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Top ten tips for effective buying

Joe Critchley, VP Sales and Busiess Development, Trade Extensions

The air of optimism surrounding 2014 and hopes that the long awaited economic recovery finally arrives is growing and there are even a number of commentators reporting early signs it has already started. The latest Markit/CIPS Purchasing Managers' Index (PMI) reports the UK manufacturing sector is showing increased demand in the domestic market and overseas and CIPS, CEO David Noble states “suppliers can hope to end the year on a high and set up a strong start to 2014.”1 

Hopefully this means procurement professionals will be busier in 2014 than they have been for a number of years so in preparation it’s a good time to refresh buying best practice. With that in mind, Trade Extensions, VP Sales and Business Development, Joe Critchley has pulled together his Top Ten Tips for managing a large tender. Because while tendering provides a opportunity to optimize the mix of suppliers in terms of quality and cost, to maximise this opportunity it is vital that the tender is planned and executed correctly.  

  1. Use professional buyers 
    It may be tempting to extend an existing role within an organisation to include the buying function but this is generally a false economy since effective buying is a full time job in its own right. Only dedicated professional buyers will have the time, motivation and skills to complete a tender effectively.
  2. Identify the best suppliers available and consider ones not used before
    The success of a tender depends largely on the quality of the suppliers involved. There are hundreds of thousands of suppliers in the world but not all are capable of providing the prices and the quality of service you demand.

    One approach is to invite potential suppliers to complete a pre-qualification stage and then to evaluate them against some simple agreed criteria.

    Experience shows that the best suppliers are not always those that produce the glossiest company brochures and also that a supplier who cannot complete a simple RFI accurately and on time is unlikely to be worth pursuing. Suppliers who can make no contribution to your business should be politely but quickly discarded. 
  3. Involve operational ‘stakeholders’ at all stages
    It is essential that everyone affected by the tender is involved early on and given an opportunity to have input to all stages of the process – from suggesting potential new suppliers and creating accurate specifications to discussions about possible winners and losers. When new suppliers are introduced there can be a learning curve, and the support of all stake holders can mean the difference between success and failure. In general, the greater the involvement, the greater the chance of success and the smoother the implementation.
  4. Publicise the process at all stages
    A number of people not directly involved in the tender still have an interest in the outcome. These include the factories and warehouses and employees who may have some involvement with suppliers in other business areas, for example bill payment or health and safety officers. Different people have different information needs but, in general, more communication is better than less.
  5. Leave enough time
    Traditionally tendering has been a resource-consuming process. E-sourcing reduces the burden by streamlining the administrative processes, but a successful tender is still reliant on keeping to a strict timetable. It is essential that sufficient time is allowed to complete each part of the process in an effective way. This means allowing enough time to specify the tender, collect offers, analyse these offers and implement the results.
  6. Specify the tender properly
    Accurate specifications enable suppliers to make accurate bids. It also provides buyers with a record of what has been agreed. The most successful tenders are ones where buyers and suppliers are in total agreement over what is expected from each other and nothing is left ‘open to interpretation’. To stand any chance of achieving this it is essential to specify the tender accurately.
  7. Select winners carefully
    One way of looking at the tender process is as an effective way of connecting suppliers with business. All suppliers have areas of strengths but no supplier is good at everything. Often the supplier with the lowest offer for a particular item can also provide the best quality and service because the item fits in well with the rest of their business. However, if an offer looks ‘too good to be true’ it often is. Contact the supplier directly and examine their quote and their logic in detail. It may be that they have misunderstood something (although this should not happen if the tender has been specified accurately) but hopefully the offer is so good it complements their existing business.
  8. Consider supplier protection
    Inevitably, incumbent suppliers stand to lose business during a tender and it may be agreed for various reasons to provide some limited protection to the supplier, at least for a time. When this happens it is essential that the amount, method and timescale covered by the protection is openly discussed and agreed by the interested parties. It should not be handled in an ad-hoc, opportunistic or secretive way which can undermine credibility of the tender process.
  9. Use optimisation
    Optimisation allows you to match the goods and services being bought with the most appropriate suppliers that meet your needs in terms of price, quality or any other consideration you have. If you are considering supplier protection optimisation is essential because for example you could identify the optimum mix of goods and suppliers based on a condition such as existing suppliers not losing more than half of their business.
  10. Handling losing suppliers – don’t burn bridges
    When awarding business it is possible that unsuccessful suppliers may lose significant business and this is a situation that needs to be dealt with professionally. Suppliers need to know that the tender was a fair process and carried out in line with the published rules. Losing a fair fight is easier to accept then losing a fixed one.

