Imagine the risk to your business and customers if 14% of your supply base defaulted on its debt.
Possible? According to a July 2018 Moody’s study, 14% of companies defaulted on debt in 2009/10. What is the most correlated predictor (83%) of default from their analysis? Debt to pretax operating profit ratio from 2 to 3 quarters earlier.
Of note, a basket of 50 publicly traded automotive tier 1s, that I track, has a similar median ratio value today v. Q1 2010. And, more than 1/3 of the 50 suppliers have Alt Z scores in the distress zone before factoring in Q2 results. Further, Epiq AACER released its July 3rd report showing a 43% increase in commercial chapter 11 filings in June ’20 v. June ’19.
Upon understanding the potential default/bankruptcy risk in their supply chain, here are the paths that most people will follow:
Do nothing and react if/come.
Monitor some at-risk/critical suppliers and prepare contingencies.
Monitor at-risk/critical suppliers and prepare and execute contingencies.
After managing an automotive OEM supply base through the ‘08/09 financial crisis, risk and trouble find companies that follow path 1 (bigger, more expensive, and harder to solve disruptions). Paths 2 or 3 produce better outcomes from a lessons-learned perspective – prepare for the worst and hope for the best.
What is the financial health of your suppliers and the extended supply chain (tier 2/3/4)? How open are you to take a proactive risk mitigation approach when your resources and budgets are constrained? The ROI should be attractive because proactive management should reduce financial losses due to supply chain bankruptcy/interruption by attacking problems when they are smaller and jump-starting the implementation of alternatives/contingencies.
I’m on an experienced Crisis Team with other automotive OEM Purchasing experts, and we developed lessons-learned, proactive tools and resources (such as free webinars, 10 Point Health Checklist, playbooks) to help implement choices 2 or 3, which I am happy to discuss and share approaches if you are interested.
Additionally, we understand the importance of and how to concurrently deliver business plan critical initiatives such as achieving cost reductions, winning new business awards, and future-proofing supply chains.
3 things you can learn about the diversity of thought from this picture…
Beauty is everywhere around you. Just look!
Talent often hides in plain sight. Find it!
Others may see what you cannot see. Value Diversity of Thought!
The story behind the picture is…
The picture is of a puddle reflection on a neighborhood sidewalk at sunset.
The teenage artist has never taken a photography class.
I was walking with the artist when she paused to take a picture that I didn’t see.
The simple and timely reminder of the value of diversity is great to reflect upon, literally. Be open to accept it, encourage, and build diverse teams to benefit from its potential. You may like the results!
The OESA released results of its Q2 Supplier Barometer yesterday. What did I learn about the pressing supply chain challenges/business risk and opportunities emerging during the restart, and how could businesses use this information to move forward positively?
Biggest Business Opportunity: New and Conquest Business Awards
Biggest Supply Chain Challenges: Input Good Shortages and Supplier Financial Distress
A few supply chain financial risks we are watching for the next 60 days…
Debt covenant reviews by lenders in July
Cash flow timing disconnects between customer payments and production ramp-up costs especially throughout the Tiers
Higher manufacturing costs due to safety initiatives
Reduction in capacity and efficiency to accommodate mfg safety modifications
OE production plans for full operating schedules in late June/early July
Some thoughts on mitigating the risk of challenges and capitalizing on the biggest opportunities…
Supply Chain Risk | Input Good Shortages (Fix or Leave?)
Proactively: Monitor and work with Watch List suppliers to identify underlying operational issues/weaknesses and develop and execute corrective action plans. Cost $
Reactively: Work with suppliers to manage constraints by developing and executing corrective action plans that resolve constraints and developing contingency plans in parallel. Cost $$
Understand critical risk components in supply chains (i.e., key commodity or limited supply alternatives)
Supply Chain Risk | Financial Distress (Fix or Leave?)
Proactively: Monitor Watch List suppliers and mitigate and fix underlying factors driving financial distress (such as poor OEE, Operating Leverage, Payment terms). Cost $
Reactively: Manage and fix suppliers in financial distress and develop and execute contingency plans as required. Cost $$
Understand critical risk components of supply chains (i.e., key commodity or limited supply)
Opportunity for New Business Awards and Conquest Business
Offer to backstop key customer production risks
Navigate options to prioritize higher potential value wins
Update differential sell points of the business’ value proposition
Add a buyer perspective to increase your odds of building and negotiating winning proposals
The transformation of industries and companies is inevitable due to Covid-19. Those that continue to execute both short-term requirements and strategic initiatives will come out the other side of the Pandemic stronger.
