Maximising Shareholder Value Through Effective Negotiation
Steve Jones
Maximising Shareholder Value Through Effective Negotiation
Negotiating with your suppliers
Lessons Learned from the supermarkets
Maximising Shareholder Value Through Effective Negotiation
Who am I?
Maximising Shareholder Value Through Effective Negotiation
What am I not?
• Expert in the ins and outs of public sector procurement – legally or practically
Maximising Shareholder Value Through Effective Negotiation
• The fundamental differences between procurement and “buying”– The people– The regulatory framework– How they deal with / manage their suppliers – The role of intermediaries– The negotiation process
Maximising Shareholder Value Through Effective Negotiation
Maximising Shareholder Value Through Effective Negotiation
People
• Qualifications• Focus of their training• Understanding of the law
Maximising Shareholder Value Through Effective Negotiation
Regulatory Framework
• OJEU• GSCOP• Competition Act• Contract law
Maximising Shareholder Value Through Effective Negotiation
How they deal with / manage their suppliers
• Always Negotiating – every meeting is a negotiation meeting– Increase sales– Improve efficiency– Drive down costs
• Formal – buy for less plans– Category / supplier plans
Maximising Shareholder Value Through Effective Negotiation
Maximising Shareholder Value Through Effective Negotiation
Categorising Suppliers
Profitability+-
-
+
Maximising Shareholder Value Through Effective Negotiation
Categorising SuppliersIn
novati
on
Qu
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of
Rela
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Str
ate
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port
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Profitability+-
-
+
Maximising Shareholder Value Through Effective Negotiation
Categorising SuppliersIn
novati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
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Profitability+-
-
+Grow
Maximising Shareholder Value Through Effective Negotiation
Grow Supplier Characteristics?
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Growth ahead of
Category,Margin enhancing
Maximising Shareholder Value Through Effective Negotiation
Categorising Suppliers
Squeeze
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
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Profitability+-
-
+Grow
Maximising Shareholder Value Through Effective Negotiation
Squeeze Supplier Characteristics?
Growth ahead of category
Margin diluting
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Growth ahead of
Category,Margin enhancing
Maximising Shareholder Value Through Effective Negotiation
Categorising Suppliers
Squeeze
Hold
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Grow
Maximising Shareholder Value Through Effective Negotiation
Hold Supplier Characteristics
Growth ahead of category
Margin diluting
Growth behindcategory,
margin enhancing
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Growth ahead of
Category,Margin enhancing
Maximising Shareholder Value Through Effective Negotiation
Categorising Suppliers
Squeeze
HoldDecline / Exit
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Grow
Maximising Shareholder Value Through Effective Negotiation
Decline / Exit Supplier Characteristics
Growth ahead of category
Margin diluting
Growth behindcategory,
margin enhancing
Growth behind category,
margin diluting or unreliable
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Growth ahead of
Category,Margin enhancing
Maximising Shareholder Value Through Effective Negotiation
Categorising Suppliers
Squeeze
Hold Decline / Exit
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Grow
Maximising Shareholder Value Through Effective Negotiation
Supplier Characteristics
Growth ahead of category
Margin diluting
Growth behindcategory,
margin enhancing
Growth behind category,
margin diluting or unreliable
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+Growth ahead of
Category,Margin enhancing
Maximising Shareholder Value Through Effective Negotiation
Supplier StrategyPlan requirementsIn
novati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+ Detailed plans – these are our
profit and growth drivers
Maximising Shareholder Value Through Effective Negotiation
Supplier StrategyPlan requirements
Large Suppliers will want
Detailed plans
Others - set sales and profit targets
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+ Detailed plans – these are our
profit and growth drivers
Maximising Shareholder Value Through Effective Negotiation
Supplier StrategyPlan requirements
Large Suppliers will want
Detailed plans
Others - set sales and profit targets
Set sales and profit targets
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+ Detailed plans – these are our
profit and growth drivers
Maximising Shareholder Value Through Effective Negotiation
Supplier StrategyPlan requirements
Detailed plans for tier 1 and tier
2 suppliers
Others - set sales and profit targets
Set sales and profit targets
Manage decline or exit
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+ Detailed plans – these are our
profit and growth drivers
Maximising Shareholder Value Through Effective Negotiation
Supplier StrategyPlan requirements
Large Suppliers will want
Detailed plans
Others - set sales and profit targets
Set sales and profit targets
Manage decline or exit
Inn
ovati
on
Qu
ality
of
Rela
tion
sh
ipG
row
th o
f M
ark
et
Str
ate
gic
Im
port
an
ce
Profitability+-
-
+ Detailed plans – these are our
profit and growth drivers
Maximising Shareholder Value Through Effective Negotiation
Grow Suppliers
These are the main drivers of our success – critical to delivering business objectives.
Strategy?
• Detailed plans, • Aggressively grow ahead of category• Improve margin if possible• Invest significant amounts of time
Maximising Shareholder Value Through Effective Negotiation
Grow Suppliers
Actions?
