With today’s challenging economic conditions, all companies are under pressure to remain profitable and hit earnings expectations. Retailers may be feeling the greatest stress of all, simultaneously dealing with inflation, changes in consumer sentiment, and loads of unwanted inventory. The result? Working capital problems galore.

Watching for evidence of how retailers handle this combination of circumstances is an education in and of itself. In some cases, it is instructional and in others it is a clear what NOT to do.

Case in point… a recent news story involving Target, Walmart, and a few suppliers who are decidedly unhappy with recent changes in their business arrangements. According to those suppliers, they have been asked to pay for their own logistics costs, hold inventory longer than expected, and accept reductions in order volume. How do we know about this frustration? They spoke to the media about it: on the record.

Philip Ideson is the Founder and Managing Director of Art of Procurement. In this Dial P for Procurement crossover interview, he and host Kelly Barner discuss this scenario and apply their own experience to pull out as many lessons as possible for the rest of us:

– Why retailers currently find themselves in this challenging situation

– How the strain is affecting their supplier relationships in the short and longer term

– What options might have been better to pursue – perhaps preserving the effectiveness of the supply ecosystem

Intro/Outro (00:01):

Welcome to dial P for procurement, a show focused on today’s biggest spin supplier and contract management related business opportunities. Dial P investigates, the nuanced and constantly evolving boundary of the procurement supply chain divide with a broadcast of engaged executives, providers, and thought leaders give us an hour and we’ll provide you with a new perspective on supply chain value. And now it’s time to dial P for procurement.

Kelly Barner (00:31):

Hi there. I’m Kelly, your Barner, your host for dial P for procurement here on supply chain now, and welcome to my monthly video interview. Um, now I’m joined by a very familiar face, at least a very familiar face to me. Uh, and we were joking before starting to record that these end up being weird interviews because we spend so much time discussing these things offline. Um, but I’m thrilled to be joined by my partner at art of procurement Philip eon for what is I think going to be a very interesting conversation. So hi Phil. Thank you so much for being here.

Philip Ideson (01:07):

Hey Kelly. My pleasure. Thank you. And as we was saying beforehand, it’s always a little bit different being the, uh, interviewee versus the interviewer. So it’s gonna be an interesting one. I’m under the spotlight this time

Kelly Barner (01:18):

Under the spotlight, and yet we’re kind of flipping things. So people know the two of us for advocating for procurement, helping people imagine the art of the possible covering some supply chain issues. But today we’re gonna talk about a news story that gives us an opportunity to look at things from the supplier perspective and maybe advocate some solutions to the challenges that everyone is seeing. Um, but really keeping that supplier experience and perspective in mind. Um, now before we get to that, for anybody that hasn’t met you, I wanna give them a little bit more of a chance to know about your background. So you’ve worked as a procurement practitioner, mm-hmm <affirmative> in the past. Can you talk a little bit about where your experience is there?

Philip Ideson (02:02):

Yeah, and I was thinking beforehand, you know, I’ve got 22 years in procurement, um, and it seems like it it’s so quick that you keep adding a number to that. Um, uh, and of that 22 years think about 12 years was a practitioner 10 years as been as a consultant and advisor, uh, running the at of procurement, doing a bunch of other things. Um, but that 12 year of practitioner experience really actually started. Um, I did an internship with GM, um, where I was in material control. So I did a material control internship there, and that led me to go to Ford motor company when I graduated. So I graduated through the Ford, um, scheme, uh, in the direct materials perspective. And so I started my procurement career in direct materials and I probably spent half of it in that, in the direct space and half of it on the indirect side, you know, across sourcing category management transformation, uh, supply risk management, um, running a captive shared service center, uh, up to a head of international procurement. So I kind of always deliberately tried to check a lot of different boxes. And then from an industry perspective, auto pharma, CPG financial services, you know, those were kind of my practitioner days, but then as a consultant, um, and a provider, you know, touched a bunch of other industries, um, aside from that,

Kelly Barner (03:22):

Now one of the points that you made, and I actually wanna pause and clarify this, cuz I know the terminology can be different, but this is gonna be really important to our conversation. Today. You talked about the fact that you were in direct materials. Yeah. So when we talk about direct versus indirect, and I know I grew up in retail, we called indirect not for resale mm-hmm <affirmative> um, so when we’re talking about direct materials in any company or industry we’re talking about the product or the service or the technology that’s being resold for profit, right?

Philip Ideson (03:53):

Yeah. Or any of the components are pieces that go into that product. Um, you know, different companies, different industries may define the direct on the indirect side, slightly different, but the general rule of thumb. Yeah. The direct is things that are going into that product. That’s resold indirect is everything else essentially.

Kelly Barner (04:11):

And so before we get into the, the story we’re gonna talk about today, there’s one more thing I wanna get your read from, cuz again, I think this is material mm-hmm <affirmative>, we’re now over two years into this business about the pandemic, we’re almost two years into every single headline being either supply chain, crisis or supply chain disruption. What would you say is the general tone of the conversations that you’re having of the attitude that you see evidence through social media posts? Where do you think people’s minds are dealing with the economic conditions right now?