Be proactive. Form Crisis Teams. Develop and execute playbooks of lessons learned. Balance tomorrow and today!
During a time when sports have temporarily paused, they can still inspire. In rough seas, don’t just get bounced around, catch the wave, get barreled (surfing reference to riding the tube), and emerge exhilarated with a sense of respectful accomplishment!
Some things on my business checklist to successfully navigate the uncertainty and challenges of the economic re-opening not only to survive but also to become stronger include:
Ensure employee safety
Communicate frequently with employees, customers, and business partners
Focus on the quality of products and services provided
Re-establish capacity and supporting infrastructure
Manage liquidity
Reimagine the business with a customer-centric, value approach
Re-energize strategic initiatives to deliver business plan objectives
Support the community!
Nothing on this list is new or particularly enlightening. What is important is having a checklist to deep dive and complete in playbook actions/priorities.
For example, some strategic questions for your playbook to consider as you re-imagine the business model in this disruptive environment:
How has your business changed?
How have your employees changed?
How have your customers changed?
How have your partners changed?
How have your competitors changed?
Have new opportunities to provide value emerged?
Identify new threats and opportunities as you lead the positive, long-term evolution of your business model, supporting work processes, and products/services to compete now and into the future.
Mark Twain once said, “History doesn’t repeat, but it does often rhyme.” The disruptors may be new, but the corrective actions and lessons learned from the past may seed today’s solutions. Believe in the resilience of our country, our people, and your employees to get through this adversity together!
Everyone has a “go-to” example of poor customer service/customer experience that they recall passionately and frequently, for example, an interaction with a restaurant, airline, dealership, cable, or phone company. The most significant pain point is seemingly working with customer service to resolve concerns and learn necessary information in an effective, efficient, and non-confrontational way.
What is the Customer Experience (CX)?
According to the HBR – Customer Experience is the perception customers have of their direct (purchase) and indirect (service) interaction with a company. The value a customer receives through his/her interaction with a company’s employees and the company’s ability to meet the customer’s needs forms the Customer Experience.
Not so surprising, information from recent studies illustrates it’s more than a buzzword or fashionable trend:
Over 80% of customers are willing to pay a premium for good Customer Experience
Nearly 90% of companies compete mainly on Customer Experience for loyalty
over 70% of customers confirm it’s critical to their loyalty
less than 10% of customers state they receive a good Customer Experience
The Harris Poll found nearly 80% of millennials value experiences such as the Customer Experience over material things
59% of adults prefer purchase convenience more than brand values according to 2020 Looking Further with Ford Trend Report
Companies that provide benchmark Customer Experience outperform the CX laggards by nearly 80%
Pixabay
Customer Experience (CX) in the B2B Ecosystem
The data above is telling – providing excellent Customer Experience drives competitive advantage. How do popular B2B sales strategies target improving Customer Experience, and why is it important? My understanding of a few of the respective approaches is:
Challenger Sales
A study of over 5,000 B2B company individuals (across all levels and functions) concluded that over 50% of customer loyalty is due to the sales (customer) experience, while less than 10% of Customer loyalty is due to the price-to-value ratio. The Challenger Sales approach develops customer loyalty by providing the customer with differential value through its Sales team such as:
Market insight
Error proofing
Advice
Education
Navigation of Alternative Decisions
The study also showed in complex B2B sales, more than 50% of top performers exhibited Challenger type attributes to provide an excellent Customer Experience.
Strategic Selling
The company shouldn’t push the product as the differentiator; it should create value and a favorable Customer Experience by doing the following three things:
Eliminate the customers’ perceived discrepancy between reality and desired results.
Solve decision influencers’ pain points to create win-win agreements.
Consistently create customer value to build a great Customer Experience/loyalty.
Testimonials shared with me stated that Strategic Selling creates a consistent methodology/mindset and produces more top performers across sales teams.
Spin Selling
The ability of the company to consistently discover, define, and solve the customer’s implied (unaware of) needs and explicit (strong wants or desires) needs builds the Customer Experience. The potential value of the solution should outweigh its cost to provide a persuasive ROI. Study findings demonstrate the following:
Explicit needs are the driver of large, successful B2B calls (3 explicit needs/call v. 1.4 implied needs/call)
More implied needs are the driver of smaller, successful B2B calls (5 implied needs/call and 2.5x unsuccessful calls)
Sales teams should ask the questions customers care about to progress their journey from implied to explicit needs
Does Spin Selling work? Spin Selling studies show that sales results are more than 50% higher six months after completing Spin Selling training.
