Do you Know 25 year old Xuhua Zhou? Maybe you Should!!

ChainXuhua is a dropout from UCLA (PhD program) and has caused Lumber Liquidator’s (“LL”) to drop 2/3 – YES, 2/3 of its market cap (from $3bn to $1 bn) within a year!  He noticed a significant increase in their profitability compared to the industry, and in investigating why, discovered that their Supply Chain had a major risk exposure – mainly that LL had cut their supplier prices by buying flooring that violated safety standards – too much formaldehyde.  In addition to the loss of $2bn in valuation, LL was just featured on 60 minutes, the Senate has launched investigations, class action suits are being filed by investors AND consumers and their market share is diving….and the troubles have just started.  Ultimate survival of LL may be at stake.

For those of you who follow our research or are clients or alumni will remember our initially much aligned series called “Strategic Sourcing is Dead” and if not, it should be from a few years ago when we started preaching that the relentless cost focus of sourcing efforts was actually destroying value and Supply Chain/Sourcing organizations were headed for extinction unless they changed.  This is another example of a long list of organizations that continue to prove our point – and we wish we had been wrong.

Those that look at Supply Chain risk for their organizations should definitely take note of this new phenomenon – professional short sellers who are looking at your supply chain today, identifying risks that you may or may not know of and then exploiting those risks where it can pose an existential threat to your company- unless you are better at identifying and managing those risks.  Meet Whitney Tilson, founder of Kase Capital Management, who found Xuhua’s research, took it public and to 60 minutes while going short on the stock in anticipation of a major drop in share prices.  He has already made a killing.

While LL is trying to do as much damage control as possible, in the world of PR and reputational risk, if you are defending yourself and attacking the testing methodology used by investigators, defending your companies actions by saying you meet the standards (when you clearly don’t) and challenging the accuracy of what your suppliers are saying on TV – it’s a lost cause.

These types of risks in offshore outsourcing (Apple-Bloomberg) have been known for a long time (Toyota-USA Today) and therefore even if the market buys LL’s explanation that it did not know about this (despite suppliers saying that LL knew about it), the market is likely to still hold LL totally accountable and responsible.  The suppliers were clearly not meeting safety standards yet stamping the product as if they did meet standards. 

The discussion that was started about pursuing a low cost strategy is still valid The Next Practices  version of sourcing must identify the real Value Drivers of the company and then relentlessly make sure that the executives support this fundamentally different version of the sourcing process.  The days of putting undue pressure on suppliers to meet totally artificial “should cost” targets are long gone and the sooner we as a profession realize it, the better  our companies will be.  This fundamental shift has to occur and has to be Adopted by the organization or elsewe will continue to expose our companies to the types of existential threats that we cannot imagine.  Of course, this shift also requires a shift in the types of competencies we have but if you are a reader of this blog, you already knew that :-) .

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Hire a Sales Person – Not a Lawyer

saleswomanI came across an article in Crain’s Chicago Business entitled  “Why law firms are turning to non-lawyers for sales help”  where they talk about law firms hiring sales/marketing professionals to develop business.  In a profession where advertising was once banned, this is considered a radical move.  According to the article “law firms are reacting to customers who have learned how to strip out components of legal work and value them accordingly, an unbundling of services that echoes what hit the computer industry decades ago” and “what’s happened is that the buyers have become smarter than the lawyers.”  Score one for Strategic Sourcing.
But law firms are fighting back.  Many have moved toward hiring business development professionals to sell their services while others have provided sales training to their lawyers.  Some firms are experiencing up to a 60% increase in client requests for proposals where that same work was automatically awarded in the past.  The economy and competition has forced law firms to think more like a business.  But getting a lawyer to think like a sales person is not without its challenges. Many feel that they didn’t go to law school to become a sales person.    “Traditionally, lawyers believed their knowledge and expertise spoke for itself, and it would be a sign of defeat to start marketing.” 
Another role has emerged as law firms fight against Strategic Sourcing – Pricing Director.  Two years ago there were only a few such roles and now there are over 300 across the industry.  The upsurge has been caused by pressure from clients.  Clients have adopted more savvy purchasing practices and law firms have been forced to react.  In 2013, two thirds of law firm revenue involved flat rates and other “alternative fee arrangements” such are pre-negotiated discounts to billable hours.”  The days of open ended agreements and highly paid lawyers billing for work that could be done by paralegals may be over.  Some law firms are starting to be more judicious (no pun intended :-D ) in pushing lower value added work down to paralegals, contract attorneys, document processors or to low cost countries (e.g. legal research in India) as a reaction to the market.
This shift has not happened without a great deal of pain. The long standing culture within many law firms can be a tough nut to crack. Business development professionals entering these firms, name decision making as the number one biggest issue they face.   Partners see the change as optional and need to be convinced that the shift is necessary.  In addition, sales cycles for professional services firms can take two years or longer which can be frustrating for both the sales person and the firm.  Like any change, it takes time and expectations need to be managed along the way to be successful.  
So what does this shift mean for Sourcing professionals?  Where legal services were once a sacred cow for strategic sourcing – that is changing.  Use this as a call to action to at least consider legal services as an opportunity.  This does not mean you need to switch to new outsides law firms but can be a way to add value to your internal legal group by helping them to buy smarter.  If law firms have recognized the market has changed by thinking more like sales people, then it’s time our internal business partners (legal) recognize that change and capitalize on it.
Let us know what you think and join the conversation . . . . . . 
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Selling the Change – Think Like a Sales Person . . . . . Part II