Philip Ideson (04:44):

Yeah, I think that, uh, you know, one of the words that comes to mind is fatigue. I think folks are fatigued with everything that’s going on and the unknown, especially as a procurement professional where, you know, you’re judged in a lot of organizations on either are, are both these things, you know, the ability to make sure that the company has the right product or service at the right place at the right time at the right cost. And right now we’re struggling with the right place, the right time and the right cost. Um, through factors that in a lot of cases are kind of beyond procurement professionals control, but procurement is really trying to manage. But then when you look at your, your, your self worth as a procurement professional, if you’ve always judged it on things running smoothly and saving money, which a lot of procurement professionals do, then it’s been quite a beating, you know, the last couple of years on both those fronts.

Philip Ideson (05:35):

So I think there’s fatigue. Um, there’s still at the unknown. Um, but you know, we’ve talked about for a long time about the UN unknown being the new normal. Um, and I don’t think that’s gonna change anytime soon. And then I see a lot of op of individuals, but also that rolls up to organizations based on our leadership, seeing this as a huge opportunity. So actually is this an opportunity for procurement to step up and show a greater value proposition to their organization? Um, and those that have embraced that I think are really, um, you know, are really doing well in their organizations and repositioning the role of procurement.

Kelly Barner (06:10):

Now, it’s interesting. I used to have this good friend that would talk about when things get stressful. She would say, we all have a dance or a set of behaviors that we fall back on. And procurement has worked for a long time, truthfully to get away from being cost driven, to get away from bullying suppliers. But as the fatigue grows as the pressure mounts, we’re starting to see, I think maybe evidence that a few companies are falling back to that dance or instinctive set of defensive behaviors. Mm-hmm <affirmative> and a recent example of that was covered in a news story. Uh, the news story happens to mention target and Walmart specifically, but there are many other companies dealing with this, especially in retail. And it talked about the fact that between inventory disruptions and, uh, just playing far too much inventory on hand, they’re starting to respond to the stress and the cast flow pressures by mounting what they expect of their suppliers.

Kelly Barner (07:13):

And so there were a few things about this particular story that were interesting. One is that the suppliers were named and quoted as complaining about these large retailers that they’re working with. That’s pretty unprecedented. Uh, but we also have some words from the retailers about how they view, how they’re dealing with this with regards to suppliers. So even some of the suppliers that were concerned about having empty shelves, uh, we know Walmart and target both chartered their own ocean freight. In order to get inventory here from China, they were concerned about seasonality and empty shelves. Uh, now they have the opposite problem. Target in particular has $15.1 billion worth of inventory that they wish they did not have. And unfortunately, as a result, their net profit margin is down by almost 50% year over year. Now add to that, the fact that consumer demand preferences continue to be fickle. People went from spending on home improvement to spending on trips and experiences in restaurants. And you have a very complicated situation where they’re turning to suppliers and saying, here is our expectation of what we want you to do in terms of handling this. And those suppliers are not happy. Uh, so before we get into the details, any initial thoughts or perspectives based on what you’ve heard, what you’ve read about the situation that these retailers find themselves in?

Philip Ideson (08:44):

Yeah. The first thing I would say, um, is that, you know, target and Walmart and really our discussion goes, it’s really more on retail as opposed to focusing on those specific companies, but they were kind of of between a rock and a hard place because you have, um, you know, uh, chronic shortages. So you were the natural reaction to chronic shortages is to invest in inventory. You’re investing in inventory then going into a possible recession where demand softens. But if they hadn’t done that, I mean that they were, they were investing in their own brands to be the place where people know they can get the things they need when they want them. And so, you know, they took the car to invest in this inventory because they wanted to make sure the shelves are fully stocked because if they weren’t, then that’s gonna have a big brand hit from them as well.

Philip Ideson (09:27):

We went to target and there was nothing on the shelves. So we went to Walmart, there’s nothing on the shelves. Um, so you can certainly see why they made the decisions that they made. And no one really had perfect information. Then the question is, okay, once you’re in that situation, what do you do about it? So now they’re obviously trying to mitigate the, um, the impact of, of buying the inventory into a softening market. Uh, but I mean, we’re gonna see this play out everywhere. We’ve talked about chips for the last two years. That’s right. So for the last, I dunno, three, four months, we’ve been talking about, uh, you know, with some of the guests on that procurement around well chips. Now, now we’re investing in all this capacity. We’re gonna build over capacity going into a weakening market. We’re gonna have the same problem. The prices are gonna sink. We’re gonna get deflation rather than inflation. Yeah. And this is kind of the cycle that’s gonna play out the next couple years. So we’re probably gonna see that in, in these situations with retail as well.