My Customer Experience (CX) Insight
My benchmark B2B Customer Experience occurred during the most difficult pain point of my business career. The C-Suites (company and customer) became misaligned on the shared vision and objectives, so we began to reduce our strategically important, long-term relationship. My Sales counterpart created my benchmark Customer Experience by providing relationship value to pull us out of the tailspin. The value-enhancing behaviors included:
served as a trusted counterpart with influence to make things happen
shared information with transparency to discover and resolve real issues
maintained a mutual commitment to finding a way forward for us
solved common pain points with productive ideas
eliminated my market/industry blind spots by providing competitive intelligence
established connectivity for fast and efficient collaboration
Further thoughts…
Providing a positive Customer Experience does not require a trade-off between growing and profitability. Because customers are willing to pay more for a favorable Customer Experience, customers may also be willing to switch products/services for improved Customer Experience, creating a conquest business growth opportunity too. Delivering an excellent Customer Experience can be a competitive advantage leading to both profitability and growth.
The peak-end bias contributes to the Customer Experience (how one feels at peak and end moments of a relationship matters most, not the average feeling – examples are major business awards, product launches, or supply interruptions.
B2B relationships are usually long-term; therefore, the relationship/value created by both parties to meet explicit needs/opportunities during the best and worst of times (peak moments), define the Customer Experience. Companies should provide value to customers throughout the journey to solve critical pain points.
Companies may find value in educating customers to understand their role in creating an excellent Customer Experience, where both the company and customers commit to providing value to each other (win-win). Case in point, all customers have a secret customer score/customer lifetime value that may affect the service they receive. Customers want the company’s best people, best technology, best service features, and supportive, critical investment – companies should communicate how to be a Customer of Choice to receive these benefits.
Employing unilateral negotiation tactics that create value for companies at the expense of the customer reduces the Customer Experience and produce win-lose scenarios. The following are examples of B2B behaviors that do not build excellent Customer Experience:
introducing timing delays to gain an advantage by making the customer panic
employing divide and conquer to drive customer internal misalignment
using emotional and personally directed tactics to diminish decision influencers
backtracking on commitments after the customer locks into a decision
giving the customer a take-it-or-leave-it ultimatum
These divisive behaviors/tactics drive long-term corrective actions that move customers away from a company – short-term gains at the expense of long-term loss for companies.
Pixabay
Concluding Thoughts:B2B Customer Experience (CX)
My concluding insight on the importance of understanding the DNA of the B2B Customer Experience (CX) is the following three points:
1. Providing an excellent B2B Customer Experience is the most important aspect of earning customer loyalty and achieving outstanding and sustainable results – evaluate Sales strategies to confirm alignment with this objective.
2. Gaining a competitive advantage is possible because very few companies create an excellent Customer Experience today – define “what is” an excellent Customer Experience for each customer?
3. Benefiting from an excellent Customer Experience is a two-way street. The best B2B Customer Experiences are reciprocal because they are dependent on the quality of the overall relationship. Some sayings are timeless, “help me to help you.”
On this day of US Thanksgiving, a reminder for all, although tempting as it may be, leave at least a piece of pumpkin pie at dinner for others – how does that advice relate to negotiation?
Why? Partners who badly lose a negotiation may look for new partners or future options. Pursue agreements of mutual interest (share the pumpkin pie) and strengthen long-term relationships. Build, not destroy relationships – be the partner of choice!
The insight I pulled from the Q3 earnings reports of 33 of the Top 100 Automotive Suppliers confirmed the effect of current market challenges, highlighted additional opportunities/risks, and provided a window into initiatives to excel despite the headwinds.
Additionally, noted from this competitive intelligence is the opportunity for others to apply it to negotiation strategies as new approaches or sources of leverage.
