Supplier Relations

Video Transcript

I am going to talk to you first about the genesis of this presentation. I gave a presentation about 18 months ago and I used in it many examples from my personal working life, from the and I've worked for a number of companies. I've worked in the pharmaceutical industry, consumer products, beverage, financial services and now, in a global real estate and financial and and facility management business. So I used a lot of examples that I thought were really profound and I used one example that I actually heard a story that I heard on a cruise ship about Captain John Cook and how he discovered Easter Island. And I won't take you through all of that, but when it was all done, I got a lot of e-mails from people saying that they really enjoyed the presentation. Every single followup that I got mentioned the John Cook example and not one person said anything about the example from my working career, the many, the hundred examples from my working career. So I started thinking then that maybe my own examples aren't as profound as I thought they were. So I took some notes I had been making for meetings that I've had with some of the junior folks at our company, some little tips for them as they go into their roles in our firm. And over the course of the last 18 months, whenever I read an article or saw something that I thought would be a relevant example I kind of threw it in. So what I'm going to do is walk you through some negotiating tips that I have given to other people and show you some examples in history on other people who have used them successfully. I'll also tell you that there are a couple of examples from my career in there because I just couldn't resist. Okay.

Negotiating Tip #1: Do your research. Okay. That to me, if there's and if there's anything that you take away from here, it is to spend that time doing your research. And I'll give you an example of how that worked really well for me personally. I was at Diageo, which is the world's largest liquor company, and in the United States, the second largest buyer of glass, but there aren't too many glass companies and there aren't too many glass plants and number one which is Anheuser-Busch is a whole lot bigger. So even though we were number two, we were outpaced by number one a lot. And we couldn't get what we needed from the glass companies. As I said we were number two with the big gap. So someone came up with the idea of napping out all of the participants and all of the things going on in the business. And we sat in a room for a couple of days and we had people's names and we had org charts and we called up people that we knew and we did whatever research we could. And we came to the conclusion that there were a couple of people on the glass manufacturer side who because of situations they were in personally really had a lot to lose if this deal didn't go through and with that knowledge, we were able to target those individuals and we worked really hard to get them to see our side and to get them to see what we needed to accomplish and in fact it worked. We got where we needed to go, but it was only some kind of aha moments that we had when we sat and we really focused and said of the plethora of folks we've talked to, who in here is someone that is going to help us.

So the support I found from history was none other than Attila the Hun. Okay. Atilla the Hun, scourge of Europe in the year 450, probably the worst teenager ever and Atilla, as he plundered through Europe, as he tried to take over the Eastern Empire and the Roman Empire said, "Never trust negotiations to luck. Enter every session armed with knowledge of the enemy's strengths and weaknesses; knowing his secrets makes you strong." When I read that, I immediately thought of that glass company situation. It was right. Understanding where these people might be coming from and where they might be vulnerable made a huge difference in the results we were able to get. So I leave you that as negotiation tip number one.

My other thought here is look beyond the obvious, right. When we did this, it was about ten years ago and so we didn't have Google and LinkedIn and all these other places to look now. We all do Google searches, we all do LinkedIn searches, but more and more, I'm finding that in my own LinkedIn profile, people are recommending me. They're commenting on competencies and in some cases there are people that I never even worked with. So, you know, think about the other sources. Think about picking up the phone also to try to sort of understand the situation behind a company or an individual that you might be going to negotiate with. Okay.

Negotiation Tip #2: Follow the steps. Okay. Go through the process, whatever the process is, you know, there are five steps, seven steps, you know, eight step processes, they're all very similar and that they are just methodical. Just like doing your research, they are, you know, do certain things, make sure you cover your bases in terms of thoroughness. And for my example here, the 2011 NFL walkout, lockout when for 4-1/2 months, football in the United States came to a grinding halt. The owners and the players disagreed on just about everything. And yet, 4-1/2 years later and 4-1/2 months later, they came to a conclusion and they disagreed on player salaries, benefits, the length of the season, you know, the rookie system, you name it, it was a source of disagreement.