Kelly Barner (10:22):

Absolutely. And in the short term, what we’re hearing from the suppliers at least is that retailers are saying, hold onto that inventory for us. Mm-hmm <affirmative> I know we said we wanted it, but we’re not ready for it just yet. They’re saying, you know, instead of us coming and picking that up from your warehouse in China, how about you pay to ship the inventory to a warehouse in the us, and then we’ll get it from you when we’re ready or simply, and this is an oldie, but a goodie payment terms being extended people, just not paying on the agreed upon schedule for the things that they’ve ordered. And in this particular article, there’s one quote that I wanted to share. And I double checked this, this is a real company, the company’s called exploding kittens. They make card games. Um, and their chief executive officer has said, we are having to hold back some orders in China.

Kelly Barner (11:18):

We now have stock in China that target does not need. So we are shifting that stuff to the United States and have to use our own freight, ultimately eating into margins. And that’s from Carly McGinnis, who is the, the president of exploding kittens. Now there are a couple of things that are particularly interesting about this situation. We’ve talked about the difference between direct and indirect. Yeah. So this is a supplier of card games that would go on the shelves in target for customers to buy that’s sort of the first part. But the second part is there have been exclusive collaborations between exploding kittens and target in the past. So games that the company makes that can only be purchased at target mm-hmm <affirmative>, which would suggest a closer than your typical even direct supplier relationship. Yeah. Now the funny thing is, and I’m gonna have you translate this for me. So this is in corporate speak. This is in buy side speak. So I’ll give you a chance to think about it. And then you can try to put it into common language for us. Target spokesperson said, quote, we have maintained open and transparent conversations with our vendor partners. So we heard what exploding kitten said, and now we’ve heard Target’s official line. Yeah. Any translation into what that actually means in real life.

Philip Ideson (12:37):

So, you know, obviously without knowing fully the meaning of what targets said, but being able to apply that to situations where I’ve been in automotive. Yeah. Um, that basically means we’re telling you what, what is happening. Um, we’re telling you that, like, it’s essentially, it’s a one way communication of this is this is what’s happening. You know, you will be, um, we require you to do these additional things because we are not taking on board the inventory. And there’s not a two way dialogue about that. Let’s say, this is what’s happening. We’re being open. We told you the situation, we told you why we, we need to do this, but you know, you don’t have any say in this, this is what we are doing

Kelly Barner (13:14):

Now. Are you surprised at all? And there were three different suppliers that were named in the article that you and I both read, but are you surprised at all? Not only that these suppliers are pushing back, but that they’re doing so publicly through quotes from the C level at their organization in the media.

Philip Ideson (13:32):

I mean, that’s unusual. Um, but they’re either doing it because they have a tremendous amount of leverage. So they’re in a situation where it’s not like they can be, uh, swapped out for another supplier. Right. Um, or they’re doing it because they’re at their wits end. They’ve tried everything else. Communication’s not getting through. Uh, they’re not getting any responses. They’re not feel feeling like they’ve been heard. And therefore this is their last resort. But as a last result, I mean, that’s a pretty dangerous game because, um, you know, it’s going to be no doubt. If, if that’s the case a long time before some of these larger organizations will want to work with a, a partner. Again, I say a partner or supplier again, that go to the press when they have challenges. But if they’re not being felt like they’re being heard, then there’s not really anywhere else for them to go.

Kelly Barner (14:19):

Now, we had also talked about the fact that at least the three examples in this article are all direct or merchandise suppliers. Mm-hmm <affirmative>. And again, we’re just guessing, but if this is what we’re hearing from suppliers on the direct side, which contributes directly to these retailers top lines, can we extend that at all? To what we might anticipate is happening with indirect suppliers that are less recognizable and a little bit further from the customer

Philip Ideson (14:45):

Possibly. I mean, in the direct space, that’s those materials are, uh, they’re. They have the more direct impact on the bottom line, a quicker impact on the bottom line. But what happens in the direct material space is that you’ve got things that are engineered into a pre product, or, you know, you have, uh, household brands that those retailers, that the customers demand those brands. So there’s a lot of leverage in those. Uh, there’s a lot of switching costs and it’s hard to get out. And sometimes you’ve created yourself, monopoly situations. Um, you know, that doesn’t stop a buyer. And again, I did this in the automotive world 20 years ago, uh, going to your, uh, supply base and saying, I’m gonna take a blanket 5% cost reduction. And then, and if you don’t agree to that, then you’re not a true partner of, of mine, which ultimately is how some of these things go now in the indirect space.

