Excerpt from “The Corporate Buyer Is Not ALWAYS Right”

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The Corporate Buyer is NOT Always Right

Defenses Against The Global Purchasing Vampires

 

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By

William J. Tobin

President WJT Associates

 

Copyright 2006

 

 

Excerpt #1

 

 

THE INTERRELATIONSHIP OF PRICE, QUALITY, AND DELIVERY:

 

These three concepts are inexorably linked to each other.  The link, however, is a moving target and not fixed.  One parameter varies proportionately with the other two.

 

PRICE – many buyers will say Price is King.  If it was how come there are expeditors on the payroll freely willing to overnight parts half way around the world because of some hiccup in the supply chain?  Price is only king when quality is a given and delivery is consistently assured.

 

QUALITY is job #1 – A constant raising of the bar in terms of quality expectations, less variation, and continued quality improvement is something easily asked for until someone has to pay for it.  When money is involved quality expectations quickly degrade from ‘perfect’ to ‘acceptable’

 

DELIVERY is independent of price and quality.  Delivery performance is the groundwork for everything else.  Price and quality are theoretical concepts if there are no parts to feed the production lines.  When delivery is abundant there are usually demands for lower price and higher quality.  When delivery is threatened; price is of no object and quality is quickly compromised.

 

A balance between these three concepts becomes of major importance when supply chains get longer and inventory turns get higher.  Any slight variation that threatens the status quo will throw the entire system into chaos. 

 

Bluffing, Promising, Lying and Threatening

As a child you were brought up to be polite, mannerly and have respect for others.  Yelling, threatening and lying are such unconventional tactics that many people quickly fold the used on them.  This may be street theater or a sign of one of the participants who is close to ‘going over the edge’.  However, the folks you are stuck with are those you have to deal with.

 

Many of the ploys, tactics, rules and games played in business are based on the response one player has to the other’s bluff, promise or threat.  Direct promises or threats can be called.  If you make one and cannot follow through you will not only lose face but also be viewed as a company that cannot be relied upon.  Bluffing is saying you have something you don’t.  Again, being called on it and not being able to deliver has the same consequences as not being able to carry through on a promise or threat.  The obvious lesson here is to never use a direct bluff, promise, or threat unless you are fully prepared to carry it out. 

 

However, there is another opportunity most people miss:  The opportunity is the indirect or implied bluff, promise or threat.  Because it is implied it has no basis in fact and you cannot be called on it.  The common business example of the implied promise is the use of the word “potential”:  For example “Our two companies have the potential of millions of dollars worth of future business if you will take this job at this price and bale us out of our problem today.”  This sentence made linkage of a concrete act (taking probably a money losing job) to something that carried no obligation on the part of the client (potential business). 

 

Lying is illegal and fraudulent.  If you are told someone else has underbid you, if you don’t believe it you have the luxury of asking to see the bid.  If this is a complete fabrication, it’s illegal.  However, you have to consider the cost of the lawsuit versus what you might come out with if you win.  The best advice is don’t lie and if you are lied to, don’t play with that company again.

 

Here is a trick lawyers, police, and buyers use:  The buyer says to you: “What if I told you Intergalactic Acme Manifesting quoted your job $5.00/1000 cheaper?”  This is a bluff.  For all you know they could have quoted higher.  He has implied they can do it cheaper but never said it.  PAY ATTENTION that this isn’t a statement of fact.  It is bait.  The person who said this hopes you will accept it as fact and hook yourself by giving the answer you’d never give otherwise.  You only need to ask to look at the papers to call his bluff. 

 

In order not to fall for bluffs, threats or promises that can’t be kept, use the technique called “Active Listening”:  You listen to what is being said then reflect it back to the speaker by saying words to the effect “By that do you mean . . . . . . . .”  Don’t give an answer quickly.  Be sure your completely understand the statement before responding.  There will be less confusion and acrimony later on.

 

The mentality of the schoolyard bully in business

 

It is a common expression to hear that someone is being childish.  We condone kids acting this way and expect adults to act differently.  Very early in our socialization process we learned the big kids will bully the little kids to get what they want.  The only way for the little kids to fight back is to disarm the bully by using their wits.  Everyone has developed the skills to bully the little kids.  While we have grown older, we’ve never forgot these gambits.  Many people still use these today as negotiating tactics.

 

THINKING OUTSIDE THE BOX AND PLAYING BY THE RULES.