Generally speaking, as I did this research, Robert Kraft, the owner of the New England Patriots was credited with using his negotiation skills to help end that lockout. Now, I have to give you a caveat. I live and I devote my time between Connecticut and New York so, of course, we're going to be a little biased. Certainly, that's what we found in the Boston and the New York and the Connecticut papers, but I found them if the Huffington Post and some other websites as well, okay. There are four key negotiation tactics that he used that I'll share with you here: #1, Establish Relationships Of Trust. He had the advantage of having a private plane and he gave some of the key negotiators for the player's rides to some of the negotiation sessions and used that time, the banter, the chitchat and things like that to establish some basic relationships. #2, Generate Options. Something that he encouraged the owners and the players to do is divide into small groups, one-on-one and tackle some of the issues rather than sitting with constantly in big meeting rooms with lawyers on each side, sit down together, work it out and come back to the bigger group with some ideas. Convince your side to make concessions at some key points. All right. So, you know, they and they settled bunch of little points. There were some big points there to still be dealt with and he came back with the idea and he went back to the owners and got their agreement to concede on some of the issues involving the rookie process. Well, that opened things up for them the players to do some concessions of their own and help that process. And, you know, you read a lot about don't make the first move. It's important. You have a disadvantage when you do that. I actually don't believe that because I've been and I bet lots of you have been in those situations where you're just in a stalemate. Sometimes making that first move kind of puts pressure on the other person to make a move as well, you've already conceded on something, right. You think about it. I think there's power in making that first move. And then he negotiated for the long term and had a long term view as he try to make these things happen.

Negotiation Tip #3: Comes from none other than the Texas Rangers, the original Texas Rangers and my boss and my former boss, John Adams from Austin, Texas. Okay. The Texas Rangers have been in existence for almost 200 years and even today, they are considered some of most highly trained, you know, law enforcement people certainly in the United States. I was in a situation where the company I was working for was acquiring. Actually it was merging with another large firm. Lots of tension on both sides as you can imagine, right, who's going to end up with a job, who's going to end up on top, you know, what's going to happen with the supply chain organization. And I flew to Scotland for a meeting; a global meeting was taking place there. And somehow, we got miscued and I walked into this meeting room by myself and there were six people from the other company sitting there, all levels, several people of who really outranged me and I panicked. And I called John up and I said John, what do I do? What am I going to do? I walked into this thing and there's all these guys and this one is a Vice-President and and and I'm only a director and, you know, they're all looking up to him and how am I going to manage this. And John said to me, "One riot, one ranger" and he hung up the phone. All right. And it says Captain Bill McDonald said that in 1896. Well, John Adam said that in 2005.

Okay. And when I came back after the meeting, I'm back to the United States, I thought about that a lot and, you know, John knew what he was doing when he sent me there alone, right. It put me in a situation of being able to gather data. I gathered information, but by myself I couldn't really make any decisions. I wasn't going to get into a tussle. I just observed and I came back with all that information that John, as he explained to me afterwards, believed would put us in a better negotiating position as we put things through and and and sorted things out. So sometimes you do it alone and I think that we all, human nature, right, tend to operate in packs. You know, I know particularly when I'm going to a new country, you know, or to some place I haven't been before, it's very comfortable to go with somebody on my team. And I step back now and say is that really the best thing to do, do I send the best message by showing up in a group or am I better off just showing up myself for this situation, okay. Because sometimes, if you're dealing with someone in your own firm who's very cost conscious, they might be objecting to the fact that you just brought three people to this meeting. So, you know a little nugget that I've tried to carry with me.

