maximising shareholder value through effective negotiation steve jones

Maximising Shareholder Value Through Effective Negotiation

Steve Jones


Negotiating with your suppliers

Lessons Learned from the supermarkets


Who am I?


What am I not?

• Expert in the ins and outs of public sector procurement – legally or practically


• 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


People

• Qualifications• Focus of their training• Understanding of the law


Regulatory Framework

• OJEU• GSCOP• Competition Act• Contract law


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


Categorising Suppliers

Profitability+-

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Categorising SuppliersIn

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Categorising SuppliersIn

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Grow Supplier Characteristics?

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+Growth ahead of

Category,Margin enhancing



Squeeze

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Squeeze Supplier Characteristics?

Growth ahead of category

Margin diluting

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Squeeze

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Hold Supplier Characteristics


Margin diluting

Growth behindcategory,

margin enhancing

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Squeeze

HoldDecline / Exit

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Decline / Exit Supplier Characteristics


Margin diluting


margin enhancing

Growth behind category,

margin diluting or unreliable

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Squeeze

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Supplier Characteristics


Margin diluting


margin enhancing

Growth behind category,

margin diluting or unreliable

Inn

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Supplier StrategyPlan requirementsIn

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Profitability+-

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+ Detailed plans – these are our

profit and growth drivers


Supplier StrategyPlan requirements

Large Suppliers will want

Detailed plans

Others - set sales and profit targets

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Detailed plans


Set sales and profit targets

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Detailed plans for tier 1 and tier

2 suppliers



Manage decline or exit

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Detailed plans



Manage decline or exit

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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


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


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


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


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


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%


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?


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.


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


Balance of Power

• Actively change it• Embed key messages


Price increase strategy

• Dismiss• Defer• Detail (justification)• Deflect (introduce irrelevant issues)• De-list (threats of sanctions• Deal (negotiate)


Focus?

• Category reviews• Toxic Margin Products• Free ride suppliers• FX and Commodities• Promotional Activity• Other

– Grey– Disintermediation– Lean– Centralisation


Initial Encounters with Multiple Retailers


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


Morrison's – letter not spirit

• Recently (reportedly) Morrison’s buyers have received training in how to get round the GSCOP


Who will protect the suppliers?

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.








It was a mistake. Paid back the 67 suppliers


GCA claims breakthrough on ‘forensic auditing’

• Only two years + current• Not

– J Sainsbury

– Waitrose


Conclusion?

• Suppliers – you’re on your own


Final Final thoughts?

Make sure you get what’s fair – you only get what you

negotiate!


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


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

maximising shareholder value through effective negotiation steve jones

Documents

effective negotiationhow

effective negotiationwhat

effective negotiationwho

margin enhancinggrowth

planscategory supplier

suppliers lessons

hta steve jones