All players in any negotiation must keep in mind two basic facts about thinking inside the box and playing by the rules. (1) There is NO box.  (2)  There are NO hard and fast rules.  The only time you find the limits (the box) of a transaction or a required rule is when your customer/supplier decides that you are more trouble than you are worth and the relationship is terminated.  Here are some (but not all) of the techniques/gambits adult bullies (Buyers, Supply Chain Managers, and sometimes even your own marketing/sales people) use as bluffs and other sorts of gambits:

 

RAISING THE BAR (IMPOSSIBLE PERFECTION):

This consists of demanding a new, higher and more difficult quality or performance standard whenever it looks as if the supplier is going to satisfy an old one (the constant pursuit of perfection). Often the customer doesn’t make it clear exactly what the standards are in the first place.  This can be especially effective if the customer or buyer keeps the supplier from noticing that he is continually changing his standards.  This is most often done by the customer or buyer communicating with people who have no concern about price i.e. Product Managers, Marketing Managers, or Salesmen/Rep Firms.  Coming under the ‘asking-isn’t-stealing – – the-customer-is-always-right’ school of negotiations the buyer can raise the standards, keep the price constant and cause the supplier to invest more and more in this quality program.  This strategy is most often played using a document called an ‘action request’, ‘quality notice’, ‘Quality Request, and a variety of other names.  These documents simply express the concern that something is not right (read: Perfect).  This usually never means rejecting the entire lot or even the parts that are being complained about; but it strongly encourages the supplier improve the quality of the product.

 

The Expectation

Because you are expected to believe the Customer must Always Be Right, each time a complaint comes in you’ll do everything possible to (A) correct the ‘problem’ and (B) take steps to assure it won’t be repeated thereby raising the quality standard.

 

Your Response

You’ve already agreed on the definition of a good part.  Further (ignoring the complaint) this production lot was acceptable because it wasn’t rejected.  It can be logically concluded then the complaint hasn’t converted into a defect.  If the customer truly wants his complaint incorporated into a new definition of a good part, you are entitled to negotiate an appropriate price increase.  Quality has never been free.

 

CONFUSION WITH OCCAM:

Customers often invoke Occam’s Razor as if the Razor automatically validates their position. Occam’s Razor, states that the simplest explanation which fits all the facts is to be preferred.  To state it another way, the simple answer that fits all the facts is a better answer than any complex answers.  The Razor is an excellent technique, but it is useless if the facts themselves are not generally agreed upon in the first place.  Example:  Buyer: “You shipped us 10,000 widgets and we found 3 of them that were scratched when we opened the box.  Since we ordered 10,000 widgets we want 10,000 widgets and not have to sort through the order to find scratched parts regardless of how much you overship. We expect you can correct this problem.”  Complex problem: a small amount of defects.  Occam’s razor (the simple solution): don’t ship us defectives.

 

The Expectation

You’ll inspect quality in, improve your manufacturing process and/or bring your quality procedures up several notches.

 

Your Response

FACT: 3 out of 10,000 is a painfully small percentage.  Yes you should train your people better on the packaging protocols but in order to eliminating this percentage, you might be double or triple inspecting, inspecting quality in, or any other method. However, you’ll have to inspect everything to find those pesky 3 defectives.  Investing this energy and money will severely cut into your profits for very little return.

 

Reasonable part requirements usually give yields that guarantee 100% good parts to the customer if the process is stable.  However every process has its limitations.  The closer to get to any limitation in the manufacturing process, the more defectives you can plan on.  Tell the customer that to go to the next level of precision will require a financial investment neither one of you want to make and the probability of getting the desired result is still problematic.  Give the customer a choice: He can pay for your looking for the ‘needle in the haystack’, or you can overship by a certain amount that are the replacement for the defectives he finds at no cost to him.

 

THE TEMPER TANTRUM

Whether it is street drama, a precursor to a mental breakdown, or simply a negotiating gambit, throwing a childish fit using techniques like yelling, stomping out of the room, taking a bogus (prearranged fake) phone call from another supplier simply telling him a truck will be at his shipping dock in a few hours to pick up all the inventory and tooling, then making another (bogus) phone call directing the truck to go and pick up the stuff; is a very effective way to bully you.

 

The Expectation

You’ll cave in from this threat.

