Thanks, boss, but no thanks

16 November 2009

16 November 2009

Sometimes chief executives can't help but get involved in supplier negotiations. Allie Anderson finds that buyers are divided on whether this is a good thing

Ryanair chief executive Michael O'Leary is renowned for making waves with his distinctive brand of straight talking belligerence.

Earlier this month, he aimed a sharp-tongued attack at Boeing, threatening to ditch the supplier if it failed to pass on cost reductions by the end of the year (News, 19 November).

It may be rare for an executive outside procurement to be so vocal about vendor negotiations, but buyers are divided about the benefits when top brass does choose to step in.

Ownership of supplier relationships ultimately lies with the CEO, says Paul Raymond, contracting manager at NHS Peterborough. "Partnerships with suppliers can be very intense and have to be dealt with at the highest level," he says. "Procurement activity has to match the strategic activity of the organisation, not the other way round."

But Eddie Kerr, global purchasing director at transport giant FirstGroup, believes CEO involvement can "cause as many problems as it solves". He says: "Sometimes it's more powerful coming from above but it has to be consistent and part of a coordinated plan. If that's the case, everyone owns a part of the relationship." However, it is the buyer who knows the issues best and therefore should take the lead, he adds.

Interference in negotiations can irrevocably damage relationships with key vendors, says Mike Attwood, purchasing director at European Independent Purchasing Company, which manages procurement for sandwich chain Subway. "Who is going to pick up the pieces afterwards? Not the CEO, that's for sure. The dayto- day transactions should absolutely stay within procurement," he says.

While dishing out ultimatums is perhaps a dubious method of getting what you want from key suppliers, Raymond argues it may be the only way small companies can cut costs.

Jamie Napper, global SRM excellence manager at insurance group RSA, says: "Ultimatums are fine as long as you're prepared to carry them out and recognise the potential ramifications. It's a valid sourcing tactic but I don't think it has any place in an SRM environment."

Desperate times often call for desperate measures and some buyers say they will be pressured to squeeze suppliers as much as possible. "The recession has led to more short-term supplier negotiations. Allie Anderson finds that buyers are divided on whether this is a good thing demands [like threatening to cut vendor prices] and we may see more of that in the future," says Kerr. "But having a long-term strategy is key. You should work with suppliers so they understand your needs and give them time to respond."

Ron Jarman, CPO at Universal Music, says: "In some cases it's better to have a transactional relationship based solely on cost and in others, it's not. There will be companies that have no option but to take a very short-term view in order to survive."

In the current economic climate many business transactions boil down to costs, not good relationships, adds Raymond. "There's a lot at stake now and inevitably it will bring out a more aggressive approach."

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