    An important point is to make it clear to the suppliers that they still have a chance of winning business in the future. Suppliers are often much more successful in the next tender, having learned from their experience, and often win the business back.

101 November 2013 - Manufacturing makes a solid start to final quarter


An edited version of this article appeared on the Supply Management Blog on 21 November 2013: 




Price and flexibility are key factors for transport buyers 

Garry Mansell,  Chief Executive Officer, Trade Extensions

American Shipper magazine recently carried out a Transportation Procurement Benchmark Study and the report provides some interesting insights into attitudes to sourcing and techniques currently being used.  The sub-title of the report – “Rate Fixation Strikes Back” – tells its own story and highlights shippers’ key concern but the report also discusses the more nuanced aspects of sourcing transport and gives a good indication of ‘best practice’ in the transport sector.

Trade Extensions has a great deal of expertise in sourcing transportation so I thought I would share some observations on the report regarding how shippers are using technology and how they are using sourcing more strategically. 

The report surveyed around 275 transportation buyers and transport providers and compares the responses of the star performers, or ‘winners’ in the report’s terminology, with the more average buyers.  To be classified as a ‘winner’ for the report, the shippers in question would not have seen an increase in contract rates during 2011; they implemented awarded contracts quickly i.e. within two months and they considered multiple criteria, including environmental factors, during the bid analysis phase.

It’s an interesting concept since by identifying best practice in this way it suggests the direction buying strategies are moving in – if one makes the assumption that the ‘average’ buyers will migrate to use techniques currently employed by the ‘winners’. is clear that buying is a critical business function and shippers allocate sufficient resources to manage the process in a professional manner.

One overall observation from the report is that all buyers are becoming more sophisticated in their sourcing techniques and all respondents surveyed used multiple rounds of bidding.  A more professional approach is also suggested by the fact that only 14% of respondents run procurement events on an ad-hoc basis when “resources are available”.  This percentage is even lower at 7% within the ‘winners’ group of shippers so it is clear that buying is a critical business function and shippers allocate sufficient resources to manage the process in a professional manner.

As sourcing becomes more sophisticated you would expect the use of technology and new sourcing tools to become more widespread and this is true to a degree.  While 23% of shippers are using a completely systems-based approach, 40% of shippers use spreadsheets to manage their buying.  This is roughly the same as in previous reports but interestingly there seems to be a change afoot with 25% of respondents reporting that they have budgeted to move to automated systems in the next two years.

...over the next few years cloud based solutions will become the norm and installed software less commonplace.

This would seem to support our experience inasmuch that the use of technology has become more widespread over time but also as it has developed it has removed barriers to entry such as the need for expensive infrastructure so smaller shippers are able to use sourcing platforms that are hosted entirely in the ‘cloud’.  The survey reports that currently one quarter of shippers are using cloud based Software as a Service or On Demand software and one third are using software that is installed on their own systems. This is one area where it is likely there will be a reversal over the next few years as cloud based solutions become the norm and installed software becomes less commonplace.

Regarding the move to automation, over 40% of shippers said they would automate ‘truckload’ sourcing with only 19% identifying less than truckload. This is interesting since it mirrors our early experience with shippers who felt more comfortable running tenders for full truck loads.  This is changing and in reality there is no difference in automating the buying process for full trucks or less than truckload.  The key in all successful buying processes is specifying the need and having the correct tools to collect, manage and analyse the data.  We are seeing all types of transport requirements being sourced and it will be interesting if American Shipper repeat this survey in a few years’ time to see if there is a more even distribution.

...small shippers can benefit as much as large shippers

It will also be interesting to see if the prediction for smaller shippers is correct as well.  The report suggests that small shippers cannot benefit as much as large shippers from automated systems since they have less complex supply chains.  This may be true to an extent but the best processes work just as well on smaller projects – the principles are the same and the key is to collect the correct information and analyse it in a way that identifies the best solution for your needs.