 

Your Response

The appropriate response here is the same you’d have with your grandchildren. Don’t get drawn into this game.  Let them vent, don’t try to shut them up.  When it’s your turn to talk, respond as if the screaming and yelling along with the ‘crushing’ of an invisible suppler never happened.  If more yelling and screaming ensues – whose purpose is to draw you into this game – when it’s your turn to talk again, simply inform the buyer your time is as valuable as his and you’ll continue this discussion at another time.  Get up and leave.

 

EXTRAORDINARY CLAIMS:

Extraordinary claims or demands require extraordinary evidence of the claim itself.  Superficially this seems reasonable.  However, extraordinariness is usually highly opinionated and unsubstantiated.  An excellent example is the “Good Old Days” ploy:

 

Customer:  “The last few lots seem to show that your quality is slipping.” (Note no data is supplied to substantiate the claim).

 

Supplier: “Well, we’ll look into it”

 

Customer: “Frankly we don’t know what’s happening in your plant. A few years ago we NEVER had substandard parts from you.”  (Note: substandard aren’t rejects.  Again, no data.  He never defined rejects, and he’s bluffing you about what happened years ago.)

 

The Expectation

Since you deal in the present and don’t have time to research the past, you’ll accept his premise there’s a weakness in your system and then spend an inordinate amount of time and energy to update an already sufficient system.

 

Your Response

As quietly and diplomatically as you can, listen, telling the buyer you’ll get back to him.  Find the facts: Were the last few shipments indicative of slipping quality?  Did something change between the Good Old Days when you had ‘no’ rejects and now? Is the claim of ‘no rejects’ even valid.  If this claim is based on a demand for increased quality.  He changed the game.  If the standards did change explaining the ‘no rejects’ before and the rejects now (Occam’s Razor), call the buyer back, admit your shortcomings and raise the price to reflect the additional work required by the new standards.  If nothing changed, present the facts and ‘Go Blond’:  Tell the buyer you can’t seem to find the problem.  Could he provide you with the data he’s using?

 

BLINDSIDING:

This trick consists of simple slander. Anyone who reports anything which displeases the customer will be accused of incompetence or dishonesty, or both without a single shred of fact to support the accusations.  As a supplier when you think the scrap that is being complained about is actually being produced by way of the customer’s manufacturing process, this is immediately denied then turned back on you as trying to cover your own incompetence by lying.

 

The Expectation

You’ll except the scrap and replace it.

 

Your Response

Never blindly accept blame.  If you tour manufacturing facility on a ‘friendly’ visit, you can usually see the source of the scrap.  Photograph it, then ‘help’ your client correct the problem never assigning blame.

 

THE DRAMA QUEEN GAMBIT:

This trick consists of linking moderate claims or propositions with extreme ones.  Most commonly this is easily ‘substantiated’ by stating a fact “we’ve found three rejectable parts” and linking it to an extreme claim “How many more will we find? Is the whole lot defective?  Am I going to go day-to-day in fear of shutting my line down as I open up boxes of your parts?”  You are being bluffed into coming to your customer’s plant and 100% inspecting your entire inventory in his warehouse (that will probably create more scrap than you’ll ever find) then he’ll demand you re-inspect your standing stock again before shipping.  All these inspections will essentially make this and future shipments money losers for several months in the future.  Seemingly your only reason for doing this is to keep the customer happy.

 

The Expectation

You’ll panic, do a quality audit in house then come to his factory and do another audit there.

 

Your Response

Tell your client you’ll never shut him down.  For every defective he finds and ships back to you; you’ll give him a whopper credit on his next order.  The time/energy/paperwork he’ll have to go through will usually stop more than a few parts being returned. 

 

THE BIG LIE:

The customer knows the supplier will not have the time or inclination to check every claim he makes, so he knows it’s a fairly small risk to tell either an outright huge lie or imply one.  This is a favourite gambit used with all politicians. Your customer might say he was reviewing a ‘confidential survey of the industry’ showing delivery performance was up and scrap down.  He’ll then comment you don’t even come close to this standard and he hands you a shopping list of ‘mandatory’ improvements. This ploy works best when the Big Lie is repeated often and loudly in a confident tone.  It cost little to present this lie but will cause the supplier to put extra effort into quality, delivery performance and price reduction as well as moving this customer to the ’top’ of the list when it comes to customer service.

 

The Expectation

You’ll take everything on faith, accept his claims and panic.

