| The worst thing that can demoralise your sales force | | | | every deal they make. In fact the products may just |
| is this: your sales people made the sale for a very | | | | be shipped from the previous supplier to the new one, |
| important customer after clearing numerous obstacles | | | | and then to you. |
| in a long sales cycle that seemed to take forever, | | | | The Internal Conflict between Sales & |
| ONLY to have the products delivered in poor condition. | | | | Procurement |
| The customer became furious, asked for a refund, and | | | | Now, why is it that despite all these painful issues, |
| then vowed NEVER to buy from you again. | | | | many procurement managers don't take the |
| In fact, here's the a real case study of a foreign | | | | necessary actions to improve the situation? |
| company in China that took every wrong step in its | | | | One of the reasons is very simple: when procurement |
| procurement practice, such as: | | | | makes the mistake, sometimes it's the sales person |
| While it claimed to have its products imported from | | | | that takes the heat (from the customers)! |
| Germany, it actually sourced them from a factory in | | | | Since it is the sales people, and perhaps the customer |
| Guangdong province. It didn't take long for its | | | | service people, who are facing customers' complaints, |
| customers to find out which factory it sourced from; | | | | many procurement managers are just hiding behind |
| The factory that produced those products began to | | | | their desks. After all, they rationalise that if sales people |
| sell them using a generic brand at much lower prices; | | | | are paid the commissions and bonuses, then let them |
| There are frequent product defects that ranged from | | | | handle those customer issues. |
| wrong specifications to damaged goods found in the | | | | If you are a sales person caught in such tough |
| packaging to delivery of the wrong products; | | | | situations, there are 2 courses of actions to take. |
| It takes an exceedingly long time to refund customers, | | | | Not all procurement managers are self-centred people |
| or provide suitable replacements, largely because | | | | who are only concerned about their own convenience, |
| payment for the supplies have been made upfront; | | | | at the expense of others. They just need to be |
| Prices for the procured products are either constantly | | | | engaged to make things better. If you believe that your |
| fluctuating, or consistently rising without improvements | | | | procurement colleague is such kind of person, then |
| in quality, which makes it harder to sell. | | | | perhaps you can persuade her to go with you on joint |
| When asked to look for better suppliers, the | | | | customer visits. Not just the nasty ones where you |
| procurement staff replied that other suppliers are | | | | have to bear the brunt of customer complaints for |
| colluding with the current one, and they will all quote the | | | | defective products, but also the good ones where the |
| same prices at similar terms. | | | | product was delivered on time in good quality. This is to |
| Unfortunately, this is not an isolated case for foreign | | | | show your procurement colleague how her work will |
| companies in China. It is in fact prevalent among many | | | | impact your sales performance. And do let her know |
| foreign companies here, and such issues have to be | | | | that it's not your commission that is at stake, it's the |
| resolved if sales performance were to improve. | | | | company's earnings and reputation that's on the line. |
| Getting into the Sellers' Minds | | | | However, if your procurement colleague is indeed |
| It is well-known that China is the "factory of the world". | | | | self-centred and believes that customer-satisfaction |
| What that means is that China also has a surplus | | | | responsibility does not lie with procurement, you need |
| production of all kinds of products, which is why | | | | to take more drastic measures. Perhaps you may |
| Chinese exports are sold in virtually every corner of | | | | want to document records of product defects, delays, |
| the world. | | | | shipment errors etc., and then reflect to senior |
| What this means is that most factory bosses are | | | | managerment how such incidents have negatively |
| facing cut-throat competition where vicious price wars | | | | impact your sales performance, and you request their |
| are common. However, some factory bosses are | | | | intervention. |
| smarter than the others. They provide tailor-made | | | | Measuring the KPIs |
| products for customised orders. | | | | The Key Performance Indicator (KPI) for many |
| When a supplier provide customised products, it will be | | | | procurement managers is how much savings the |
| much more difficult for buyers to make comparisons | | | | procurement manager made for the company by |
| between products. What many procurement | | | | squeezing for lower buying prices. Product |
| managers usually do is to source for a supplier who | | | | performance (or defect-reduction), maintenance and |
| can produce products to specification at the desired | | | | supplier responsiveness issues are often left out of |
| quality for the acceptable price. Then they just stick to | | | | these KPIs. |
| that ONE supplier for subsequent orders. | | | | However, for customised products, it is very difficult to |
| In fact, many procurement managers are unwilling to | | | | have a benchmark as to compare prices |
| switch suppliers because there will be the costs of | | | | Hence, as long as the customised product is procured |
| re-casting the molds used to produce those products. | | | | at the acceptable price, th job is done. If the supplier |
| Besides, who is to guarantee that the new supplier will | | | | increase prices over time, it is accepted ad part of |
| be better than the old one? So unless the current | | | | inflation, and the procurement manager does not need |
| supplier really screws up big time, it is unlikely that they | | | | to bear responsibility. |
| will be replaced in the foreseeable future. | | | | Perhaps it is now high-time to re-think how |
| Such practices range from the procurement of spare | | | | procurement managers are compensated as well. Just |
| parts, architectural hardware, industrial adhesives, food | | | | like when paying sales people commission based |
| ingredients, travel + accommodation or even sales | | | | solely on sales volume is not viable anymore, |
| training programmes. | | | | measuring the effectiveness of your procurement |
| While this makes the work of the procurement | | | | staff based on products bought at lower costs is just |
| manager easier, it will unfortunately give tremendous | | | | as inadequate. |
| bargaining power for the suppliers. Here are some | | | | Perhaps management should consider variable pay for |
| examples of what they will say to you: | | | | procurement staff, and measure them according to: |
| "Since we need to cast the mold to produce your | | | | Defect-rates; |
| product, we will have to collect upfront payment"; | | | | Seriousness of defects; |
| What they didn't say is that you DON'T have to pay | | | | On time delivery; |
| them in advance for all subsequent orders | | | | Reduction of shipment error; |
| "I'm sorry for the product defects (or delays), but we | | | | Maintaining costs over time; |
| will be more careful next time"; | | | | Timeliness of inventory information; etc. |
| What they didn't mention is the compensation for the | | | | It will still be the procurement managers' prerogative to |
| defects, which is rather difficult, since you have already | | | | decide if they would like to work with exclusive |
| paid them, and they know it. | | | | suppliers. However, it will be a good idea that is the |
| "I'd like to inform you that due to rising costs, we will | | | | supplier is on an exclusive contract (i.e. we will only buy |
| have to increase our prices by 10% from next month | | | | from them), they had better demonstrate their |
| onwards". | | | | capabilities, AND their willingness to put our interests |
| This is usually said when you have an upcoming big | | | | first before theirs. |
| order with a tight lead time, and you don't have | | | | This article isn't meant to be a guide on how to |
| alternative suppliers BUT them. | | | | manage suppliers. Rather, it is meant to provide some |
| "If you don't like to do business with us, you can | | | | insights on how some procurement is done in China for |
| always look for someone else". | | | | sales managers. If you find that your procurement |
| By then there are no concrete alternatives but the | | | | department can indeed make improvements to help |
| current supplier's neighbours, whom have already | | | | your sales performance, perhaps you can take the |
| agreed to pay your current supplier a "referral" fee for | | | | action now. |