Market Headwinds/Risk
Soft Global Volumes – down 5% in ’19 and forecasted down 2% more in ‘20
UAW/GM 6-wk Strike and Production Stop
Mix shift from pass cars to CUV, SUV, and Trucks
Unfavorable FX – strengthening USD and YEN
End of Production without replacement business or delay in production start
Trade uncertainty and tariffs – Brexit, China/US, USMCA
Corporate debt (nonfinancial debt 34% of US GDP in ‘19 v. 22% of US GDP in ’08)
Macro Trends and Strategic Initiatives
Defensive de-leveraging of the balance sheet (reduce financial and oper leverage)
Optimize Free Cash Flow (reduce CAPEX, working capital, and operating cost)
Pursue extraordinary cost recovery from customers (one-time and ongoing pricing)
Consolidate mfg footprint for better asset utilization
Establish R&D centers in low-cost regions to reduce gross engineering cost
Continue R&D investment in electrification, connectivity, and autonomous vehicles
Divest non-core and underperforming assets
Vertically integrate systems and design for mfg as a competitive advantage
M&A of bolt-ons to support organic growth
OEM/Tier 1 Consolidation for scale and strategic growth/synergy potential
Interesting and Noted Benchmarks Regarding Macro Trends/Strategic
Initiatives
Net Debt to EBITDA Ratio under 1.5x for the least indebted companies
FCF conversion rate of 95%+; FCF Margin 8%+ for top tier
High-end R&D 9.7% of sales; emphasis on electrification, connectivity, and AV
Win rate 90%+ of replacement business opportunities for top tier
Spin-off $1.7B business from segment earning 20% Op margin v. ROC @ 18%
ROIC 15%+ for top tier; minimum ROIC target of WACC + 3%
Did the Q3 Earnings Reports findings indicate an industry inflection point? Three observations are possible signs to the proximity of an inflection point: 1. mixed YOY results skewed unfavorable; 2. uncertainty of the future; 3. defensive actions in progress.
Contact me if you are interested in additional and unique
insights, noted negotiation opportunities, or have a strategic interest in a
specific topic – some of the most interesting insight is one-off or limited rather
than a macro trend.
Can the data and evidence presented sometimes distract us?
YES!
Adobe Stock
Because there may be data and evidence available that supports another possible conclusion.
This situation can occur in business conflicts. Beware of small samples and always confirm and challenge as required, the logic, validity, and value of data and evidence used to support negotiation leverage before accepting, applying or extrapolating it.
Also, is the question answered by the data and evidence relevant to the root cause of the issue – is it the right question?
Btw. Science supports that the egg came first, although the debate may be an evolutionary one – from which bird egg?
Out of college, I began my career as a production supervisor at an OEM Automotive Company – and, I jammed half of my team’s inbox every weekend with two days of Work-in-Process (WIP) inventory and I used my negotiation skills to fix it.
After a few months of seven-day operations, my team expressed their frustration with the historical weekend (OT) staffing plan – full staffing of the department front-end and zero staffing at the back-end.
Due to job classification requirements, jobs were not interchangeable and the back-end employees started each week with two days of WIP waiting for them – they resented running more parts than front-end employees during the five-day workweek (because of a perceived bottleneck) and not receiving an equal opportunity for OT pay. In addition, front-end employees were getting burned out without any time off.
This was a big relationship problem to address. So, my team and I agreed to try a new approach. Without increasing weekend headcount, we developed a plan to staff both the front and back-ends and to produce two days of finished goods instead of two days of WIP.
The plan resulted in OT and time off for all, better throughput and quality, and no jammed inboxes – a win-win agreement that required everyone’s flexibility and best effort.
Negotiator by Default
If you have a job, have a roommate, have family or friends, or interact with anyone you meet on the street, you manage relationships and you are a negotiator by default – yet some surveys suggest that nearly half of us are uncomfortable negotiating.
Why does your team need to become more comfortable and proficient in negotiating…
Pixabay. Get comfortable negotiating and create more productive relationships that supercharge your business results.
Conclusions
In my micro negotiation as a production supervisor, I learned (1) business is about relationships; (2) disrupting historical practices is beneficial; and (3) finding agreements that satisfy mutual interest improves results and relationships.
It’s never too late to start getting comfortable with your Four Ps of Successful Negotiation (Preparation, Practice, Persuasion, and Perseverance).
I am excited to introduce a new venture: Negotiation Strategy Insights LLC (“NSI”) is an advisory firm that specializes in improving your supply chain initiative and negotiation results to create value that matters, such as risk mitigation, optionality, stronger relationships, and institutional learning.
Throughout my career in the automotive industry, I’ve learned productive engagement and leadership approaches with my teams across a diverse global portfolio of category management and business negotiation experiences.
You can expect me to apply category management and negotiation expertise, a creative and disruptive perspective, and a strong work ethic. We will develop and execute win/win and sustainable negotiation strategies using an agile/flexible “roll-up our shirt sleeves” and collaborative style. And, you can rapidly deploy me to integrate with your teams and support simultaneously delivering your most critical business initiatives.
My commitment is for our collective efforts to be actionable and create value that matters. Stay tuned as we continue to write its story.