Philip Ideson (15:37):

Um, it’s again, depends on, I would say the leverage, um, that you have, and it’s a little bit more nuanced because of the different ranges of products, some things it’s tough, you know, your, your electricity supplier. You’re not going to go and, uh, have a, um, a backwards and forwards over pricing and, and demand and, and supplier or anything like that. But, you know, I’ve been in situations where, um, I’ve, um, been responsible for a contract that outsourced HR services for seven years for a company that only believed they were going to grow. And then the recession hits and you go back to your provider and the provider is well, the contract’s the contract. Um, and so, you know, you may think that you can, um, uh, bully me around in terms of trying to renegotiate the contract, but I’m gonna stick behind the contract. And again, that’s because in that instance, that supplier had all the leverage in the relationship. So, I mean, that’s really where it lies. Um, it’s it’s relationships and leverage that are gonna determine, um, who does what to whom and who tries to do what to whom, you know, as a result of, um, of all these challenges

Kelly Barner (16:43):

Now, to your point about contracts. It’s interesting because we do talk relationships and we hopefully work through relationships, but at the end of the day, in reality, everyone is reliant on that contract. I do not know, but I have to think that a lot of the things that are becoming points of contention between retailers and suppliers were specified in contracts, does this raise concern that even though things are in writing, we can’t necessarily enforce them into being,

Philip Ideson (17:11):

You know, I would question whether they are in writing or not in contracts or not, because, you know, in some cases those contracts or tra be as loose as possible around, uh, no actual numbers, what are you actually committing to, you know, in the direct side, you may commit to a hundred percent of volume, um, or 50% of volume without saying what your volume’s going to be. And you can get forecasts around what that volume is, but those forecasts aren’t contractual. So when it comes to actually the, the order, the PO that has a volume on it, there’s nothing until that PO that is ever, um, committed to what the volume is. Um, and you know, it’s, it’s really just, well, we think it’s gonna be this. We think it’s gonna be that. So I think in some cases you probably got that, which is then leading to this. Well, you intimated the volume would be whatever, and the volume is significantly lower. Well, there’s nothing in the contract. Yeah. But you told us, you know, we’ve amortized our da, uh, fixed costs over this volume, cuz that’s what you suggested. Um, and that’s probably where some of the back and forwards is coming from

Kelly Barner (18:13):

Now, we sort of started with this issue happening because retailers were trying to protect their customer experience. Mm-hmm <affirmative> and they’re sort of losing their supplier experience and partnerships as a result of the approach that they’re taking. Yeah. But I know you actually have some, some interesting and I’ll say entertaining thoughts about how this might actually be affecting the customer experience, even though companies don’t realize it. Where do you see the connection between these two things?

Philip Ideson (18:40):

Yeah, it’s, it’s interesting, as we said, right at the beginning, everything is now a supply chain problem. Um, you know, we have an in, uh, an example where, um, I know in may timeframe, we bought an interior door for our house, uh, and you placed the order. And, uh, I guess there’s a shortage of doors, interior doors and who knew, you know, when the kids decided to put a hole through, on the bathroom doors. Um, and so we placed the order. We told that the order is gonna be, I think it was early July. So about six week lead time through a national retailer, um, to just get a door. And then of course they delay it and they delay it. They delay it to a time when we’re outta the country for a significant period of time. And then tell us that it’s our problem, that we’re not gonna be around in five days to pick it up because, um, you know, we’re outta the country, even though it was them that delayed it.

Philip Ideson (19:28):

So there’s this big disconnect, you know, which then creates lots of stress, you know, calling from overseas. And it took us probably, I dunno, three or four hours just to get somebody to say, okay, well, hold on to this staff are you until the day you get back from your trip, but don’t be late. Um, and so now I’ve got a negative opinion of my experience with this brand, you know, over something that was probably out of their control, but the way that they managed it is actually what’s creating a negative customer experience. I think that people are empathetic generally to the fact that there’s delays in supply chain, especially those of us in supply chain. But it’s how you manage that as the, um, as the, the retailer in this case, that actually goes down to what my opinion of the retailer, because the way they handled the situation

Kelly Barner (20:14):

Well, and it is interesting because over the last couple of years, everyone and their mother is now an expert in supply chain mm-hmm <affirmative>. But I think with that gradually over time has come a level of understanding and sophistication that we’re no longer at the point where any retailer or provider can just wave their hands and say, well, you know, supply chain right now, people are starting to understand, okay, there are retail points, there are distribution centers. We hear things about long beach California. So we understand there’s shipping containers on ocean faring vessels. I do think we may be coming to the end of the window where simply invoking supply chain crisis is going to apologize for every poor experience.

Philip Ideson (20:58):

Yeah. I think people will try it for as long as they can get away with it. You know, we’ve traveled a lot over this past month and all these hotels and airlines and airport, they’ve all complained about, uh, supply chain issues for reasons why they can’t do things, but, you know, they’re still happy to, to oversell their flights and, um, you know, try and work on the revenue side to maximize the revenue while cutting down on the cost side, uh, and blaming supply chain issues as a result of that, which I think is causing big issues from my customer experience perspective, but something that I was also interesting that I noticed in England when I was there for a few weeks, is that now company’s ability to hire is now in some cases being connected to supply chain. So I saw a couple of times where the employee supply chain was the reason why something couldn’t happen. So it wasn’t because they couldn’t hire people or because they didn’t pay enough wages to hire somebody for the positions they needed to fill. It was now a supply chain issue, but relating to the supply chain of people. So, you know, I didn’t know that people were part of a, I mean, we, it’s interesting. We talk from a risk management perspective all the time about supply chains in service businesses. Um, but now that’s making its way out into, you know, the excuses for why things aren’t available, um, is there’s people supply chain.

