• During segmentation exercise identified one customer who accounted for 50% of the total European over dues.
• This customer has been the distributor for Italy since the company began and is the third biggest customer in Europe.
• Despite repeated previous attempts to reduce over dues they still averaged 62 over due days for the 12 months up to the start of the project.

JustOne Actions Undertaken

• Because of the critical and sensitive relationship with this customer JustOne were asked to coach the sales team through the delicate negotiation to get the over dues down.
• Key information including the contract, historical payment details, customer service and previous meeting notes were gathered and reviewed.
• A negotiation preparation workshop was held to review good negotiation practices with the account manager and European sales director, agree goals, agenda for negotiation meeting and their respective roles within the negotiation plan.
• During the workshop the potential reasons and motivation for over dues, the likely style and objections to change that the customer would adopt, the balance of power in the relationship and possible sanctions that could be applied discussed and agreed.
• A compelling reason for change was developed.
• Once the negotiation plan was agreed it was role played with the JustOne consultant to test and refine approach and style.
• The negotiation meeting was held with the customer and the JustOne consultant was introduced as a working capital expert but acted as coach and observer supporting the account manager and sales director with their negotiation.

Benefits

• The negotiation team was successful in getting the customer to admit that his payment performance was unacceptable.
• Immediate agreement to reduce overdue days by 32 days.
• Agreement to reduce the final 30 days within 4 months.
• Provided demonstration to the Sales Director and her team that a properly planned negotiation can deliver significant results even with challenging customers based in Southern Europe where late payment and long terms are the norm.
• Improved and clearer relationship with customer.

• High AR in most countries
• Overdues high in most countries
• Long Payment terms in most countries
• A wide spread belief that reducing terms with existing customers will lead to a loss in sales (metal model)

JustOne Actions Undertaken

• Visited Holland, Brazil and USA and produced reports and targets for each
• Trained 7 Internal Consultants (ICs)
• Led a pilot facilitation in Chicago with all ICs in attendance
• Supported the ICs who implementation the project during 2007 and 2008

Benefits

• The ICs facilitated the change in all parts of the world
• Common processes and procedures in place
• Common leading practice methodologies adopted
• Mental models regarding terms reduction changed
• Between 2007 and 2009 accounts receivables were reduced by 28%

Comments

Comment from the FD of the company: “Even in the current challenging economic climate we have maintained the gained improvement from the project” (June 2009)

• Operational Working Capital of €200m (10% of sales)
• Highly competitive seasonal market, with significant over capacity

Implementation

• 5 Internal Consultants (ICs) trained
• 4 Inventory Specialists (ISs) trained
• Rollout started June 09 with ICs and ISs implementing the change

Critical Success Factors

• Strong committed Driving Team - sense of urgency and high priority
• Good Internal Consultants
• Stick to the formula

Result

€110m working capital released in 9 months

• The standard terms for the business were 30 days and most customers had standard terms
• Overdues were 10 days
• Raw materials had risen significantly over the previous year and an average price increase of 10% was required
• During the facilitation workshop for sales staff it was explained that in order to achieve the AR targets, payment terms with some large customers would need to be reduced
• The reaction from the sales team was – “30 days is normal practice in the US, it is what our customers expect. It’s the terms our competition use. If we ask our customers to pay an extra 10% and pay earlier the customers will go to the competition”
• Our consultant recognized that this attitude was a mental model* that would need to be changed before they would believe that a terms reduction was possible

(* Mental models are deeply held internal images of how the world works. – Peter Senge)

Actions undertaken

• Our consultant ran an exercise involving the sales team during the workshop to explore how they would go about a reduction in terms if was essential to their company. (This exercise is known as “scenario planning”. It was a way of getting the sales staff to work together to find a workable approach in a risk fee environment. It is one of four techniques JustOne use for changing mental models)
• To embed the change to their mental model an action was agreed for them to develop a full “terms reduction strategy” identifying each customer where terms reduction would be targeted
• JustOne provided guidance on appropriate negotiation tactics

Benefits

• Within 2 weeks of the workshop the payment terms with one of their largest customers were negotiated down from 30 days to 20 days together with a price increase of 10%

Comments

• The mental models observed with the sales people in this company are common. In every country we hear sales people say “What you are recommending will not work in our country; or in our sector; or with our customers”
• We are convinced that these mental models need to be changed before progress can be made with the new ways of working

We need to change what people think before we change what they do.

• Japanese business unit Days Sales Outstanding DSO was 55 days
• The standard terms were 30 days and end of month overdue days were 7 days
• The high DSO was caused by a few large customers had agreed terms of 150 days
• Quote from sales manager “It would be an insult to the customer to even discuss payment terms and if we did we would lose sales”
• Our consultant recognized that this attitude to these large customers was a deeply held mental model* that would be difficult to change

(* Mental models are deeply held internal images of how the world works. – Peter Senge)

Actions undertaken

• Our consultant ran a “Scenario Planning” exercise with the sales team to explore what would happen if they had to reduce payment terms with their large customers to avoid their company going out of business. This process started to change the mental model
• To embed the change to their mental model an action was agreed for them to develop a full “terms reduction strategy” identifying each customer where terms reduction would be targeted
• Further negotiation training was under taken

Benefits

• Within 4 months the terms with one of their largest customers were reduced from 150 days down to 60 days without price concessions
• Within 6 months the business unit achieved their 2 year target with no loss of business

Comments

• Changing terms with existing customers is one of the most difficult tasks in OWC improvement
• To be successful the sales force must, not only, be committed to the change, they must also believe that it is possible without damaging the business
• In every company we work, JustOne encounters the mental model “if we try to reduce terms we will lose sales and lose customers” Unless this model can be changed the necessary commitment and belief from the sales team will not be possible. We need to “change what people think before we try to change what they do”
• In this case study the scenario planning technique was used. JustOne have developed three other techniques for changing mental models each one effective under different situations