Sometimes you do it alone but sometimes you need help and I have a couple of examples of situations where companies needed help and got that help in order to accomplish what they wanted. One of these comes from Procter & Gamble. I was actually at a meeting last week and I got an opportunity to listen to the head of new business development at Procter & Gamble talk about Tide Pods, which have been a huge runaway success for the firm. Now, those of you who have never seen them or used them, basically it's for washing your clothes. There are three different components in the pod and there are components that react badly and react very quickly with each other and if they put them together in a box, they would all just dissipate and be worthless by the time it got to you. There'll be some kind of chemical reactions. So they needed a film, they needed a product that would separate the components until it dissolved in water and they all came together and formed a chemical reaction. P&G didn't have that capability. They didn't have the chemistry to be able to make that film, but a little company in the Midwest did and the P&G director said, you know, we came in, we were Procter & Gamble, we are working with these guys and, you know, when it came down to doing the contract, we shortly hit a stalemate and we hit a stalemate because we're P&G, we want it all. We'll pay you royalty and whatever and then we'll be done with it and then the little manufacturer had some different ideas. And he said to us, you know, when we really understood what we needed by way of intellectual property. When we clearly sat down the P&G team and understood what we were looking for, the reality was we cared a lot about having that and the use of this idea in cleaning. We don't care about the use of this in pharmaceuticals, right. If there's a drug delivery system that might use something like this at some point in time and they were able and once they were able to kind of overcome that hurdle themselves, they were able to partner up with this company and make this product to happen, keeping for themselves or obtaining for themselves to right and the right to use it the way they wanted and allowing or agreeing that the manufacturer and creator could use it in the way that they saw fit.

Another example of working with others to get things done is Starbucks, right. Starbucks, lots of little coffee shops around the globe partnered with Pepsi and their great distribution system in all kinds of places, you know gas stations and convenient stores and things like that. To get the frappuccino product made, the Starbucks didn't have manufacturing of their own but also to get it distributed, they partnered with Kraft and your presence in the grocery store market to get their coffee distributed on a mass basis and on the shelves of your grocery store. Partnered with Barnes & Noble's to create the Barnes & Noble's cafe, okay, Barnes & Noble had lots of people coming and staying to read their books, why not have a cappuccino along with that. And with United Airlines for continual advertising, if you're taking a United Airlines flight, you'll see the Starbucks logo on their coffee cups so lots of examples of how they used lots of people. So sometimes you need to do it yourself, sometimes you need a partner and sometimes you need a lot of partners.

Negotiating Tip #4: Keep working on that contract until you're happy with it and make sure you read that contract. Here's my supporting example. Thomas Jefferson, okay, a couple of hundred years ago, the early 1800s, negotiated with Napoleon for the Louisiana Purchase, okay, but Jefferson didn't read the contract all the way through, right. He thought he was getting a certain piece of land, but he didn't get Western Florida. He only got a tiny bit of land around the Delta of the Mississippi River and there were lots of space on each side populated by Americans, who expected to be part of the United States, had settled there in the anticipation of the deal going through and were suddenly left in a no man's land. He had to send emissaries over to France, lots of negotiations for years and years, a few local revolts by the folks living there, saying what happened and the US occupation of the space for a while and in the end, it took 16 years to resolve. Now, that of course is an extreme example, but you think of how many times you go back to a contract because you need to get out of it or you need to change something and you realize that it wasn't negotiated with the future in mind or you missed a point. You know, you knew that maybe the company would be changing systems, but you didn't think about that when you allowed for fees to be paid, if you have to terminate for convenience. Okay.

Now, for the next example, some people are mean and some people are not. If you are this, don't try to be that. Capitalize on your strengths. Deb Stanton yesterday for those people who were in the women's lunch or the women's breakfast, when we were going around the tables saying what advice would we give and when we were throwing ideas out there, Deb said "Be nice". I learned that from a guy named Brian McGrath, who at the time I was with Johnson & Johnson, was considered to be the absolute best negotiator that J&J had. And Brian and I was and he was my mentor and he is the person who took me from an engineering role into procurement. And Brian told me when you're in this situation and you have to decide whether to be mean or be nice, be nice. People would say to him all the time, Oh, my God, you must be a tiger. Look at what you just negotiated for us. They'd say you must be and you must be horrible to work with. You must be a scary guy when you sit across the table. And I sat at his side as he negotiated many deals and you know what, he was none of them because he followed the other four tips. He was the consummate preparer. He did his research. He had a plan all laid out that he followed. He was confident when he went into negotiations and he could be nice.