Kelly Barner (22:14):

So let’s say if we can attempt to brainstorm some potential solutions, mm-hmm, <affirmative>, you know, I look at every sort of bad news story as an opportunity for all the rest of us to say, what would I do if I were in this position or what would I not do and potentially learn from the choices of others. Um, if you are in procurement, in a retailer that finds itself again, net profit margin down over 50% year, over year, 15 billion worth of inventory that you wish you didn’t have, where do you even start to address this problem what’s within your control?

Philip Ideson (22:49):

Yeah. And I think there’s always short term and long term yeah. Solutions, you know, short term is about the situation now. And long term often gets overlooked, which is, you know, how can we stop this from happening or protect ourselves against this happening in the future from a short term perspective, you know, when you have issues like this, um, you know, in this instance that we’re talking about today, it’s actually an oversupply mm-hmm <affirmative>, um, you have to work really, really closely with your suppliers. Um, you know, it’s communication is so important. Um, the why, why you’re trying to take the decisions, what are the outcomes you’re trying to drive? Um, what’s your line of thinking, you know, what does the future look like? Or what, what are the data points are informing your view of the future? Because if you’re managing this collaboratively, your suppliers are gonna be in a much better position to try and do everything that they can do to help mm-hmm.

Philip Ideson (23:41):

And they’re willing to invest in you. If they think it’s a short term, like this is gonna be short term investment, that I’m gonna hold onto this stock, for example, because I know that in six months or nine months, or when something turns around the net impacted me doing that is gonna be something that’s good for me, cuz these are the reasons, you know, when you’re facing shortages on the other, the other hand, because right now we’ve got this Glu here, we’ve got shortages over there. You know, it’s, how can you help your supplier secure? Our sub components are, you know, what, it basically put yourself at their mercy to help them support and service you, um, and doing that is what creates those bonds and those relationships versus just writing a letter to your suppliers and saying, I mean, that’s the thing that I hated the most in automotive that we would do writing a letter supplier saying, dear supplier, we’re gonna take 5% down from you.

Philip Ideson (24:29):

Or this is a situation that we’re gonna force you to hold onto your inventory or whatever it is, you know, yours, yours in partnership, uh, Mr. Or Mrs. CPO <laugh>, you know, and we do that or, or VP of supply chain or whoever it came from. And we do that all the time. And then, and then think that when things start to turn around that, that these suppliers gonna be our friends again. Um, and typically it’s all through because of this, this notion of leverage. And we’ve got this, it’s like one of the, I think one of the big, the worst things to come out of the professionalization of procurement is this focus on leverage. You know, when you think of the, uh, the crowd check matrix and leverage suppliers, um, this idea that we’ll just use our power to get whatever we want. Um, we’ve gotta get away from that in the short term and the long term, but the short term, especially to have these, to be an open book, um, you know, long term, it’s more around risk management, um, you know, having alternative sources of supply, um, having more flexibility, building optionality and contracts.

Philip Ideson (25:30):

There’s a lot of structure you need to set up to enable all those kind of things at scale. Um, but I’m always reminded of what a chief risk officer told me a good number of years is that, you know, whoever bears the risk essentially is the one that, that, uh, the, the wins financially, you know, there is a cost for bearing risk and as large company buyers, we like to push as much risk as possible onto our supply base. So you should expect to pay for that.

Kelly Barner (25:55):

Well, and it is interesting because we’re able to look at the set of circumstances that have played themselves out and say, okay, this wasn’t a great idea. That’s not a good look. Uh, maybe we understand why they did this in the beginning, but it certainly didn’t play out. Retailers have ended up with all this inventory and not enough cash flow, but we will never know, let’s say one of the other alternatives was to sort of roll the dice and assume that supply chain disruptions were not going to be as bad as we were potentially projecting and risk that there would be things on shelves. We are never going to know in that alternate universe, how would that have actually worked out? Right. And that’s sort of the difficult thing about the situation we find ourselves in.

Philip Ideson (26:36):

Yeah. It’s very hard to scenario plan. Yeah. Right now, because there’s so many different possibilities and it’s hard to game out every potential. Um, so you can’t, I mean, you can’t build risk mitigation plans for every single eventuality, but you can look at what’s the greatest points of failure, you know, where are the, where are the places where, um, you know, the risk is the highest and the impact, the severity is the highest and at least understand those points and connections within your supply chain. So you can plan mitigations around those and from all the teaching and education and things that we do around that, we find that folks, generally organizations generally don’t take that in procurement seriously, as they should do. And it comes to the, for when there’s events that are happening, like events that’s happened over the last couple of years, it’s gonna be fascinating to me to see when whatever normal looks like becomes normal. Whether we forget everything again, or whether this has been such a big shock to the system, that it actually changes the way that we think about our suppliers and about risk management and about the value proposition of procurement

Kelly Barner (27:37):

