Tag Archives: Chain

How Do You Create Larger Deal Sizes? Six Options

Situation: A company has good deal flow, but the CEO finds that margins are significantly increased with larger deals. Larger deals reduce the overhead component, much of which is the same regardless of deal size. The company is dominant in their market and can provide multi-site and multinational services. How do you create larger deal sizes?

Advice from the CEOs:

  • One company with multiple consulting contracts has found that bidding for RFPs on larger projects has opened the door to larger contracts..
  • Another company has looked at cost of sales and its contribution to business wins. .
    • Under 6% was ineffective and over 12% did not generate significantly more business. Their target win ratio is 30%
    • Factors that positively influenced win ratios were positioning the company as the preferred bidder up-front, and avoiding sham RFPs which are already slotted in favor of a competitor that helped to spec the RFP:
  • When bidding on RFPs, if the company will not be the low bidder it is important to identify the critical non-price parameters where the company will offer a differential advantage.
    • Focus on large multi-site or international RFPs which are more likely to be larger dollar RFPs.
    • Look at supply chain management opportunities.
    • Offer to warrant results in exchange for a higher price.
    • Look at system-type opportunities where the company can offer a more comprehensive solution based on its depth and experience.
    • Look for situations where the company can develop an advantaged position.
  • What are the implications of these strategies?
    • It will require retraining the inside sales force to research and qualify RFPs.
    • It will shift the focus to project vs. outsourcing opportunities. The latter are more price and availability driven and don’t play to the company’s strengths.
  • Explore channel sales through the existing partner network.
    • Offer a referral fee to regionals for referring opportunities outside their scope. In return, hire them as subs on the project.
  • Take a look at the big engineering firms who work multinational contracts, and handle their mitigation matters with small teams.
    • Offer them a comprehensive approach that is less expensive, more consistent, and more visible than their current self-service approach.

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How Do You Manage Customer Change Orders? Three Suggestions

Situation: A mid-sized company has taken over management of the supply chains for several large customers. The products that the company manufactures have long lead times both for sourcing materials and manufacturing customer orders. Sometimes customers either ask for additional production on an existing order in process, or ask for deliveries to be spread beyond contracted timelines. Either situation has a significant impact on the cost of producing the order and company profitability. How do you manage customer change orders?

Advice from the CEOs:

  • The issue is one of managing contracts and customer expectations. Because this is hurting the company, prime the customers now that things will need to change in the future. Depending upon the level of comfort the response can be reactive or proactive.
  • A proactive response: because this happens with some frequency, establish a change order schedule and share this with the customers. Your message will be that you are happy to accommodate changes in orders, but you need to recover the cost of these changes in order to be able to continue supplying the customer. Include the change order schedule in future customer purchase contracts. This may cause them to have second thoughts about requesting changes in orders.
  • A reactive response: the next time a customer makes these demands the response can be: “We’ll take care of you this time but when we draft our next contract we have to adjust the terms of the contract so that it is a win-win.”
  • The appropriate response depends on value of each customer’s business to the company – both revenue and profit – and your confidence in the relationship with the customer.

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How Do You Optimize Supply Agreements? Seven Guidelines

Situation: A company wants to add off-shore manufactures to its supply chain. This is a new experience and the CEO seeks guidance on how to negotiate supply agreements. They want win-win agreements with their new suppliers. How do you optimize supply agreements?

Advice from the CEOs:

  • No supplier relationship is risk-free, especially if you are a small company. Be sure to cover ownership of new IP developed during the relationship. For example, assure that the supplier adds no new developments without communicating these to you in writing. You may want to fund new developments selectively to assure protection of your IP. This is essential if you need to switch or add suppliers rapidly to maintain adequate supply.
  • A service agreement is not always about cost. It’s about deliverables, and quid pro quo is important.
  • Manage your key supplier relationships as diligently as you manage your key client relationships. They are equally critical.
  • In a contract negotiation between supplier and OEM or customer, both sides need to clarify customer needs and supplier capabilities. The greater the transparency on expectations, deliverables, and contingencies, the better the agreement and contract.
  • In negotiating an agreement with a Chinese company, make the enforcement jurisdiction either Hong Kong or Macao. Why? So that courts can enforce terms of the agreement on the Chinese party in the case of a dispute.
  • Post-termination obligations are a key to any negotiation – you want this clarified in advance.
  • Contracts serve two purposes: a legal tool, and a way to drive behavior. They provide an opportunity to assure that both parties are on the same page and, under the best circumstances, serve as process documents.

Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.

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