Cash management is an SME's frontline weapon, and payment terms are a key means of keeping it under control – providing companies proactively open negotiations with their suppliers. But this solution remains underutilised by entrepreneurs
Cash flow difficulties are the number one cause of company bankruptcy in Belgium. Business owners face a constant battle to stay in control and maintain the balance of their inflows and outflows. Negotiating payment terms is one of the levers that can be employed: shortening them for customers while extending them for suppliers. In Belgium, the statutory deadline between companies is 30 days. Yet the reality can be different, since either trading partner may deviate from the rule. Where one of the parties is in a dominant position, the other is often obliged to accept the conditions it imposes... meaning its payment term becomes longer. Everything is negotiable, however, even with "big" suppliers, as long as you formalise the situation and ensure you protect your business relationship.
Who is your supplier?
They say information is power, and there is some truth in this. Indeed, the more you know about your "opponent", the more you will be able to turn the tables. How are the company's finances, and what is its cash position? Is it experiencing difficulties? Where is it placed on the market, particularly in relation to its competitors? What is your dependency ratio in relation to this partner? How does it make payments, and what is its purchase history? The answers to these questions will allow you to take up better positions in the negotiations, and find the best angle to launch an attack that catches the other side by surprise. Specialised websites, data banks, word of mouth (the competition): all means are justified in order to find out more!
What do you want to gain?
And a resulting question: what are you willing to put on the table to achieve your objective? In other words, you need to be properly prepared and establish a strategy regarding what you are willing to concede (and how much this will cost you) and what you absolutely want to gain in return. Remember that the other party has presumably not requested anything, and potentially has little to gain. Therefore, you cannot arrive empty-handed. Are you willing to order larger volumes in order to extend your payment terms? Can you envisage a long-term contractual commitment? Could you contemplate paying more in return for spreading your debits further? Imagine you are playing poker: clearly, you should keep your cards close to your chest. Wait for the right time to show your negotiating partner that you are prepared to make concessions.
How can you negotiate successfully?
The art of negotiating is a difficult skill. However well prepared you are, keep the following principles in mind:
- Even if you have brought a proposal to the table, listen to the other side and pay attention to detail so that you can react quickly.
- Do not be frightened of bearing your teeth a little, even if you are concerned about spoiling the business relationship with your supplier. Stand your ground and mention what the competition can offer you, for example.
- You must control how you communicate, so that you avoid giving the impression that you have cash management problems. Emphasise that payment delays do not help anyone, and that it would be better to agree on a reasonable and sustainable schedule.
- If your business relationship is established, mention your positive partnership and your desire to see this continue.
- During discussions, regularly refer to how far you have come and your shared progress to date. This positive tone will be well received.
- If the negotiations stall, try to resolve the difficulty by pulling out a trump card, for example (i.e. a concession).
- Remember: a good agreement is balanced, and leaves neither party feeling wronged. So do not be too greedy: the outcome must be worthwhile.
- Are you happy with the situation? Move to finalise the deal, either by accepting what is on offer or by finally opting for a fair compromise.
Technology is transforming the supply chain
The rate of adoption of new technologies in the supply chain has not yet passed 26%, but it should reach 75% in ten years' time. What does this mean for you and how can you prepare for it?
The integration of technology into the supply chain has long been the exclusive preserve of major companies, often motivated by the idea that their departments or subsidiaries will become more efficient by being interconnected. The most striking example of this is the adoption by FedEx in 1985 of a system of handheld scanners, enabling real time package tracking. A revolution back then, but commonplace today!
"Since the 1980s, computer technology has advanced at such a phenomenal rate that it is currently far ahead of the ability of the supply and logistics field to adequately utilize the new technologies", according to Georgia Tech.
In the midst of the revolution in mobile computing, the latest white paper from C3 Solutions – the source of the adoption figures quoted above - explores how IT will shape the supply chain in years to come, thanks to three basic levers:
1. Mobility is more accessible
The policy of “bring your own device” (BYOD) has spread throughout businesses and brought down technological barriers, a move facilitated by falling equipment prices. So, an iPhone 5 has 2.7 times the processing power of the Cray-2 which FedEx had in 1985. The industries that benefit most from this are in logistics (dispatch management, GPS navigation, dock scheduling, parcel tracking, proof of delivery and customer service).