Clearly for sourcing technology to be effective it needs to be beneficial to both buyers and sellers and the report makes some interesting observations regarding carriers’ abilities to respond to online bids.  On the face of it, it looks quite critical and only 10% of shippers rate their carriers as ‘very good’ and 40% as ‘fair’ or worse.  The inference being that carriers are at fault and somehow ‘not as good’ as shippers at this sort of thing.   This suggestion is clearly simplistic and our experience of working with both shippers and carriers would suggest that if the question was ‘reversed’  and carriers were asked to rate shippers’ ability to specify online auctions/ tenders, the results would probably be very similar with carriers saying only 10% of shippers were ‘very good’ and 40% ‘fair’ or worse.  In transport tenders, carriers sometimes struggle when they are forced to make bids in a framework that has been designed from the shippers’ understanding of the market as it may not bear much resemblance to the carriers’ outlook.  Historical precedent may have defined lanes and price break points decided arbitrarily so it is difficult for carriers to make effective bids. sourcing is becoming popular since it allows carriers to reflect their strengths

With these types of variables it is better to let carriers indirectly inform shippers, through their bidding behaviour, of more efficient alternatives.   It is for this reason that market-informed sourcing is becoming so popular since it allows carriers to reflect their strengths and group together the lanes that suit them and make their most competitive offers.

This need for flexibile bidding was highlighted as critical functionality for the  best buyers identified in the report,  “winners are clearly focussed on using flexible tools that allow business to be allocated to multiple carriers based on conditional bids.”  This is functionality that Trade Extensions has been at the forefront of delivering and we actually ran the first online combinatorial auction in the early 2000s.

The requirement for flexibility extends to analysis as well and the best buyers consider multiple criteria such as environmental sustainability when awarding contracts.  Cost may still be the ‘driving force’ behind their bid analysis, but for many shippers environmental criteria do influence their decisions to some extent. 

...the size and complexity of sourcing events mean that without any computational assistance it is impossible to analyse the environmental data to any meaningful extent.

According to the report, “systems-based companies are considerably more likely to incorporate environmental sustainability in the procurement process”.  Although it does not offer any explanations why this is, from our experience it is because the size and complexity of sourcing events mean that without any computational assistance it is impossible to analyse the environmental data to any meaningful extent.  Our scenario analysis techniques allow buyers to consider environmental factors so they can analyse a group of options that cost the same financially and identify the solution with the lowest environmental impact.

In addition to some of the tactical approaches to sourcing described above, the report also looked at some more strategic uses for sourcing.  One interesting point the report identifies is that while ‘winners’ generally bought in line with buying seasons, they had enough flexibility to take advantage of positive market conditions, should they occur.  This ties in with the experience of some of our customers who we have advised to run sourcing events ‘out of season’.  Running sourcing events out of season can sometimes be very effective because carriers may have spare capacity and as they aren’t overwhelmed responding to other tenders, they have time to make considered offers.

The report also discusses how sourcing can be used to manage rate volatility and challenges the widely held belief that long-term contracts are the solution. ensure you are paying the best available rate it is advisable to tender every year

For the average shipper, the survey reports that 16% of its contracts are long-term (three or more years) while for ‘winners’ it is half this number.   Again this supports our experience and generally our advice to shippers is that regular tendering is the best strategy.  Markets change constantly and to ensure you are paying the best available rate it is advisable to tender every year – this way there are ‘no surprises’ and any volatility is managed as efficiently as possible.

Managing as efficiently as possible is something that the ‘winners’ in the report seem to be doing exceptionally well.  The key reasons why seem to be that they use flexible bidding to allow carriers to package bids and make conditional offers; they demand flexible analysis to consider multiple criteria and they use sophisticated technology to provide this flexibility.  Their motivation is clear and the report provides the answer on its cover  - ‘Rate Fixation Strikes Back’ – but as these techniques and others provided by platforms like ours become more widely used, buyers will realise they can do so much more.


"If it ain't broke, FIX IT!"