• Check financial stability• “Favoured nation” status• Capacity and desire to grow• Avoid deadlock and transactional conversations• Clearly agree initiatives to improve both
businesses.• Share detailed information - drive costs from
value chain
Maximising Shareholder Value Through Effective Negotiation
Squeeze SuppliersThey may drive category growth or have high market share
- typically large branded suppliers with lower margins. - lots of people resource and will try to demand our time to
drive their business objectives.
Strategy?
• Plans focus on margin improvement, and more promotion funding
• Grow in line with category • Aggressively manage time
Maximising Shareholder Value Through Effective Negotiation
Hold Suppliers
Companies we have dealt with for a long time. Terms generally acceptable but don’t drive category growth.
Strategy?
• Maintain level of business• Reduce time investment• Agree top line sales and profit targets
Maximising Shareholder Value Through Effective Negotiation
Decline / Exit Suppliers
Companies that we are trying manage outMay be unreliable or just a poor fit
Strategy?
• Reduce business and manage time investment• Manage exposure• Be wary of dependence• Treat them fairly
Maximising Shareholder Value Through Effective Negotiation
Growth ahead of category, margin dilutive Growth ahead of category, margin enhancing
Grow in line with category, improve margin - aggressively manage time Accelerate Growth - main time investment area
SQUEEZE Growth Margin Y/Y Marg £ Sales (K) £ Profit GROW Growth Margin Y/Y Marg £ Sales £ Profit
Squeeze 1 -2.1% 46.0% -2.0% £15,658,714 £7,203,008 Grow 1 7.5% 54.00% 1.4% £4,837,007 £2,611,984
Squeeze 2 4.3% 51.0% 0.0% £6,154,622 £3,138,857 Grow 2 8.5% 55.60% 4.6% £3,256,024 £1,810,349
Squeeze 3 10.2% 48.0% 1.4% £4,076,827 £1,956,877 Grow 3 0.0% 65.00% 3.4% £1,885,751 £1,225,738
Squeeze 4 8.2% 42.0% 2.9% £3,352,854 £1,408,199 Grow 4 7.5% 61.70% 1.7% £1,289,835 £795,828
Grow 5 51.4% 62.00% -2.0% £908,333 £563,167
Grow 6 53.3% 58.00% 3.0% £766,441 £444,536
Grow 7 3.1% 59.10% -0.9% £515,533 £304,680
Grow 8 15.0% 67.00% 3.0% £367,874 £246,475
Group Sales £29,243,018 Group Sales £13,826,797
Group Margin 46.87% Group Margin 57.88%
Sales Growth 1.89% Sales Growth 10.57%
Margin Growth -0.60% Margin Growth 2.37%
Share of Sales 47.61% Share of Sales 22.51%
Measure Total Suppliers
Total Sales £61,416,429are in top ten suppliers
Sales Growth 2.56%
Margin % 53.46%
Margin Growth 0.21%
Growth behind category, margin diluting Growth behind category, margin enhancing
Decline and manage investment Maintain - reduce time investment
Decline / Exit Growth Margin Y/Y Marg £ Sales £ Profit HOLD Growth Margin Y/Y Marg £ Sales £ Profit
Decline / Exit 1 -12.0% 43.00% -2.0% £2,640,603 £1,135,459 HOLD 1 -2.9% 65.00% -0.1% £2,911,572 £1,892,522
Decline / Exit 2 -4.1% 51.00% -4.0% £863,217 £440,241 HOLD 2 2.5% 64.00% 0.2% £2,357,798 £1,508,991
HOLD 3 -2.2% 64.00% 2.0% £2,445,041 £1,564,826
HOLD 4 6.8% 66.00% 0.3% £1,602,138 £1,057,411
HOLD 5 0.2% 67.00% -0.6% £1,592,549 £1,067,008
HOLD 6 -1.2% 61.00% 1.0% £1,581,589 £964,769
HOLD 7 4.8% 62.00% -0.4% £1,205,744 £747,561
HOLD 8 0.6% 65.00% 0.0% £1,146,364 £745,137
Group Sales £3,503,820 Group Sales £14,842,795
Group Margin 44.97% Group Margin 64.33%
Sales Growth -10.16% Sales Growth 0.42%
Margin Growth -2.34% Margin Change 0.40%
Share of Sales 5.71% Share of Sales 24.17%
Maximising Shareholder Value Through Effective Negotiation
The buy for less plan
Supplier Area of Focus
Benefit target
Levers First raised £ Achieved
How will we get money from them?
How much is it worth
What can we use to exert pressure
When did we first raise the issue with them?
How much did we get?
Maximising Shareholder Value Through Effective Negotiation
Maximising Shareholder Value Through Effective Negotiation
Joint Business Planning
Key Objective:
To exchange information about buyer and seller strategies and plans to develop a joint plan for the benefit of both parties.
Maximising Shareholder Value Through Effective Negotiation
Process?
Varies massively between retailers and categories.
• Can be a cynical attempt to avoid the provisions of the GSCOP and/or the competition act to try to push responsibility for the retailer profitability back onto the supplier.