Well, and what I wonder too, and I’m gonna date myself by sharing this. But I remember when I was in college watching the Jerry Springer show mm-hmm <affirmative> and there would always be some horrible fight between friends or family members. Invariably, someone would throw a chair. I don’t know where that milk always came from, that people were throwing, but I used to wonder what’s the ride home in the car? Like <laugh> assuming they came to the studio together and are leaving the studio together. And I wonder that a little bit about these relationships between these retailers and especially the specific suppliers that have spoken out publicly about the conditions that they’re being forced to handle. Yeah. Would your gut be that these specific supply relationships can be saved or do you think these suppliers are just assuming that by speaking out, they’re trying to cover the risk they’ve already taken on and that it’s over anyway, mm-hmm

Philip Ideson (28:32):

<affirmative> I would say, uh, you know, a couple of things, one is, um, cuz it depends, it depends on the way in which an organization worked with a supplier to help yeah. Overcome some of these problems, you know, was that, um, was the buyer an advocate of you or was he a bully to you? Um, the other thing is, you know, when, when all the dust is settled, one of the biggest determinants of future relationships is with those actions that that buyer, that client took based on truth are based on trying to take advantage of a situation. Um, and because I’ve been in negotiations where, you know, I’ve as a service provider in a large organization, some, a, a buyer, a client has come to the table asking for huge cost reductions based on, you know, financial struggles and then the financial results get published at the end of the quarter.

Philip Ideson (29:26):

And you see there’s really no such thing. And so you think, well, was that really based on truth, uh, that damages the relationship forever, frankly. But if you see that it’s BA that everyone’s trying to chip in and maybe the mode that they did, it wasn’t the best mode of communication, but it’s a real problem that is trying to create an ecosystem that strengthens all its components coming out of it. Then you can kind of say, okay, it was hard, but it was necessary. And maybe wish they’d had done it a little bit, uh, a little bit better in communication, but I can see what they were trying to do. And you know, I’m going to benefit from that coming out of it. Um, those are, it, it, it differs from company to company, but that’s what I would say in terms of whether a relationship can be saved or not.

Kelly Barner (30:10):

Now here’s the harsh reality. Do consumers really care? Mm-hmm <affirmative> if these retailers are bad to their suppliers. So is there actually anything at risk? We talk about what procurement should do, the type of relationships we want companies to have with their suppliers, but does the consumer actually care to the point where it creates a disincentive for these companies to behave badly?

Philip Ideson (30:36):

I mean, um, there’s reputational risk for sure. You know, as you’re looking at all kinds of different risk factors, when you’re building a third part of risk management program, you’re gonna look at reputational risk, uh, as one of those components for you to do the right thing. Um, it, I guess it depends on the relationship you have with your customers. You know, if you are relationship with your customers is based on being good for the world. Um, then if you are seen as not doing that and not upholding to that value, then it’s probably going to impact your customers. If your value proposition, um, you know, to the market is I’m gonna be the cheapest, then they probably don’t care how you, how you are able to provide those part, those, um, you know, things on the shelves or the services or whatever it is at that lowest price, cuz all you really care about is the price.

Kelly Barner (31:19):

Well, and it is interesting looking at this in the macro trend of ESG. So environmental, social and governance based initiatives because especially B2C companies like retailers have made a concerted push over the last few years to connect with local communities, support small business, increase the diversity of their supply base and have really put on a very strong promotional front about that so that consumers would know mm-hmm <affirmative>. So part of those brand value propositions are in fact, based on at least a perception that these companies care about the world, that they care about communities, that they care about, people that they care about workforce mm-hmm <affirmative>. And so that does sort of raise the bar, even if it just creates sort of an elevated concern around controlling the message yeah. Of how this gets out to the, the consumer base. We caught this article going through, but I don’t know if the typical consumer would catch it right. And yet these things always have a way once that mindset shift takes place, once people revert to the old dance and way of handling things, I have a feeling it sort of leaks out into other choices and will eventually become apparent.

Philip Ideson (32:34):

Yeah. I think that, you know, practices in one area of a business probably reflect, uh, a culture across multiple areas of the business that that will show themselves, you know, in different ways that I’m not smart enough to understand or project how, but you know, that, that there’s a culture that exists to do things in a certain way, you know, but that might be in a way that consumer expects because they only care about low prices as an example, you know, having the right things on the shelves at the right price at the right time. Um, my experience has been, um, does the com does the culture of a company see every single stakeholder as being a potential customer or not? So if you look at all your suppliers and see every single one of your suppliers as a potential future customer, then you’re going to treat those suppliers differently than if you don’t take that view because I’ve worked as a consultant with organizations who do take that approach. And so they, their approach to procurement was very different. And this is a, a huge global organization with a very, uh, well known brand. You know, they see every stakeholder as being a potential customer or a customer. Uh, they approach their supply base in a very different way than those that don’t necessarily think like that.