Peter Smith, Spend Matters UK/ Europe

There’s a big temptation when things are going well to just keep going, to accept the status quo. It can seem like nothing can possibly go wrong. All through history we’ve seen examples of people, companies, even whole civilisations who have thought “everything’s fine as we are, we don’t need to change”. But if you’re not changing or growing, you’re declining – or dying.

In my business career I’ve seen governments worrying about the power of IBM, then Microsoft.  That seems crazy now as those firms, although still doing fine, have lost the dominance they once had. Now it’s Google or Apple who are “getting too strong” for the public good.  In some industries, there’s more longevity; interestingly, consumer goods seems to have a lifespan greater than anything in the business to business world.  Mars, Unilever or Nestle look like they’ll be good into their second centuries. But when I was growing up, some of the iconic names of British business - or on the high street - were ICI, Woolworths, Midland Bank, Dewhursts and British Leyland. Remember them....?

It’s much easier to change and develop from a position of strength rather than waiting for the crisis to hit!

So everything changes. What does this all mean for procurement people though? Just that complacency and arrogance are the absolute enemies of excellence, and if you’re not improving, developing, you’re probably dying.  If you believe that your organisation or your function doesn’t need to change and adapt: if you believe that everything is just fine: then that’s probably a good indicator that problems are just round the corner. The same applies to us as individuals too. And remember – it’s much easier to change and develop from a position of strength rather than waiting for the crisis to hit!

The best people I’ve worked for, with, or managed, have always had this element of dis-satisfaction. They were capable of acknowledging and celebrating success, but they always wanted to do things even better, they wanted to try new ideas.  That doesn’t mean you have to be foolishly risk taking – one of the reasons I’ve always been glad I chose procurement rather than marketing is that procurement folk (unlike many marketeers...) tend to have a healthy scepticism and therefore a sensible attitude to risk.

But we can’t let that spill over into that “everything’s fine just as it is” mentality.

So how does the profession look at the moment in terms of this issue? It’s a mixed picture, as you might expect, but I see a lot of organisations who aren’t pushing the boundaries as hard as they might.  And given the economic outlook, it seems more important than ever to be doing just that.

However, if you’re reading this, you are probably not in that category anyway – you’ve embraced, or at least have an interest in some of the most advanced procurement and supply chain technology in the world. But I still meet CPOs from major organisations that have never run an electronic auction or an end to end e-Sourcing process – let alone considered optimisation processes.  If you are in that category – give it a go.

And my perception is that the profession generally has not quite woken up to the significance of how “optimisation” platforms signal a fundamental change to some of the well-established paradigms of procurement, particularly category management.  We started exploring this in our White Paper for Trade Extensions – available here. (If you haven’t read it, please consider spending 20 minutes doing so).

We can ask the market how it would like to structure the supply we need.

Our hypothesis is that this technology enables us to approach the market in a very different manner to how we traditionally do so through category management processes. Instead of carrying out large amounts of analysis to (in effect) second guess the market, and the fundamental economics that lie behind it, we can ask the market how it would like to structure the supply we need. Given that it is the suppliers who understand those economics, that will lead to a more economically advantageous solution than we’ll ever get by simply sitting in our proverbial darkened room developing complex “category strategies”.

But that is just one example of how procurement needs to be challenging our own status quo and traditional thinking. I see some of the same issues in automation of purchase to pay processes; in attitudes to risk management (where most organisations and procurement functions are working at a level that can most kindly be described as “basic”), in attitudes to training and development, and in how procurement interacts with internal stakeholders. This isn’t true everywhere of course, but it is pretty common.

Be open minded, challenge yourself and current practice.

There is no magic answer to this, but the most important message for senior procurement people is this. Be open minded. Challenge yourself and current practice. Develop your awareness of external information and events; some great ideas come from inside your organisation, but many don’t. And above all, NEVER get complacent.

Garry Mansell of Trade Extensions and I were discussing this topic recently, and his phrase was, “if it ain’t broke...FIX IT”!

So even if things look pretty good, even if you’re hitting your targets and delivering your goals – think about that. What more can we do? What can we do differently and better? How do we embrace change to make sure we stay at the front of the pack? They’re the key questions to ask.