 

Your Response

The Big Lie is always confused with facts.  Ask for a copy of this report or at least the ability to read it. If he refuses, ask where he got it because you’d like a copy for yourself. In many cases benchmarking reports will usually show you are in the ‘acceptable’ population.  If the report doesn’t exist, don’t do anything.

 

THROWING STONES (Casting Doubt):

This trick consists of dwelling on minor or trivial flaws, or speculating as to how the data you have might be flawed as though speculation is somehow as damning as actual facts.  This is the “where’s there’s smoke there’s fire” ploy {NOTE: Unless the data proves otherwise, where there’s smoke, there’s only smoke.  No other valid conclusion can be drawn.}  You’ll be told that a small frequency of defects is probably the under-pinnings of a major flaw in your QC system.  Because the customer has now cast this doubt, you’ll be going on a wild goose chase to improve an already perfectly sufficient system.   

 

In the real world, of course, no system or protocol is 100% flawless and foolproof.  It is almost always possible to find some small shortcoming which can be used as an excuse for invalidating a procedure to raise standards at no cost to the customer. If the audit of your system shows that there are essentially no problems, the customer may simply speculate as to how these minor flaws are actually indicative of impending disaster and therefore you’ll need to rework your entire system so that your inspection data is repeatable useful and valid.

 

 

The Expectation

A total revamping of your system to the buyer’s liking.

 

Your Response

Look at hard data, not speculation.  If there’s a flaw in your system, fix it.  If the data doesn’t prove out, say you fixed it but only make trivial and inconsequential changes so that you’re not lying.  If this is a subterfuge of ‘raising the bar’, raise the price.

 

THE SNEER (I’m better than you) PLOY:

This gimmick is an inversion of the Blindsiding gambit.  In the Blindsiding gambit the customer attacks the character of those advocating certain ideas or presenting information in the hope of discrediting the information.  In “THE SNEER,” the customer attempts to attach a stigma to some person, idea, or claim and implies that anyone advocating that position is untrained, ignorant, egotistical, can’t interpret data, is incompetent, a complete ignorant moron, or is drawing the bad conclusions from flawed data.  This is a particularly effective ploy when the customer sneers at your policies, equipment, personnel training and certification.  The customer then demands your equipment or inspection devices must be more precise and accurate and your people ‘certified’.  His logic is that if your equipment and people are better than his, you’ll catch all the defects.  He’ll also be polite enough not to offer financial assistance to you upgrading your equipment and training program.  In QC Circles this is the head count of how many Black Belt quality Ninjas you have on your payroll – naturally no matter how many you have it won’t be sufficient to serve your customer’s desires.  ASQC (American Society of Quality Control) has some rigorous requirements for obtaining the Black Belt certification BUT any company can devise its own program, loosely follow the ASQC requirements and declare whomever they want as a Black Belt.

 

The Expectation

You’ll comply with all his demands. Increase equipment, personnel, training and your collection of Black Belt quality Ninjas.

 

Your Response

When it comes to quality, statistics, and manufacturing expertise, you know more than the buyer and or his QC people when it comes to your operation.  Listen politely, check the facts, change what is necessary, and don’t change what isn’t.

 

* *

 

Unfortunately, effective game playing often involves bad logic, e.g. attacking an opponent’s character, appeals to emotion, mockery and facetiousness, loaded definitions, etc. And certainly customers aren’t the only ones who are ever guilty of using manipulative and deceptive negotiating tactics.  Suppliers and customers are just as likely as anyone else to twist their language, logic and facts to win an argument this was learned when you were dealing with or were the School Yard Bully.  Keep these tricks in mind when dealing with players.  Your best response when confronted with these gambits is NOT TO PLAY. Otherwise you get sucked into a game where you’ll always lose.

 

 

Excerpt #2

 

JAPANESE QUALITY GAMES

 

There seems to be this fetish about quality systems, efficient materials flow, continuous improvement, zero defects and the like; all of which have been stamped with a Japanese Name. Using a foreign language somehow gives this a mystique that to those who implement it gain empowerment.  If you are going to 5S, Kaizen, six Sigma, ISO certify, go Lean or anything else; read up on it.  See how it was successfully implemented and how you might adapt these exact techniques to your operation.  Remember before the guy wrote the book about it, he made a lot of mistakes.  The lesson here is DON’T TRY TO IMPROVE ON THESE TECHNIQUES.  It’s impossible.  Look at them and see what applies to you then use it.  Don’t try to use a technique that worked well in assembling automobiles and adapt it directly to embroidering T-shirts.  Don’t make the old mistakes, make new ones.