In fact, I'll tell you his deep dark secret only because he's retired now. He had a dog bone, a plastic dog bone that somebody gave him that barked and sometimes, when things were really tense and we were really at a stalemate and at the time, we were negotiating a lot of agreements for outsourcing or insourcing or, you know, really changing the footprint of our manufacturing, Brian would stand up and kind of do a little something with his back and he'd hit the dog bone, which would be, you know, somewhere in his office and it would bark. And everybody would go, Oh, my God, what was that. And it would diffuse everything. All the sudden, everybody would be looking for the dog. Now, that's a silly example maybe, but the tenet of Brian being a good person, who had a good sense of humor and was often really in a position of power. When you work for Johnson & Johnson, everybody wants to work with you, you know. And he could have been demanding, mean, nasty, all kinds of things and we still would have gotten concessions and people still could have done things, but he had his fuel in the long run. Okay.

My next example comes from American history as well. This is Robert E. Lee and Ulysses S. Grant, who at end of the US Civil War, as the Confederate Army was struggling barely together, started sending letters back and forth to negotiate the terms of the end of the war. And coming out of this Civil War, I read in multiple sources that Lee would not let a bad word be said about Grant. That, in fact, although they were enemies for years, as they did the negotiation and came to the end of the war, the agreement was that the soldiers had to give back any of the arms that were issued to them, the guns and the ammunition and agree not to take up arms against the US Government. And the soldiers could take with them any personal side arms, any personal baggage, they got rations to get themselves back home and they got to take the horses and mules so that they could carry out the spring planting. In the letters that he left, Robert E. Lee and after his death, Robert E. Lee said, you know, he had feared imprisonment. He had feared soldiers getting hung for treason and that was never on the table. Grant won, but he did it in a way that was gracious and allowed the South to help recover. And, you know, I get a lot of pressure, and I'll bet you get pressure too from people who just want to squeeze that last little bit out of a supplier and I'm a huge believer in making sure in the end that a supplier has the structure in place and the right kind of deal in place with my company, that they're going to be able to and to do well and succeed under our agreement.

I had a conversation with someone recently who is a software provider to us and she talked about another firm that she had just an agreement, a firm much larger than ours that her company wanted very badly. She said, you know, at the end of the deal, the CPO stopped and said you know what we've gone far enough with these negotiations. This is fair. You know, we'll and we'll stop here. If there's anything left, you guys keep it to cover contingencies or things that are going to come up during the cost of the implementation. And she said she was so grateful for that because she said I would have gone lower, but it would have put us in an uncomfortably low situation and this was a better thing, I left that negotiation in a win-win situation as Robert E. Lee felt when that deal was negotiated.

Another person with some thoughts along those lines, J Paul Getty and he founded Getty Oil and in the 1950's was the richest man in the United States. Okay. What did he say? "You must never try to make all the money that's in a deal. Let the other fellow make some money too because if you have the reputation for always making all the money, you won't have many deals." Right. I think that's important for us to think about, right. We get and again, you know, pressure for cost savings. You have to think about making sure that we leave the supplier in a good and a good position.

My next example comes from the lowly purchasing card. Now, if you work for giant corporations, you know, a company that and that's really quite large, this may not fit for you but for me, in the mid-size firm, it fits quite well. Purchasing card and really happy with the purchasing card here in the United States, working well, helping us out, lots of suppliers use it, saving a lot of and of effort and a lot of paper in the AP group, but when we try to implement it outside the United States, we didn't and we couldn't get anywhere. We didn't have any volume in the other countries and most importantly, there weren't enough suppliers willing to take it in the countries where we did have volume. We looked at it and we just kind of put it aside. Then came the London Olympics and for us, outside of the US, London is our second largest unit, okay. The UK is our second largest unit. London Olympics came and suddenly, right, they had to set up purchasing organizations and AP organizations and so the London Olympics committee decided that if you were a vendor and you were supplying something under X number of dollars, you had to take a P card. And so, if you were in London or looking at and at P card acceptability, in the UK, before and after the Olympics, it's a very different animal now. The world has changed there and and and where you didn't have many suppliers accepting it before, you have a lot of suppliers accepting it now. And also, when the country is really close to the UK, France for example, it's been a huge, huge up tip.