Peter Smith can be contacted at


Container shipping market outlook: more volatility ahead

Philip Damas, Director, Drewry Supply Chain Advisors

Buyers of container sea freight services should get used to more volatility in freight rates and in carrier service performance for quite for some time, judging from market signals and from Drewry's research on future supply and demand.

In 2009 and 2010, the market swung from record over-supply to unprecedented under-capacity (and vessel layups) over a short period of time. Freight rates fell by about 30% in 2009, only to rebound by about 50% in 2010 on some routes, as shippers were left short of ship capacity and boxes.

Carriers also started introducing "slow-steaming" into their container services in late 2008, a practice which has since spread to many trade routes and many container services. The consensus view is that slow-steaming is here to stay, which means the prospect of longer transit times, slower times to market and higher levels of inventory-in-transit for shippers.

In 2011, ship capacity is more than sufficient to meet expected traffic volumes. "All-inclusive" freight rates are approximately down by 10% (depending on the routes), despite higher fuel surcharges. The net revenue from freight rates excluding fuel surcharges has declined even more than 10%, causing a return to operating losses for most carriers.

How serious is the situation of the container shipping market this year?

On the demand side, the situation is not serious and cannot be compared to the crisis of 2009. Global container traffic bounced back in 2010 and will continue to increase by 8% to 9% in the next few years (fig.1). Figure 2Although the peak season in the summer/autumn of 2011 is expected to be moderate, demand is there, as European exporters and importers know. Purchasing managers' indices in the US, China and globally are still positive, at over 50 (fig.2).

The problem and the areas of stress now are related to supply and carrier competition, not to insufficient demand.

The supply picture in 2011 also differs from what it was in 2009 and 2010. Drewry believes that one key difference this year is that carriers have abandoned their earlier policy of "capacity discipline" and lay-ups; instead, they are again focused on pricing for market share to fill all of their vessel capacities. We have seen no return to ship lay-ups, so far, and Drewry does not expect this to happen until after the peak season. In early June, the CKYH alliance (Cosco, K Line, Yang Ming and Hanjin) announced that it would pull its NE5 weekly service from the over-tonnaged Asia-North Europe route. But the other carriers have been adding capacity, resulting in a net year-on-year rise in capacity of about 25% on this route. Asia-North Europe freight rates have unavoidably declined. On this route, carriers postponed a planned June general rate increase and will struggle to get much of an increase in July, when they are due to try pushing prices up again.

Buyers of container sea freight services should remember:

Economic cycles and seasonality affect prices as well as liner industry inability to match long term supply with short term demand.

Serious procurement strategies are essential to minimise the already high impact on landed cost unpredictability – even for SMEs.

Big changes are going on in shipping with sizes of ships, reduced service levels, UK port calling and patchy reliability.

However, the supply-demand fundamentals are fairly well balanced this year on the trade routes other than the big-ship east-west tradelanes and for the global container shipping market as a whole: both effective global supply and effective global demand are expected to increase by 8-9% in 2011.

One potential concern for shippers later this year or next year is the risk of sudden withdrawal of capacity by one or more carriers, as we saw recently with the NE5 Asia-Europe service and with several discontinued transpacific niche services.

Schedule reliability is also declining and may deteriorate further if carriers try to cut corners or cancel sailings.

Moreover, the finances of several ocean carriers are looking weak. Drewry's latest "Z-score" index (a financial stress index) is in the red for 12 carriers and freight service providers and green for only 5 carriers and freight service providers. Drewry recommends that it is important to diversify and vet your carriers to minimise service interruption risk.

Another concern, well-known to all logisticians nowadays, is the rising price of fuel. This needs to be managed or hedged in contracts or via the financial market. One potential new tool is the container freight rate swaps, particularly following the introduction of the new World Container Index as an independent, external index.

Last but not least, Drewry expects that rates at least on the east-west routes will go back up again in 2012 – it would be unwise to promise to your CFO that sea freight costs will remain low forever!