• At the other end there are some retailers who believe that collaboration delivers better results for all parties
Maximising Shareholder Value Through Effective Negotiation
Balance of Power
• Actively change it• Embed key messages
Maximising Shareholder Value Through Effective Negotiation
Price increase strategy
• Dismiss• Defer• Detail (justification)• Deflect (introduce irrelevant issues)• De-list (threats of sanctions• Deal (negotiate)
Maximising Shareholder Value Through Effective Negotiation
Focus?
• Category reviews• Toxic Margin Products• Free ride suppliers• FX and Commodities• Promotional Activity• Other
– Grey– Disintermediation– Lean– Centralisation
Maximising Shareholder Value Through Effective Negotiation
Initial Encounters with Multiple Retailers
Maximising Shareholder Value Through Effective Negotiation
Chasing the High!
What have these companies got in common?
….has lengthened its standard payment terms to 75 days for all non-food suppliers.
Telegraph 18th October 2012
all invoices received for payment are subject to a 4pc deduction".
Telegraph 24th February 2013
“Asking” for an immediate cost reduction of 10 per cent including on orders already places
Telegraph 25th March 2013
Demands rebates of up to 5.25% from suppliers despite announcing record profit
The Guardian 12th March 2013
If paid within 60 days 3 per cent discount, rising to 5 per cent if paid within 21 days.
Independent 22nd April 2013
Demanded that its suppliers pay a 2.5% a discount on goods just eight days before Christmas.
The Guardian 17th December 2013
Demanding a 2.5% rebate on turnover from spring 12 until now.
Drapers Online 31st January 2014
Pressure on suppliers to issue a two per cent rebate for orders placed on and from 1 March.
Telegraph 5th February 2014
“……asked suppliers to pay up to 10pc of their annual sales to help fund the company’s £100m store modernisation programme”
Telegraph 24th May 2014
From May 18 Mothercare will wait 90 days before paying bills, and will also take a 2.5 per cent extra rebate to ‘all existing terms’
Daily Mail 2nd May 2014
Announced a cut to its farmgate milk price reducing it’s manufacturing price by 1.15ppl from 1st July
Grocer 3rd June 2014
• In a letter seen by the Mail, chief executive Ian Grabiner wrote: ‘We are notifying you of a further 2pc payment discount – this will be effective from September 1, 2015 and will apply to all existing orders with a payment due date after August 31, 2015, as well as to all orders going forward.’
5th August Daily mail
Maximising Shareholder Value Through Effective Negotiation
Morrison's – letter not spirit
• Recently (reportedly) Morrison’s buyers have received training in how to get round the GSCOP
Maximising Shareholder Value Through Effective Negotiation
Who will protect the suppliers?
Maximising Shareholder Value Through Effective Negotiation
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Maximising Shareholder Value Through Effective Negotiation
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Maximising Shareholder Value Through Effective Negotiation
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Maximising Shareholder Value Through Effective Negotiation
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Request originated from one category and from one buyer only.
Maximising Shareholder Value Through Effective Negotiation
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Request originated from one category and from one buyer only.
Buyer has had more training on the Code sent out retraction emails.
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Request originated from one category and from one buyer only.
Buyer has had more training on the Code sent out retraction emails.
“Requests” for payments for their Multi-channel initiative. Deductions of money from 67 suppliers without their agreement.
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Request originated from one category and from one buyer only.
Buyer has had more training on the Code sent out retraction emails.
“Requests” for payments for their Multi-channel initiative. Deductions of money from 67 suppliers without their agreement.
It was a mistake.
Retailer Issue? Excuse? Penalty?Suppliers asked to pay for eye-level display
Seeking payment for shelf positioning was an error. Issued for one product category
Tesco emailed all suppliers affected to advise that this is an error
Compensation payments for failure to meet target service levels (lost profit)
Request originated from one category and from one buyer only.
Buyer has had more training on the Code sent out retraction emails.
“Requests” for payments for their Multi-channel initiative. Deductions of money from 67 suppliers without their agreement.
It was a mistake. Paid back the 67 suppliers
Maximising Shareholder Value Through Effective Negotiation
GCA claims breakthrough on ‘forensic auditing’
• Only two years + current• Not
– J Sainsbury
– Waitrose
Maximising Shareholder Value Through Effective Negotiation
Conclusion?
• Suppliers – you’re on your own
Maximising Shareholder Value Through Effective Negotiation
Final Final thoughts?
Make sure you get what’s fair – you only get what you
negotiate!
Maximising Shareholder Value Through Effective Negotiation
Summary of Fundamental DifferencesDimension Retailers Public Sector
Buying groups Rare Frequent
Frequency of negotiation Always Negotiating Infrequent
Disintermediation High focus Lower focus
Supplier Churn Frequent infrequent
Decision process One decision maker – accountable and increases power
Blurred with everyone wanting a say
Structure Any negotiation levers Structured approach
Maximising Shareholder Value Through Effective Negotiation
Dimension Retailers Public Sector
Salaries Highly paid Less highly paid
Process – Tenders E auction or not at all OJEU
Contract length Little or none Long contracts
Outsourcing Unusual Frequent (Teckal)
Training Little or no purchasing qualifications
Highly qualified (CIPS)
Main focus of training Negotiation and supplier Management
Process and legal
Summary of Fundamental Differences