 

The current obsession with quality can actually be turned into a ploy for your advantage.  The next two games show this.

 

The Inspecting Quality In Game

 

How it works:  You’ll never be perfect and you’ll always make some amount of scrap.  Let’s assume you have a very picky client.  They DEMAND perfection.  In order to satisfy this demand you have to inspect each part closely so you find the ‘needle in the haystack’ your customer won’t accept.  This is expensive and a drain on your resources. BUT in order for your client to complain he too is 100% inspecting.  Therefore keep your normal quality system in place but don’t sort quality in.  Let your client do it.  When he finds the less than 1% defect tell him you’ll replace them 2 for 1 if he holds the parts for your inspection and it is a righteous reject or give a similar credit on a future order.

 

Why you’d want to play this way:  Inspecting quality in, especially when you are looking for defects that are in the tenth of a percent or lower range, is a waste of money.  If your client is going to do it anyway, why are you doing it yourself?  It is more profitable and cheaper for you to let him invest the labor.

 

Who wins:  You do.  If your client is willing to waste his own money on a quality program more rigorous than yours, let him.  Your cost of Playing is the 2 for 1 replacement on a frequency measured in parts per thousand.  His cost of Playing is 100%.

 

Possible loss scenarios:  If your client can obtain the same product from multiple sources he may redirect his business to your competition.  HOWEVER since you aren’t spending extra money doing excess inspecting AND the supply is plentiful (this situation allows the Price Is King mentality) you can offer a discount with no loss while your competition cannot because you’ve already been saving money, now you’re only giving a small portion of it back.

 

The Oh My Gosh We Might Have a Big Problem Game or The Continuous Quality Improvement Game

 

How it works:  Your client has been nit-picking you to death on so called defects that he never complained about in the past.  He’s demanding replacements for anything that isn’t perfect. In an award winning concerned voice give him the two minute speech of your Rigorous Quest for Continuous Quality Improvement and tell him to ship the entire lot of production back to your facility. If this defect is righteous and therefore unusable, both you and he probably have a warehouse full of these defects.  You’ll first have to inspect his inventory at your facility and sort out the defects and then you’ll have to sort out your inventory before you can send in replacements.  Furthermore you won’t be able to ship any future replacements until you have a permanent solution to this problem in place.  Naturally because it is your fault, you say you’ll do it at your cost as quickly as your resources allow.

 

Why you’d want to play this way:  It will take your client a very short time to realize if he ships you his entire inventory with no immediate hope of replacement, he’ll be shutting himself down.  Shutting down his facility is not a career enhancing move for him.  If he keeps the inventory, whatever he’s complaining about isn’t really a problem.  With this admission in hand, change the specifications.

 

Who wins:  While this is nothing more than a very carefully orchestrated bluff; both of you win. In a backhanded way your customer has learned to accept “Good Enough” rather than “Perfect” because Perfect was never really essential to his process or product. 

 

IF he insists this is a problem and his KanBan Just-In-Time system is being threatened, do a ‘crown jewels’ study.  Get two groups of 5 or 10 perfect parts and 5 or 10 of the so called defective parts – It is best if the ratio of Perfect to Defective is not 50:50 because is it more representative of the real world and it makes the test unbiased.  Mix up the samples and label them a, b, c, d and so on.  Now put them through whatever process your parts are subjected to and the basis for his complaint. Ask someone who has not participated in preparing the samples to segregate the ‘perfect’ from the ‘defective’. This must be done without coaching. Make sure you tell this person that this sample has at least one but not all defectives in the sample.

 

If you truly have a defect the unbiased judge will easily separate the sample into the two piles of perfect and defective with an accuracy of 85% or higher.  If their ability to sort is less, you’re dealing with guessing and there is no problem.

 

Possible loss scenarios:  If supplies are plentiful and prices are competitive; you’ll lose the business with a stunt like this.  But it does point out if something is truly defective or not. However many buyers might feel Sucker Punched by you playing this game on them.  If this happens you will lose horribly. However if what has been costing you both is no longer a problem, you have the luxury of a modest cost reduction your competition can’t afford.

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