Author Archives: Peter Smith



Hone Your Procurement Negotiation Skills By Learning the Right Way to Think

In our previous piece looking at Daniel Kahneman's brilliant book, Thinking Fast and Slow, and its implications for procurement thinking and practice, we looked at the concept of Priming.

Granted, Kahneman published the book in late 2011, but is still immensely valuable for procurement practitioners to keep on their bedside tables today — and here's why.

One of the central premises of Kahneman's book is how our brains look for the easy route at all times, what he calls "System 1" thinking. If we can draw a conclusion, make a decision, or find a belief without actually going through a time-consuming and exhausting process of really thinking, we will. That is not our conscious decision — our brains are wired that way. "System 2" thinking, which is more logical, analytical and difficult, is something our brains avoid if they can.

So Priming is the phenomenon whereby something we've seen or heard recently influences our next thoughts. If I ask you to name an animal, and you've just walked past an advert for the zoo illustrated with an elephant, you are more likely to say "elephant." And remarkably, this is true even if you don't recall seeing the advert. Our sub-conscious is quite capable of priming our future thoughts.

In this Plus brief, we will consider what is in effect a particular sort of priming, with an obvious implication for procurement and negotiation behaviour specifically. Anchoring is the tendency for us to fix our thoughts around a particular number, point, or fact rather than thinking logically and independently about a decision.

In Kahnemann's words, "it occurs when people consider a particular value for an unknown quantity before estimating that quantity." The estimates then stay close to the number considered. And this is one of the most tested and robust results in experimental psychology; it is an absolutely proven phenomenon.

In a somewhat frightening example quoted in his book, German judges were asked to throw a dice before being asked what sentence they would give for a particular crime. The dice came up with either the number 3 or 9. When the dice said 9, the average "sentence" was 8 months. When it said 3, the average was 5 months!

Anchoring and Procurement Negotiation

The implication for procurement is very clear in the negotiation arena. Whatever number gets anchored in your brain is in danger of becoming the starting point and indeed the expectation for the negotiation. You may work up or down from there, but it is difficult not to mentally accept that as an anchor for the discussion.

Let's get into some tangible examples.

Dow Jones, London FTSE Stocks Leap in December—But Not Our Procurement Portfolio!

procurement stocks

As we leap into the great unknown of 2017, this is our final review of the stocks portfolio we put together for 2016. It featured 21 firms with an interest in procurement and a quote on a major stock market, mainly London or New York. The final month of the year was actually not very dramatic for our firms generally, but it was more so for the wider markets. At the end of November, our overall portfolio was just ahead of the London FTSE All Share Index for the year to date and just behind the Dow Jones. But in December, while our portfolio rose by just 1% or so, London jumped by no less than 5% and New York by 4%, meaning at year-end we trailed those wider indices – although we were still a couple of percentage points ahead of the Dow Jones Global Index. Read on to find out the Biggest Winners and Biggest Losers — and tell us if you'd like us to keep doing these into 2017, would you?

Our Portfolio of Procurement Stocks Responds Well to Seismic Events in November

procurement solutions stocks

November 2016 will not go down in history for anything to do with business, procurement or share prices. The election of Donald Trump certainly seemed to be a seismic event, although we will have to wait and see. Perhaps the biggest shock of all will be if he turns out to be an OK sort of president – not too bad, not brilliant either. Given that one camp has absurdly high expectations of him (“draining the D.C. swamp”) whilst another believes he will lead the world to Armageddon, wouldn’t that be the real surprise?

Webinar: Managing Supply Chain Risk — A Sporting Story from Titleist

risk

Only two weeks to go until our webinar with riskmethods. The supply chain risk management provider’s software identifies risk along global supply chains, assesses the risk impact and defines appropriate and focused measures for risk prevention or crisis mitigation. The firm is the perfect partner for our upcoming webinar, titled “Keep your enterprise out of the rough: How Titleist built transparency and increased resilience into their supply chain.”

A Gloomy Halloween For Our Procurement-Related Stocks

It was a dark month for our share portfolio of 20 companies that have an interest in the procurement solutions market. Last month, we were commenting that it was several percentage points ahead of the general stock market performance for the year to date, but that changed in October. Markets were pretty flat through October, but our portfolio lost no less than 6% of its value, to end October less than 5% up year to date, still marginally ahead of the Dow Jones and global indexes but behind the U.K. index performance for 2016.