2. Cloud, SaaS and Big Data are becoming instinctive
Like mobile supply chain apps, even though a strong trend in IT, cloud computing is still immature and has yet to truly develop its potential. Although the costs are difficult to calculate, the roll-out of SaaS (software as a service, where the company's applications are based in the cloud) is becoming more and more natural, as it is inherent in the digital nature of the supply chain, particularly in view of the proliferation of connected items (the Internet of Things) in the business environment.
Cloud-based apps are the ideal way to gather data silos for analysis, but Big Data is not a new phenomenon for brands. What's different now is the velocity of solutions compared with the volumes processed and the availability of analytical tools to use this data. Accenture notes: structures that use analytical solutions have faster reaction times (47%) in their supply chain.
3. Web APIs also reign outside "dotcoms"
Application Programming Interfaces have become the plumbing of the Internet of Things. They enablecommunication between different services or apps. For example, US giant Target required its suppliers to connect to its own APIs in an attempt to curb stock-outs. The company managed to reduce delivery windows from two days to one. It also penalises suppliers using outdated tools if deliveries don't arrive in the scheduled window.
Intelligent employment of these tools should result in significant supply chain optimization: increased visibility, better cost control, more efficient integration between companies, more accurate tracking and planning, not forgetting improved regulatory compliance. To gain a better understanding of the issues involved, read the white paper entitled "Technology Reshaping the Modern Supply Chain" published by C3 Solutions. It can be downloaded for free by simply registering on the publisher's website.
Source : C3 Solutions
What "local" contributes to your supply chain
Countries that have spent the 30 last years closing their factory doors are seeing an unexpected return to local industry. The short chain has maybe even taken on a certain value in an unstable economic climate.
From the start of 2016, international exchange volumes have been falling. For the first time since the Second World War, a commercial treaty with the United States has failed during a growth period. Both candidates in the American presidential elections recently opposed the Trans-Pacific Partnership in order to embrace "Made in the USA". The United Kingdom voted for Brexit. In Belgium, Wallonia went head-to-head with the European Union and Canada over the CETA. In other words: globalisation is no longer an unshakeable conviction.
A survey carried out by SCM World indicates that in the United States, companies are three times more likely to recruit (than dismiss) staff in the supply chain area. The trend is identical in European countries such as Germany, the Netherlands and even Great Britain, as the diagram below shows.
Made in China was synonymous with everyday low prices. The paradigm has shifted.
During the 90s, international exchanges grew twice as fast as the international economy. Europe united under a shared currency. China became the world's factory. Tariffs fell, as did transport costs. Nevertheless, if you believe the New York Times, the Walmart revolution was over. So China joined the former prosperous nations club: she used her factories to build a middle class. As for Europe, from now on economic stagnation makes the signing of trade exchanges more complex.
Conclusion: local is back and redesigning the supply network rules. Why?
Distance increases costs
It makes no sense to boast about container capacity and the fall in the price of oil. Transport costs from Asia to Europe are more expensive and riskier than before. Add to this the doubts surrounding trade regulations.
Local is more flexible
The example of Trellebord in Sweden is particularly enlightening. This SME chose to use robots in order to automate a part of its work in a high wage country without having to go through relocation.
For Kevin O'Marah, SCM World supply chain expert, "adaptable platform design is Western industry's best defence against devastating supply constraints." The more such vital inputs can be shared, the better the business can support local production with limited bill-of-materials risk. This is true for Mondelēz, which is pioneering this approach in food, or BMW in automotive."
Five tips for a more effective supply chain in 2017
2016 has seen many new developments: an uncertain global economy, the shock of the American presidential election and disruptive technological innovations. These solutions will optimise your supply chain in 2017.
