The buying game
Former Superquinn buyer, Damien Carolan has spent the last seven years consulting on the "art of procurement". Colette O'Connor hears how he still holds fast to the mantra that there's always a better deal to be had.
Print13 March 2013
Procurement manager, purchasing manager, buyer; call them what you will, their jobs entail the juggling of a to-do list of time and cost critical business tasks, all to one end – striking the best deal. That is the daily lot of the Irish buyer, but how have things changed over the decade? One of the obvious, major changes is the shift in the location of the supplier base. According to Damien Carolan: "Things are much more global now. In the 80s the supplier base was here in Ireland, that tends not to be the case now, they’re in London or Geneva or wherever. The Irish supplier base is shrinking, the big suppliers are saying we can’t afford to have an office there, and let’s be honest, with the big retailers the decisions aren’t being made here anyway, so the very big suppliers have moved out."
He believes that with the exception of "big" retailers the bargaining and negotiating power is firmly on the supplier’s side. "I’m certain that if you could look at a trade magazine from 100 years ago the ‘struggle between buyer and seller’ was the hot topic then too. Who has the power, one side will say it’s not fair and the other side will say you’re right it’s not fair but that’s the way it is. I tend to think in relation to commerce it’s better to let things take their natural commercial course."
Carolan does not believe in unnecessary Government intervention in the relationship between the two sides saying: "If a retailer can’t compete with their competitors, then do something about it, there’s no point in asking the Government to bring in a code to protect them. Likewise suppliers – who’s going to police it, how are you going to measure it?" Carolan says that when he was with Superquinn they joined an international buying group to bolster their lack of buying power. "We joined Associated Marketing Services (AMS) and they ticked a number of boxes for us – there was no point in me just sitting on my ass and saying ‘stop, this is not fair’. Who cares?" he says.
Tough love
But what of the beleaguered suppliers who are constantly being pressurised for better and better deals and who live in a constant state of fear of what’s coming down the line? Sympathy is in short supply here too. "Why should a retailer buy any product from a supplier if they can buy it better, cheaper, faster from another source? If a supplier is selling a product to a retailer too cheaply and that puts him out of business, he shouldn’t have done that! Do you blame the retailer because he negotiated well? The supplier can’t say this is not fair, business isn’t about being fair – business is not fair," he says.
While there may have been many changes in the trade, Carolan is adamant that the old ‘practices’ such as listing allowances, hello money ("which I know a little about!" he quips) LTAs, below cost selling et al are all still there. "Oh yeah, they sure are. Business is business and they might not be called what they were back in the day but they’re still there! And if they’re not, more fool them!" he says. Asked if he had heard any rumours centring on a relatively new practice called "COIN" (Commercial Income) which entitles a retailer to dip into a supplier’s bank account and extract funds, he just laughed and said: "Well if a supplier is stupid enough to give access to their funds, then they deserve to have the money taken out. Maybe there is something else going on but it’s not as blunt an instrument as that," he says.
Cost of buying cheap
Carolan’s advice is simple: "Stop complaining and do something about it. If you can’t manage, get out and let someone who can take over. The retailer and supplier will have to buy from somebody. But there is always a cost of buying cheap and the current horsemeat scandal is the perfect example. If the retailer goes solely on price he’ll get caught. Any retailer who just goes out to get cheap, cheap food will get burned and any supplier who just supplies on the basis of cheap, cheap will get burned too. Sometimes it makes more sense to go for the lower volume and higher quality but with the better margin.
"Back in 1996 along with AIBP and Trinity College we developed the world’s first DNA testing for every beef animal. This naturally cost but provided us with the ultimate traceability and also acted as a deterrent," he says.
Standard of procurement managers is low
Carolan spent 39 years working with Superquinn on the buying side and has been working as a consultant for the last seven years for companies seeking to improve their profit by buying better. "I have worked with lots and lots of companies in diverse industries; one thing I have found is that, in general, the standard of people working in procurement is low. Why? Because the bosses of the companies don’t appreciate how important procurement is, because they’ve never done it, don’t understand it and can’t see the opportunity. My consultancy experience shows that better buying produces between 9% and 32% improvement in margin, depending on the industry, their buying practices and their willingness to change," he says.
Carolan says it is very hard to measure a buyer who is not doing their job to the highest standard. The buyers are still buying and money is being spent and product is being supplied – but did that buyer achieve the best deal possible? "Some squeaky wheels make no noise and well-meaning amateurs don’t cut the mustard. A buyer can say ‘look I got you this promotion or this price’, but everyone is getting those promotions, it’s nothing special, the buyer may be dressing it up as special but it’s not," he says. Carolan believes that the fault lies with a management structure that is "feeding problems and starving opportunities. People involved in procurement at the moment are, by and large just order givers – they look at the price and they place the order. The supplier on the other hand, because he is usually cuter will throw the buyer a couple of crumbs (a bit of this and a bit of that), to make them feel ‘special’ and hey presto the deal is done. And don’t forget every company has suppliers.
"Often and particularly in SMEs I see relationships between buyers and suppliers as very unhealthy. The supplier has fostered that relationship over a number of years and before they know it they have the buyer locked in. Can they be ‘friends’? I think they should realise that this could be a problem and every so often challenge the supplier," he says.
Negotiating the best deal
As a consultant Carolan has run a number of one to one and company inclusive courses in ‘Better Buying’. "I show the buyers what tools they need to negotiate the best deal; these range from bargaining to compromise to adversarial to emotion to logic. I’m not saying any one of those tools is going to get the best result, sometimes you need to use two or three and in different combinations."
Carolan says that many companies are making the mistake of believing that their computer systems can be a replacement for the experienced buyer.
"Company owners tell me, ‘oh we have this system and that programme’. Systems are only tools to assist negotiating and better decisions, but at the end of the day humans have to do it, humans with emotions and skills dealing with other humans with emotions and skills and the winner is the one with the best skill set and the wider range of tools and, most importantly knows how to use them to achieve that win, win result.
"A buyer with no imagination, no innovation, no creativity, who is solely motivated by fear to hit a certain target is no good – it’s a management issue if this is the case. Experience amongst buyers on the retail end is dangerously low and you can’t prop that up with data or targets. Data is necessary but lack of experience is costing both retailers and suppliers big time," he says.
Easy money
"Procurement is the last of the easy money," he says. "By easy, I mean money that’s available, that doesn’t cost you anything, you don’t have to take it from your staff or your customers." To illustrate this he says: "When I took over the fresh food buying at Superquinn, I knew I wasn’t that big a customer compared to say Tesco or Dunnes but I said I can make myself big! So instead of having seven lamb suppliers or six beef suppliers I’d have one – winner takes all. Suppliers liked the sound of it. We hammered out the details which included open book costings and I was then able to buy better than my competitors.
"Purchasing managers need to consider product cost, quality, availability, reliability, and support when choosing supplies and suppliers. I spent between 12 and 18 months before I gave a supplier an exclusive contract to supply. That was not adversarial, that was not coercion yet it was a good deal for Superquinn and for the chosen suppliers. Too many of today’s buyers don’t have the experience or the skill set necessary to look at the procurement issue and see how to get the best deal that is not just about getting the cheapest price. There are other ways to solve your problems. If you believe that nobody in the world can solve your problem then you’re the problem!" says Carolan.
Having worked in a global context through Superquinn’s involvement with ECR Europe and AMS, Carolan is adamant that to be successful in business in Ireland today you have to know what is happening on the global market. It’s all about global – think global and act local," he says.
In conclusion, Carolan quotes from Italian author Giuseppe Tomasi di Lampedusa who said: "If we want things to stay as they are, things will have to change".
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