A Perfect (Sand) Storm of inflation

On the recent course I was discussing inflation with my Saudi delegates. Saudi inflation is estimated at 10% per year, but feels higher – as it often does to people who are reporting their personal experience rather than the average basket supplied by surveys. We talked about the reasons for this, which add up to a difficult time for Saudi buyers;
- wage inflation – Gulf states awarded a 70% pay rise to public sector staff, to compensate for price inflation, which had an immediate effect in increased prices
- overall inflation – general as well as industrial
- Currency link to the dollar – which has fallen 40% against Euro in the past few years, and with much of the Saudi economy strongly linked to the dollar through oil and petrochemicals then European imports have become more expensive
- High oil price – dominates the Saudi economy, but increases raw material costs for petrochemicals, transport etc. (even if fuel is cheap by UK standards)
- Strong demand – Dubai is often said to have 25% of world cranes reflecting the recent burst of investment in the region. This is being matched by other countries including Saudi Arabia where the planned new King Abdullah university and city will be major projects on a scale difficult to imagine in England. Maybe comparible to the reconstruction of East London which is being undertaken for the 2012 Olympic Games.
- Strong investment – SA and all gulf countries are investing dramatically
- Over heating stock market – high values in the market have produced paper profits, and in order to keep this high value companies have to maintain growth – which means investing
- Dash to invest while oil prices high – the lessons of the 1970s are recognised by the Gulf governments, who intend to utilise this windfall for lasting benefit to the region
- Perception as a rich region – compared to India and China, where there is equally strong growth, the gulf is a region with deep pockets and a willingness to pay
- Lastly, a perception that they will pay. Saudi companies are used to inflation and to prices going up not down. I did a course a few years ago for a chemical company who’s young sales team had never put up prices, and where uncertain how to do so. I bet they have experience now in putting up prices. In SA, there is no experience or culture of driving prices down, and so inflation grows unchecked.

None of this is a problem for Saudi Arabia at the moment, but hopefully the time will come when the value of improved purchasing and price control will be recognised. At the moment the concerns of my delegates remain mainly sourcing sufficient materials, rather than cost control.

Beyond Contractual Compliance

I have recently had an issue with a client that helped remind me of a few things that should have been nearer the front of my mind. Without getting into detail (and hopefully without complaining too much), the situation was that a long established client decided to re-organise their roster of consultants and trainers, and put them on standard contracts. This is emminently sensible, but unfortunately the terms offered were below my standard rates, and I declined (without signing the contract). Recently they rang with an urgent request - a tutor had let them down at short notice, and would I be willing to present the course he would have run. Tomorrow. For a very small fee.

Well, they were an old client, and I was not doing anything the next day, and I was told the course material was all there, so I said yes. Of course, it turns out the course material was not written, as I found out at 3:30pm, and so I had to work until the small hours to develop the material. The course the next day went well, and so far so good. However, I then found out that the trainer who let them down was being paid 25% more than my fee, and to write the material. I felt rather aggrieved, and requested that they reconsider their offer to me - at least for the future courses that they wanted me to run.

They held firm to the fact that their standard contract did not include payment for writing material, and had a maximum day rate. The fact that they were already paying someone else under different terms was irrelevant, and they insisted on sticking to the terms of the contract that I had not signed.

At which point we fell out, and bridges were burnt.
There are a few points to come out of this.

One is that suppliers often feel a need for fairness, which is quite over and above any contractual obligation. If a supplier feels hard done by, no matter what is in the Ts & Cs, they will be unhappy. Which could be a problem if you ever want to use them again. My client now has 2 suppliers who will not work with them - the orginal tutor and me. My feeling that they took advantage of my willingness to help them out of a problem. If they had offered me the same fee as the original tutor, I would have seen that as reasonable.

So, forcing your suppliers to comply with the letter of the contract is successful in the short term, but you may need something more in the future - and they will have a long memory. Sometimes both sides want something more than the strict letter of the agreement.

Another point is the battle of the forms. By undertaking the work, I agreed to the conditions applied in the contract. However the client had misrepresented the situation to me, and I would not have agreed if they had explained the true situation. Something that we will never resolve in court because it is no worth it.

So 2 points - one don't take advantage of your suppliers if you might need them again, and secondly - which ever side of the fence you are on, agreeing a full contract is your best protection - though sometimes both sides want good will as well.

Effective Purchasing Manager

I shall be presenting a course entitled The Effective Purchasing Manger in Kuala Lumpur from 10th to 15th December. Course fee is $3999 exclusive of flights or accomodation.

The purpose of the course is to combine a review of general management skills with a particular focus on the skills needed for managing in Procurement.

The course is presented in English, and we recognise that this is often not the first language for our delegates. All course materials are provided for the delegate at the beginning of the course.

Website restored

A comment on an earlier post reminded me that I should have posted that the problems with the website appear to have been resolved. If there are any further problems I would be grateful for early notification.


thanks

Paul