Get closer to the authorities and governments
While most of the world's resources are in the hands of the private sector, the concentration of industries makes managing a large number of factors, such as the environment, performance, ethics or even society's expectations more complex. Throughout the world, governments provide platforms for coordinating and facilitating supply chain operations (customs agencies, domestic security, food security, ethical resources). Nowadays, a wise supply chain manager understands the benefits of keeping close to the authorities: local economic development, transport, workforce, culture and salaries.
Go through your contracts with a fine-tooth comb
Follow the example on contract theory developed by Oliver Hart and Bengt Holmström, awarded the Nobel Memorial Prize in Economic Sciences in 2016. Their work sets out a framework for analysing all aspects of a contract: managers' remuneration based on their performance, deductibles, co-payers in insurance and even the privatisation of (some) public sector concerns. Guides are available for drafting more pertinent contracts for managing the supply chain.
Even less income, even more experiences
This trend is no newcomer, but is a growing one: when making a purchase customers are no longer satisfied with a deal in which they take all the risks. They hold the seller responsible for the promised quality of the purchased product or service (for example, a diesel car promising 62 miles to the gallon). The way ahead is the following: establish a long-term relationship with the customer based on trust and made indispensable by the growth in social networks. Managing reputation and the customer relationship become crucial factors given that consumer demands have never been so strong and/or supply chains have never been so interdependent.
Assess the value of every employee against automation
Automation affects all economic sectors. McDonald's has launched self-service order kiosks in markets where the cost of labour is significant, particularly in Europe and the United States (against the mass movement for an hourly rate of $15). If this decision involves some controversy, it begs the question: what is the impact on the supply chain managers? Labour has always been the biggest item of expenditure in the chain. For certain positions, automation enables fixed capital investment costs and fewer variable costs. The new rule is that in order to know when and where to implement automation, you need to know the value of each worker.
Make a friend of technology
Making technology work for you enables the supply chain to be successfully digitised. To this end, a combination is vital: automation and adoption of the industrial Internet of Things, along with best security practices against threats (ransomware, hacking). Intelligent initiatives will enable you to optimise the 'leagility' (a combination of the words lean and agile) of the supply chain.
The Supply Chain of the future will be agile and responsible
Do you know about Supply21? This revolutionary Supply Chain designed by the consulting firm Proconseil claims to be "bolder, more respectful, and more connected." This is what it will look like.
Proconseil unveiled Supply21 at a conference in Paris at the end of January. This method, which is still at the concept stage, arrives at a time when 38% of companies are yet to consider how factories and logistics will work in the future. Some sectors are exceptions, however, and are proving to be pioneers in this area. One is the automotive sector, where 50% of companies are already adopting open innovation approaches. In agri-food, a similar proportion of companies are now starting to consider the factory of tomorrow.
What is Supply 21?
Supply 21 (an allusion to the 21st century) is presented as a "frame of reference enabling self-evaluation according to the three Ps (People, Planet and Profit), and is based on an ecosystem of engagement. The method, which is backed by David Gau of Proconseil, adopts a durable supply model that "is relevant to everyone, stays abreast of social, organisational and technological breakthrough innovations, and works collaboratively."
Modus operandi: Manon's story
The firm bases its description of the chain on an order for a custom-made fairphone (ethical smartphone) on a leasing contract:
"Manon receives three text messages informing her that the local factory is to start manufacturing her product. Using a 3D printer, the factory takes just two hours to manufacture the specific features of her product, assembling it with standard components. Like 70% of people from 7 to 99 years of age, Manon is glued to her mobile. She finds waiting unbearable. She chose the local factory herself, as it generates the smallest carbon footprint. Marc, who delivers products on foot for the social enterprise La tournée du dernier kilomètre, uses the QR code of the local shop to identify the phone to be delivered to Manon's address, and Manon finds out how to use her phone on its augmented reality app."
Though some aspects are well developed already, the model remains theoretical for now. On the basis of the first results, the observatory intends to extend its work to publish a new frame of reference by the end of 2017 with greater representation of the different sectors. A white paper has just been published detailing this tremendous new evolution in the Supply Chain. You can download it (in French or English) by filling in this form.