So my tip from that is that a good idea is a good idea forever. Sometimes you just have to wait for conditions to change, right. The P card idea is a great idea, you have to wait for parts of the world to catch up and I would suggest to you that anybody who has a significant operation in Brazil should be watching this because I know because I have a friend, who worked on the Olympics team, that they're having conversations. The Brazilian Olympics team and the UK Olympics team are talking about what they did well and what they didn't and P cards are one of the things that they think they did real well. So, another thought, changing somebody's mind is important when you're negotiating, right. Getting someone to change isn't easy. I read that particularly as you age and you have more experiences, there are neural ruts that get formed in your brain because you've seen something done the same way all the time and your brain starts to say this is the way it needs to be, right. And you can read some books and the books will tell you, well, you can try logic. You can try supporting data and documentation to get someone to change their mind. You can try to build on an existing relationship, I call that begging, "please come on, we're friends," okay, or you can set examples of how it's worked for other people, but it's hard to get someone once they've got and once they've got something and they verbalize it to other people to make that change.

Somewhere along the line in one of the negotiating classes I took, okay, I heard a lot about that. People are reluctant to change their minds. If you want a different result, you need to change the conversation. I use this every day. I tell my team when they get told 'no' by somebody, the conversation needs to change. One of my last positions, I was told 'no' by the head of facilities management, who didn't want to work with procurement. She didn't see a reason why to work with procurement and so I went away and I worked with some other folks and our organization engaged some other people, who were a lot more open to working with the procurement team. When I went back to her, it was no longer, "hey, come on, let's work together. You know, we can help you out, we can partner." It was "well, okay, we've done this, this and this, facilities is next." It's a very different conversation, okay, and it was a whole lot more data, very different data than what she had the first time.

So, my last example for you comes from ENRON. Okay, a couple of years ago, the largest bankruptcy in the United States and considered to be the largest audit failure in the history of the United States. So, as things were sorting out, a key person in the prosecution's eyes was Andrew Fastow, the CFO, okay. Andrew and they were counting on Andrew in exchange for reduced sentence for himself to help implicate Kenneth Lay, the CEO of the company. Andrew didn't want to play ball. He knew he was going to jail anyway, no matter what. He wasn't going to implicate. As they did their investigation, they discovered something, okay. The investigators discovered that Andrew's wife, Lea, had accepted large gifts and jewelry, a car, all kinds of things from Kenneth Lay and from people in the firm that she had never declared gift tax. She never paid any income tax on it, so suddenly Lea was sitting there with a tax fraud situation and a situation where she was going to go to jail. So went back to Andrew and said, now, it's a different conversation. It's no longer about Kenneth Lay and you implicating your boss. It's about you keeping your wife out of jail and we all know what happened there. So that's it in terms of my examples. I hope you each got a nugget or something that you'll get take back with you. Anyway, does anybody have any examples or anything of their own they'd like to share?

Host: I got time for one question if anyone has a question or a comment.

Q: Thank you. Your examples are quite memorable. You know, one question I have, often times I would get involved in negotiations at the very last minute where the stakeholder is communicating with the vendor in essence that they are going to be selected and there was a time crunch being put on procurement that you need to get this done by this day. So, how could you recommend any strategies to negotiate from that point of weakness?

Joanna Martinez: Well, you know, #1, I'd still do my best to be as prepared as possible. #2, I think you have to judge whether how true that is. There's a difference between, you know, if it's a chemical for a drug product, you're kind of out of luck. If it's a flavor that's going into a food product, well, you may have to step back and let that supplier go forward and then reverse engineer going forwardly further on. You can also and if you can't get a price concession, look for some ancillary services or something else for that vendor to do, you know. So I would consider that. You know, a lot depends just on how real that deadline is. I get that a lot and I'm going to guess maybe 40% of the time, it's a real deadline and the other 60%, there's a lot more movement. So that's my thought there. Okay. Thank you, everybody.