Stock Portfolio for September – And It’s Goodnight from Me, and It’s Goodnight from Him*

stocks

* As for that headline, Google it if you aren’t British and over 40. It's time for news about our portfolio of stocks from publicly quoted companies who are all or partly focused on procurement solutions and services. We have 20 firms represented in our portfolio, from huge to small, and we report on overall portfolio performance every month, picking out a few firms to focus on more closely. September was — well, how can we put this gently — a somewhat boring month, at least if you look at the headline stock prices at both individual company level and overall for the portfolio. BUT if we look more carefully, we can find some points of interest, including two high-profile CEO departures. So what did the behind-the-scenes goings-on look like?

August Was a Quiet but Generally Hot Month for our Portfolio

stock prices

Did you have a good summer? Weather good, we trust? Too hot in some parts of the world, while in the U.K. – actually, it wasn’t too bad after a cool start. And now we’re writing this on a beautiful early September day, as the kids get their books and uniforms out ready for back to school this coming week. Yes, you might have guessed from the chat. August’s stock market movements of our portfolio of procurement-related companies did not give us the most exciting range of topics to cover. The weather is probably more interesting. It was a month where generally markets seemed to take a breather after a year so far in which there have certainly been plenty of events for them to think about, from the rise of Trump to the U.K.’s Brexit vote. However, the overall performance of our procurement stock portfolio was very good overall, up some 6% on the month, and it now stands some 10% above the beginning of the year level. That means for the first time this year it has moved clear of the overall market performance. U.K. markets are up 7% on the year, U.S. 6% and the global index about 5%, so procurement-related stocks are now ahead of that.

Flaming July and the Software Giants Catch Fire!

stock prices

After the events of June, with Brexit dominating the headlines, stock markets actually did pretty well in July. The Dow Global index was up 4% on the month and is now positive for the year, as are U.K. and U.S. markets. The month was also a good one for our portfolio of 20 firms that have an interest in procurement services and solutions. The portfolio was up almost 5% on the month, driven by some of the giants of the industry, as we’ll see. It is now 4.8% up year-to-date, slightly better than the global stock market index but still underperforming the general U.K. and U.S. indexes by still a percentage point or so.

Book Review: Legal Blacksmith — How to Avoid and Defend Supply Chain Disputes

book

We are in the middle of a great period for procurement and supply chain books, with several very impressive examples being published over the last two years or so. (We’ve linked to our overview of some of those at the end of this article). Now, there is another impressive publication to add to the list. "Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes" has a different perspective to any book we have seen previously in our sector.

Future Purchasing Category Management Survey: Please Contribute To Useful & Important Research!

ISM

Pretty much every consulting firm has its own process and tool-kit, too. Whether it’s seven steps, nine steps or 17 sub-processes, there is plenty of advice from those who will tell you how to implement CatMan successfully. But there is less in the way of hard, evidence-driven thinking and research that can bring objectivity to the questions around how organizations can succeed with CatMan. That's why the Future Purchasing Category Management survey is so valuable.

Brexit Blow, CEOs Underperform: Our June Stock Portfolio Update

stocks

The month of June included some of the most seismic events to hit Europe since the fall of the Berlin Wall, as the U.K. voted to leave the European Union, leading to political and economic shock-waves not just in the U.K. itself but more widely. Our portfolio of shares was not totally unaffected by this, as we will see, but perhaps surprisingly, the U.K. stock market, in particular, had a good month, and that has continued into July. That is largely because sterling has crashed, losing 15% of its value against the dollar almost instantly when the result of the referendum became clear. So firms that have non-U.K. earnings and are quoted on the U.K. stock market (and that is a majority of large firms in the FTSE 100) will show better sterling-denominated earnings. There is (almost) always a silver lining to bad news! However, the FTSE 250 index has not performed as well, with its greater representation from more locally based firms.

What Have We Done: A Letter from England

Brexit

Greetings from a slightly stunned U.K., which Friday morning felt like a guest waking up with one shoe missing, a hangover and a vague sense that something bad happened at the party last night. Something very bad. Procurement folk will be scrambling already to work out what exactly the U.K. voting to leave the E.U. means, and the whole Spend Matters team will have more analysis to come.