.
First, your suppliers would be floored because all of their clients are hammering them for special deals and preferential treatments. But this is different. You basically ask your suppliers how to create win-win relationships in which your company receives amazing service and your suppliers make a fair profit by rendering that service to your company.
This is neither rip-off nor penny-pinching. It’s just a good and mutually profitable way of conducting business.
But just as your supplier wants you to be a Perfect Client, you want your supplier to be a Perfect Supplier. So, let’s see some criteria to keep supplier relationships clear and overt.
Finding The Right Supplier
The differences start right here. Some companies create bidding wars and pit suppliers against each other to bid for the contract.
The problem with this approach is that by default you get low-end suppliers. Suppliers that are worth their salt don’t even participate in bidding wars because of the high casualty rates and the low rewards.
A bidding war is really just a way of finding low bidders that are willing to enter win-lose type superior-subordinate relationships with companies.
So, how to change this around?
Let’s look at the buying process from the buyer’s perspective…
First let’s start with a study by McKinsey & Co…
1. 75% of solutions don’t return a profit to the selling company
2. 50% of solutions don’t deliver the expected value for the buying company
#1 happens because sellers get blinded by buyers’ offers, and in the shuffling madness of getting the contract, sellers give up their margins in order to close the sale.
And #2 happens because sellers realise they have given up the very margin (financial cushion) they need to finance the delivery of the pre-agreed value. And at this point they start taking shortcuts.
And after weeks and months of hubbub, hullabaloo and brouhaha, buyers get a financially incredible deal and achieve… precisely… nothing. Not a sausage.
So, let’s look at the buying cycle of a smart buyer…
Buyer searches for possible solutions and service providers on the web using Google
Buyer settles with a couple specific companies
The smartest of the selected companies start a nurturing process of educating buyers
Buyer gathers info on- and from the selected companies
Buyer connects with selected companies to discuss possibilities of working together
Out of these discussions buyer selects – based on high value not low price – the most suitable company
Buyer and seller agree on price and terms, and start working together
In this process there is honest and overt communication between buyers and sellers.
And what does a cheap buyer do?
Buyer issues RFP to find some competitive(ly low) bidders
Some poor souls, desperate for just any business, respond to the RFP and submit their proposals, hoping that it’s a real opportunity
Buyer makes a shortlist of some poor souls for further brain-picking, called the sales presentation
Buyer invites some salespeople to present their solutions. The audience of these presentations are usually mid-level opinion-makers and lower-level flunkies without decision-making authority and budgetary power
Anticipating manipulative presentations, audience members put on their “sales filters” designed to separate real value from fluff
Audience members passively watch and listen to the free “entertainment” and carefully filter the message
Audience members grade the presentation and the presenter(s)
Audience members take their collective opinion to the purchasing department
A flunky at the purchasing department selects one of the presenters as supplier
The purchasing department uses other low bids to pressurise the selected company to drop its fees and prices even lower
In this process there is deceptive and covert communication between buyers and sellers. They try to trick each other to make the most of the opportunity.
It’s pretty clear there is no way one can find good, let alone great suppliers through RFPs. Good suppliers simply don’t respond.
So, I suggest you stay away from orchestrating bidding wars and focus on acquiring great suppliers through building relationships.
Selecting The Right Supplier
When a supplier is selected as a result of manipulative sales techniques on the supplier’s part to close the sale, then there is a problem. The relationship often starts out on the wrong foot. For the supplier your company is just another invoice number. And for you the supplier is an entity to squeeze every last drop of concession out of.
It’s an adversarial relationship because the supplier uses methods to maximise its profits, and your company uses methods to minimise the cost of services that supplier provides.
The typical example of this approach is the dreaded RFP and the whole retarded bidding process. Buyers basically compel sellers to go at each other’s throats, and the last one standing, usually the lowest bidder, gets selected.
One reason for that is that it is not the real buyer but a proxy buyer, called the purchasing agent, does the selection.
And this is the very same reason why the most suitable sellers don’t even participate.
Where is the bidding process coming from? From the government, probably the most ineffective and most corrupt man-made institution on the planet. Not exactly the right entity to model for excellence.
So, what can you do to find the right supplier?
Exhibit the same ethical buying characteristics that suppliers exhibit in their selling characteristics.
I truly believe we buy the way we sell. Buyers who haggle for lower prices do that because they sell on price. And who the cricket wants to be a supplier to a company that sells on price?
Just look at Wal-Mart. It sells on price, but in turn, it squeezes suppliers to the hilt. And many suppliers do business with Wal-Mart because they believe the price drop is justified by the huge volume.
I’m not sure.
But there is a huge difference between selling commodities at a discount and selling unique and complex solutions. Yes, complex solutions too can be sold at a discount but that defeats the purpose.
Making Agreements Clear
When someone pushes a complex agreement under my nose, full of small print by the company’s lawyers, I make a handwritten amendment at the end of the agreement, saying that all small print on this agreement is nil and void, and have the other party initial it. If the buyer refuses, I move on.
And this often creates some problems. I like playing over the table and regard small prints as under-the-table play. But I reckon lawyers love it because this way they can obfuscate their agreements in such a way that mere mortals don’t even understand them.
I may be wrong, but if I have to watch my back in a legal sense, I rather don’t work with that client. I have nothing against lawyers in general, but prefer to leave them out of my business dealings.
One big problem with many agreements is that they are tactical with no regard for overall strategy. They focus on methodology without clarifying what the contracting parties want to achieve.
It’s also fuelled by the misconception that many consulting firms are selling the efforts they put into their engagements not the results their clients expect to get out of them. So, they believe the more action steps they put into their agreements, the higher fees they can justify, saying, “Look we work our fingers to the bone. We deserve the money.”
As a result clients develop this distorted idea that they pay their consulting firms in direct proportion with the sweat on their brows and the magnitude of muscle cramps from hard labour. The more battered, bruised, bashed, bloodied, beaten, crashed and crushed consultants are by the end of the engagement, the more they deserve their fees.
So, what should the agreements consist of?
The summary of the current situation
The problem we’re working on to solve
The quantitative goal expected to be achieved by solving the problem
The objectives to be accomplished that make the achievement of the goal possible. These objectives must be in place to achieve the goals
Possible obstacles that may get in the way
The methods of measuring progress
The expected value to be derived from successful completion
For instance, your firm is looking for a web design firm to help you to revamp your firm’s website
If we want to increase sales, we need to hire more salespeople and that’s more headache
We want to revamp our impotent website to generate qualified sales leads
We expect to land an annual $1.5 million of new business through our website
Our objectives: 1) Assembling an online business development team, 2) New web design, 3) Fresh web content 4) Building an online sales funnel from first contact to signed contract
Our computer network is old and slow. For proper online operation we have to update our hardware before we go online
The methods of measuring progress: 1) Number of redesigned pages, 2) Number of educational pieces (newsletter, articles, white papers, podcasts and videos) on website
See goal in #3
We expect the new website to be completed and gone live by 12 November 2009
Accountabilities: This section must spell out that clients are single-handedly responsible for the achievement or non-achievement of their results. Just like in a university. Students are responsible for their own graduation and finding work. The university provides the knowledge and the tools, but students must do the work. Consulting is the same
And this agreement becomes an operating template for all parties involved. Basically everyone becomes accountable to this document. And this is why there mustn’t be any small print on it.
In the last part of this series we’ll look at the relationship with paying clients.