changesLast week we started exploring “Selling the Change” and approaching it from a sales perspective.  We all recognize that change is hard.   As professionals in a Shared Services environment (Procurement, Supply Chain, Strategic Sourcing) one of our primary roles is that of a change agent as we are trying to play a more strategic role within our organization.  Getting suppliers to work with us under a more strategic context is the easy part.  Getting our own organization (sometimes even our own Procurement people) to do things differently is another story. Building a better process or adding new technology is not how you make change happen.  It must be sold!!!  Without the cooperation and acceptance of your internal business partners, you will never be successful.  So, “Sell the Change” you must.

Here are the Top Ten Critical Selling Principles:

  • Principle #1: Identify your Market Segment (stakeholders)
  • Principle #2: Know how the customer (stakeholder) likes to receive communication
  • Principle #3: Build the Brand
  • Principle #4: Selling the Product
  • Principle #5: Educate your customer (stakeholder)
  • Principle #6: Develop Effective Collateral
  • Principle #7: Establish a Need / “Burning platform”
  • Principle #8: Highlight the Value of Change
  • Principle #9: Anticipate Objections
  • Principle #10: Illustrate what Others have Achieved

Last week we took a closer look at the First 5 Principles.  Now, let’s take a look at the Last 5 Principles:

Principle #6:  Develop Effective Collateral
Under this principle you may have a picture in your head of a sales person whipping out a fancy, slick brochure or folder that points out all of the “features” they are offering.  But effective collateral takes what may be a complex process or thought and makes it simple.  Decide on the key messages you are trying to deliver and make them:

  • Simple but not simplistic
  • Creative as well as analytical
  • Always, Always, answer the question “so what”

Principle #7: Establish a Need / “Burning Platform”
This principle is critical because in order to sell the change you need to find a compelling reason for someone(s) to change.  In many organizations, change may be required simply to survive – “if we don’t make this change, we will go out of business”.  In other cases, the change can be positioned more positively – “this new system will give us a competitive advantage” OR “this leadership program will allow you to be in-line for a promotion”.  Regardless of the reason, this must be presented to your customer (stakeholder) and will be at the foundation of your sales pitch.

 Principle #8:  Highlight the Value of Change
Have you ever heard of WIIFM or What’s In It For Me / Them?  This is also a critical component of your sales presentation.  Understanding what is valued by your customer/ stakeholder (their Value Drivers) is necessary for a “sale”.  You need to sell the benefits to them, which means that your  pitch must be customized to each stakeholder.  In addition, if your solutions are designed based on the value drivers of your customer adoption, will be easier as well.

Principle #9:  Anticipate Objections
This principle is also important.  Take the time up front to anticipate any objections your customer/stakeholder will have and build them into your approach.  For example, here is one of my favorites:


Being prepared to respond to any objections will let the stakeholder know that you took the time to address both their needs and concerns.

Principle #10:   Illustrate What Others Have Achieved

Everyone likes to hear what others have achieved and accomplished.  In addition, stakeholders may not be comfortable being on the leading (bleeding) edge of change.  Providing benchmark information will go a long way to help sell the change.

Well, we have now covered the Top Ten Critical Selling Principles which we applied to “Selling the Change”.   Here are some other tips to consider:

  • Sell to all levels of the organization – not just executives
  • Always pre-sell to executives to make certain you have
    political coverage
  • Involve your non-Sourcing  / Supply Chain team members
    to sell too 
  • Sell early and often
  • There is no such thing as relevant over communication
  • Benefits sell, features don’t
  • Tailor your “pitch”  – different audiences require different messages

 By the way, do you know who should be the first person you hire for any major change initiative?  It should be a sale / marketing professional . . . .think about that :-) !

Let us know what you think and join in the conversation . . . . . .

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Listen to Your Customers – Netflix Did!

Who remembers the summer of 2011 when Netflix, Inc.  raised its prices by 60%  and lost almost one million customers?  Fast forward to October 22, 2013 where Netflix reported adding 1.3 million U.S. customers just in the third quarter ( “Subscribers Fuel Netflix Stock” – WSJ) to eke out HBO by one million subscribers.  In addition, its stock price is up 282% since the beginning of the year.  How did they do it?  Well, according to Brian Stelter, a media reporter for the New York Times (in an interview on NPR) it was simply . . . . “Netflix listened to its customers and has continued to listen to its customers ever since.”

