Black Belt Negotiators: Move that hydraulic-motor inventory
Purchasing's smartest negotiators move from conflict to collaboration fast. Match your wits against these pros. Guess their strategy. Then, read what they really did at purchasing.com/negotiations.
-- Purchasing, 9/17/2009 2:00:00 AM
Poclain Hydraulics, a midsized manufacturer of Hydraulic motors, lost a lot of volume in 2008–2009 on a motor catering to the construction-equipment market as a result of the housing downturn. This sudden drop in volume not only caught Poclain off guard but also its supply base, which included machine shops and forge shops. The vanishing forecasts outside the firm window (six weeks) on Poclain's 36-week forecast left one such supplier of machined gear shafts stuck with un-cancellable POs to a forging supplier that had the steel bars cut to size and the uncut steel bar ordered per the machine shops POs.
Problem: The forge shop (already holding onto the material for 24 weeks) had been pushing hard on the machine shop to take the material ASAP & the machine shop in turn was pushing hard on Poclain to buy finished shafts. To make matters worse, Poclain's? forecast on these parts indicated scarce demand scattered over the next 48 weeks. Poclain's inventory goals prevented it from taking on excess inventory at all costs. Vishnu Susheela, senior commodity manager at Poclain Hydraulics, had to negotiate a solution.
Solution: Susheela was firm about not taking any excess inventory
than needed. However, he also recognized that both the suppliers had placed
PO's and ordered material in good faith based on Poclain forecast. So, he made
a commitment to consume all the material, but only based on customer
forecast/orders, even if it meant suppliers had to hold on to the material for
the next six months to a year. He tried to share the pain between Poclain, the
machine Shop and forger in the following way,
Forge Shop:
Of the 500 cut billets, he negotiated forging only 250 pieces (half the
original run quantity) at the same price, shipping 100 pieces to the machine
shop in 2 weeks, while the forger was to hold on to the remaining 150 pieces
for 14 weeks and then ship to the Machine shop. The remaining 250 pieces of cut
billets would be forged only based on customer orders on which Polcain had no
control but was committed to the material. The forger agreed to review using
the uncut steel bar (which happened to be of commonly used steel) on product
for his other customers.
Machine Shop:
The machine shop was to machine all the 100 pieces and ship to Polcain in
four weeks time. The machine shop was to receive the other 150 pieces from the
forger in 14 weeks and hold on to it for the next 12 weeks at the end of which
they would ship it to Poclain as machined shafts.
Poclain:
Though he needed only 50 piecess , he agreed to take 100 pieces of the
machined shaft upfront. The order for the remaining 150 pieces, though required
in 32 weeks, he agreed to take in 28 weeks. All of this was tied back to
customer actual customer forecast.
At the end of the three-way teleconference everybody felt the burden of
holding onto excess inventory was shared equally between the three parties. The
key was open communication between all three parties.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it topteague@reedbusiness.com.
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