Kelly Barner (33:48):

And to that point about culture being pervasive, even though it might be different teams in an organization, I have to think it’s an incredible challenge to on the one hand, try to create a positive, rewarding, frictionless experience for your consumer base. While, you know, with the other hand behind your back, you’re sort of bopping a supplier over the head and forcing them to help you deal with these inventory and cash flow issues. Those two experiential ends of the supply chain. It does feel like they meet in culture.

Philip Ideson (34:18):

Yeah. I think the, what, you’ll what you find and I found this in automotive again, is similar. Those directives, you know, they are led from the very, very top of an organization because at the very top of the organization, they’re looking at, you know, the do and the senses and figuring out how do we overcome these problems that we see in a way that is going to, um, maintain shareholder value that is pushed down in terms of actions, the folks who are undertaking the actions to make that, you know, to, to operationalize that direction, um, you know, are probably caught in this balance between, you know, making sure that they’re portraying the, the message and the strategy of the business while recognizing that sometimes they’re asking for extraordinary things from their partners. Yeah. And so the way that they do that is the way that suppliers will come out of that experience.

Philip Ideson (35:10):

You know, that, that, yeah, the whole experience, are they gonna come up with that thinking, look, I know this is from above, don’t really agree with it. I know you’re trying to help, you know, you’re trying to protect me from the system, I’ll try and do that and we’ll figure out how we can collaborate together. Versus are you being the bully who is saying, this is the directive I’m gonna hide behind this. And I’m just gonna send email after email demanding that you, um, do what this says, because that’s how I measured an enforcement. It, it really it’s on us as procurement professionals to decide how we’re going to manage that. Even if the requests don’t seem fair in the nature.

Kelly Barner (35:47):

Now we have quotes from three suppliers in this article, but we know that large retailers have many, many, many more suppliers than that. If, instead of being managing director at art of procurement, you were say the president and CEO of exploding puppies, mm-hmm, <affirmative>, uh, that made card games and, and board games. What advice would you take? So what, how would seeing this article, how might hearing this conversation, um, affect the way that you deal with retailers in protecting your business? Yeah. Any advice for other suppliers?

Philip Ideson (36:23):

Um, I’ve probably changed my brand from exploiting puppies. <laugh> um, <laugh> but, um, I mean, it depends on how important a client, you know, well, most likely this isn’t a, a client by client issue. You’re gonna get it from across the industry. So as an industry, you’re gonna recognize, you know, these are kind of hard times to my industry. How can I best support my clients, get through this time in a way that doesn’t negatively impact my business? You know, if the extent where I can no longer support and provide whatever I is that I’m servicing to my clients. So you’ve gotta recognize that this is not just a problem that is once supplier that has, it’s gonna go across the board. Yeah. Um, you know, at that point, you kind of deciding from, from a portfolio perspective, which of the clients strategically do I wanna align myself most costly with because of where the future of my business is going.

Philip Ideson (37:13):

And is there reactions and the way that they’re handling this a determinants in where I believe that should be, because I think it’s fair to say, you know, even people who say this, isn’t true as a business owner, you invest the time you go above and beyond the car of duty with those clients who you have a really strong relationship and believe would return the favor, um, and those that you want to invest in. So that’s really where you’re looking is where is that now? You know, I know from automotive, there’ll be times when, uh, because in, in automotive there are so few end customers, you know, in the us, you had the big three. Well, if, if you’re in thewe, if you’re a Midwest provider of automotive plastic moldings, you’ve got three suppliers, uh, three suppliers to supply to. So, and all three of those have probably got faced with the same issues at the same time. Um, if you make enemies of one, then that’s a third of your potential, total, total market gone. Um, and so sometimes you just gotta take it. Um, and that’s one of the things that I really struggle with, you know, and one of the motivators for starting out procurement was to get out, to get procurement outta that way of thinking. Yeah. When you provider that’s kind the reality of the situation. If you are, uh, in an industry where you are taking yourself down a pathway, you only have two or three or four potential clients.

Kelly Barner (38:30):

Now, what lessons should the rest of us take from this? To some extent, we’re all dealing with the same challenging circumstances. Um, we have varying options and alternative alternatives available to us. Uh, but what are sort of the general takeaways, uh, from, from thinking about this story and watching the impact that it’s having throughout the supply ecosystem?

Philip Ideson (38:54):

Yeah, I would say from a buyer perspective, sometimes you can’t change the fact that you, your company needs to make hard decisions and do things that you may believe are out of, uh, you know, beyond what is reasonable, uh, things to ask your suppliers, the way you, what you are as a professional is in control of how you manage that situation. And so the way that you manage it, you know, the empathy you show, the communication kind of being as open book as possible can change the outcome. You know, it’s not gonna change how difficult it is on a supplier, but it may change them from saying, well, no way, and getting into a fight, you know, where people start talking about contracts and then start talking to the press versus how do we work this out. I can’t really do that. Can do this.