This particular story really struck a chord for me and caused me to reflect on two conversations I had over the last several weeks with potential clients. In both cases, these are former clients that have moved to new companies and are challenged with their “customers” not wanting to “buy” what they are “selling”.  Both companies are large and global and up to this point do little to no Strategic Sourcing.  These companies are also very entrepreneurial and highly profitable – in other words, if it’s not broke why fix it?  The struggle they are having is that they are trying to “sell” supplier consolidation and cost reduction to an audience that could not care less about either of those things.  So what do they do?  Increase the heat and “create” a burning platform? Put policies in place to force compliance?  Plow forward without customer support?  Any one of these might work BUT it will be painful and short-lived.

Here’s a thought – do what Netflix did and LISTEN TO THE CUSTOMER!  Now, you may be sitting there thinking that your job as a Sourcing professional is to save money and if you are not ALLOWED to save money then, what are you supposed to do?  Once again – Listen to the Customer!  The skill set required of a Strategic Sourcing professional (analysis, problem solving, relationship management, collaboration, change management, facilitation, project management, negotiation, contracting) allows you the luxury of providing value beyond cost cutter.   Here are just a few thoughts for those that are struggling to think beyond TCO:

  • Establishing new supply chains in new global markets
  • Assuring supply (or substitutes) is available when a weak economy is causing the supply base to shrink
  • Monitoring and managing supply risk when the unexpected happens
  • Utilizing the existing supply base to help your company develop new products or enter new  markets
  • Determining ways to extract efficiencies from existing technology
  • Finding ways to standardize specifications and streamline processes
  • Providing supply market intelligence to accelerate critical decision making
  • Extracting additional value from your strategic supplier relationships

If your “customer” is not interested in cost savings (and some are just NOT) then listen to what they do want.  Or, like NetFlix, offer them solutions (e.g. original content ala “House of Cards”)  that they did not even know were possible.  The opportunities are endless . . . . .and you might even find that what once seemed like a sinking ship is now blowing the competition away . . . . . .

Let us know what you think and join in the conversation.   

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Supply Chain Management – A Hot NEW Discipline?

As we are working “in the weeds”, every day, we often lose sight of how critical our function is.  We, at The Mpower Group,  do a lot of Strategic Sourcing and Supply Chain Management training as one of our service offerings because WE KNOW the value of a strong Supply Chain. I guess it has just taken the rest of the world a little time to catch up . . . . . .

There was an article in the Wall Street Journal last week “Hot New MBA:  Supply-Chain Management”  which describes the increasing demand of employers to hire people with supply-chain expertise.  For many, many businesses, their supply chain can be the difference between success or failure.  So having the right, skilled resources in place is a critical success factor.   But let’s be real here . . . this is not NEW, but it is clearly a move in the right direction.

I do have a few words of caution for employers  . . . . . .  as you know, a college degree in any discipline is helpful BUT it is not a silver bullet.  To be a strong supply chain professional there are skills beyond “Supply Chain” which are important.  It is those strategic competencies like problem solving, change management, communication, collaboration, business acumen, etc.  that are true differentiators when hiring any professional.  These are also the skills that are often missing in the Supply Chain Management curricula offered today.  I have written about this quite a bit because I am a strong proponent of integrating those critical strategic competencies into the functional (supply-chain) competencies – see Could Supply Chain Skills Return America to Prosperity?.  So, I would advise employers to target graduates from programs that are integrating those skills or use professional training firms to provide those skills.

Since most companies cannot or should not replace their entire staff with recent grads, investing in professional supply chain training is a great investment.  But be sure to select a training firm that does two things:

  1.  Integrates strategic competencies with the functional,  supply chain skills
  2. Requires application of the new skills to ensure that the learning sticks AND is applied

If these two points sound intuitive, they are BUT they are seldom followed.  As with everything else, companies spend millions of dollars in implementing solutions but very little in ensuring that those solutions are adopted by employees – AND ADOPTION is where you actually get a return on your investment.  Think about all the training you have attended and reflect on what, if any, you actually applied when you returned to work – probably very little.  By the way, the same can be said for hiring talented, supply-chain grads.  If you do not provide them opportunities to apply what they learned in school you will not benefit, as an employer, from their skill set.   In addition, those supply chain skills will not be sustained if they are not used.

The good news is that the rest of the world is starting to recognize what we already know – supply-chain management is an important function and requires a unique set of skills to be successful.  Universities are gearing up to meet the demands of employers that recognize the value of supply-chain management.   As supply chain professionals we need to insist that our employers provide us with the training we need to round out our skill set and also provide us the opportunity to utilize those skills.  I think supply-chain can be an exciting and rewarding career. I am encouraged to see that others are recognizing that as well.

Don’t forget The Mpower Group when you are thinking about investing in your employees . . . . we are the best!

Please join in the conversation . . . . . . .

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