Philip Ideson (39:38):

Maybe there’s something you can do over here. If you can reduce my cost to serve you over there a little bit, that gives me a little bit more wiggle room. How can we be, um, collaborative to solve the problem? Um, I think that’s the first thing. And the second thing, you know, that I’d always say is around risk management and optionality and just, you know, how are we thinking long term around what are points of failure of having multiple sources, um, and you know, not creating monopolies where ultimately the supplier, uh, actually has the leverage because you’ve got no one else you can buy from,

Kelly Barner (40:08):

You know, it’s interesting cuz you’ve mentioned empathy a couple of times today. Mm-hmm <affirmative> and I happen to know this is sort of like time travel by the time people are watching and hearing this interview. The episode of dial P that was previously released is about empathy. Okay. Because I do think we’re in very difficult times. I think you’re spot on with your points about fatigue. You know, we’re so focused on supply chain resilience, but the human resilience I think, is starting to fall off mm-hmm, <affirmative> our tolerance for uncertainty. We’re just, we’re exhausted. And yeah, it seems like so many of these problems, the longer they go on the fewer solutions we actually have. And yet you’re also right that as a business owner, you have to make tough decisions sometimes mm-hmm <affirmative> um, knowing that I’m totally catching you off guard with this, any final thoughts that you wanna share on this topic of empathy? Um, because I do think it’s hard in ordinary times, but it’s that much harder given where we actually are today.

Philip Ideson (41:10):

Yeah. Look, you know, people buy from people, we’re all we we’re, we’ve all got this, this cloak of a corporation behind us of, you know, a corporation of one or a corporation of a million, but we’re still just individuals trying to transact and do business with each other and, you know, make our days as, um, as simple as possible, uh, you know, in, in service of reaching all of our goals and achieving our goals, you also have no idea what any one person is dealing with at the time when you’re, uh, engaging with them. So empathy I think is always really important. Um, you know, you think about how, if you are a supplier, how do you react? If you get an email that’s really threatening, demanding, and bullying, um, versus getting an email or a phone call from your buyer, which explains the situation, talks about the challenges and offers up, like how can we figure out, you know, how we get through this together. Um, and that just changes the conversation in my mind, um, and shows that, Hey, we’re working together individual to individual rather than I’m gonna hide behind this big company that I am and a directive that they’ve sent out. It’s because you know, it’s not my problem

Kelly Barner (42:19):

Now to that point, I feel like I would be messing up what people would ask if I didn’t bring this conversation full circle and ask, did you get the interior door yet?

Philip Ideson (42:28):

We’ll see. By the time this goes out, it will be clear. They gave me until today to pick it up. Um, as an extension to my, um, you know, the five days are something that we’re supposed to, uh, uh, have now I’m kind of 50 50, whether it’s gonna be there when I turn up. So, uh, we shall see to be continued.

Kelly Barner (42:49):

And to that point bonus credit for being here with me, recording this interview, as opposed to being at the retailer, picking up your door. So yeah, especially if you get there and the door’s gone, I feel like you at least get extra credit and bonus points for, for making the choice to be here.

Philip Ideson (43:05):

I know who to blame <laugh>

Kelly Barner (43:07):

Well, fortunately I live too far away to help. Yeah. And you really don’t want me installing doors. So, um, hopefully it’s there when you get to the store to pick it up. Um, Phil, this was fun. I think informative, hopefully educational for people. If people watching this interview later have questions, including the installation status of your door or anything really about what procurement can do, how we should working, be working with our suppliers through these times. And even generally speaking the role of empathy and relationships in business, what is the best way for people to get in touch with you?

Philip Ideson (43:42):

Yeah, I’d say a couple of things. You know, one is that, uh, all these types of topics, we create a lot of contents on at, at, at procurement. So anybody always go there@aprocurement.com, you’re going find blog posts, podcast videos, the whole works on a lot of, um, a lot of topics related to procurement that that can help you. If you’d like to reach out one on one, I’m always available on LinkedIn. So send a LinkedIn request over. Um, I will, uh, you know, I read everything and respond as quickly as, uh, as I can. So that’s probably the best way, uh, to connect personally.

Kelly Barner (44:15):

Awesome. Please do check out out of procurements resources, please connect with Phil on LinkedIn and of course follow dial P on LinkedIn, reach out to me. If you have comments, I always encourage people. Don’t just listen, let this be a two way discussion. So you can always add comments under any post on any social media platform where you find this, you can direct message me, um, and please make sure anyone that you think would benefit from this conversation and information gets it, send it over to them, and then let us know because it’s important for me to know which topics and conversations resonate and how we’re actually helping everyone handle today’s challenges better. So thank you, Philip IEN, managing director, art of procurement for being with me today. Thank you to everybody that’s listening and watching later on. I’m your host Kelly Barner here on dial P for procurement on supply chain. Now thank you for joining us and have a great rest of your day.

Intro/Outro (45:14):

Thank you for joining us for this episode of dial P four procurement and for being an active part of the supply chain now community, please check out all of our shows and events@supplychainnow.com. Make sure you follow dial P four procurement on LinkedIn, Twitter, and Facebook to catch all the latest programming details. We’ll see you soon for the next episode of dial P four procurement.