To sum up, Drewry believes that the current outlook is as follows:

  • Cost volatility remains a big issue
  • Container traffic has recovered and is growing; production indices are positive
  • Capacity of ships due to be delivered this year is large and is mainly for the east-west and Asian trades (ships of more than 7,000teu)
  • Slow-steaming will continue
  • Fuel surcharges already at $700 on Asia-Europe route and will rise further
  • Fewer issues with capacity and container equipment shortages
  • Many complex drivers of freight rates plus cyclical effects – need to minimise high impact on landed cost unpredictability

Philip Damas is Director of Drewry Supply Chain Advisors. He can be contacted at


European shoppers seek values with value

Ben Miller, Head of Shopper Insight IGD

For many European food and grocery companies the post-recession market has been dominated by the theme of providing value to shoppers — communication of prices, promotions and product performance shouts from retailers’ aisles, and manufacturers’ advertising campaigns.

While ‘value’ has been the constant undercurrent of recent years, IGD research has shown that a collection of ethical and environmental sustainability themes also resonates with shoppers. ’Values’, therefore, offer a second strategic lever for food and groceries companies — a potential beacon creating opportunities for companies to differentiate their offer and create value for their businesses.

“Three in ten shoppers look for improved values as the key factor in trying a new product”


Choosing products according to values
In our recent conversations with shoppers across Europe, however, the desire to find value in their values has become stronger than ever. For example, recent IGD research discovered that three in ten shoppers are looking for improved product values as the key factor that attracts them to try a new product. Of these shoppers, three quarters are also motivated by strong value perceptions.

Shoppers sharpen their ethical focus
Interest in ethical and environmentally sustainable products and issues continues to grow among European grocery shoppers. Our latest European shopper report Ethical and Sustainable Shopping, found that 86% of shoppers in France, Germany, Great Britain and Spain are now interested in at least one aspect of ethical shopping — an increase from 81% in 2008. Although headline interest is growing, shoppers however are limiting their ethical focus.

Three quarters of shoppers are motivated by strong value perceptions.

Ethical shopper segments - 2008 to 2010

Ethical Shopper Segments

Source: IGD 2010

Five ethical shopper segments:

Ethical Evangelists are interested in a range of ethical issues, and actively look to buy according to them. 
Focussed Followers have made several steps into ethical shopping, but pick and choose their areas of interest
Aspiring Activists have aspirations and interests which outstrip their current ethical shopping behaviour.
Blinkered Believers buy into only one ethical dimension.
Conscience Casuals do not actively shop ethically, and show little or no interest in doing so.

In our latest findings we have again segmented shoppers into five ethical segments and found that in 2010 the proportion of Ethical Evangelists, the most ethically engaged shoppers, has declined in all European countries in our research.

We have, though, seen the proportion of Aspiring Activists and Blinkered Believers grow. These are shoppers who actively engage with one ethical issue only, or are interested in more ethical issues than they actively buy groceries to support. Rather than dropping their ethical standards following the recession, many shoppers have therefore focussed their ethical consumption on the single ethical issue that concerns them most.

This shift, from broad engagement to narrower focus, reflects the difficult trade-offs many shoppers are currently making when seeking value while shopping for groceries. It does, though, represent an opportunity for producers and retailers of ethical products. There is still strong interest in ethical issues that may again translate into purchase action with a return to a more stable economic situation.

The feedback is clear — shoppers expect values with value.

In all four markets surveyed, the proportion of Conscience Casuals, our least ethically engaged segment, has dropped. These shoppers, though, do still provide an opportunity for manufacturers and retailers of ethical products. In our discussions with them, it was clear they do have some interest in ethical issues and were often reasonably well informed, it was just something they did not consider when grocery shopping.

An ethical carrot rather than a sustainability stick

We asked British shoppers how they felt grocery retailers and manufactures could help them to make choices that would be most effective in protecting the environment The feedback was clear: shoppers would much rather be encouraged with an ethical carrot than forced into specific behaviours with a sustainability stick.

The most popular tactic that shoppers requested to help them make environmental choices was the provision of incentives. Overall, just under half of shoppers mentioned this, with one in four identifying it as the most appealing tactic. This compares to just one in ten shoppers who suggested penalties for people buying the most environmentally damaging products.

Hence, through seeking promotions, long-term price savings or loyalty mechanic benefits, shoppers are again asking for value for their values. This appetite creates the opportunity for manufacturers and retailers to positively encourage or incentivise shoppers to change behaviour in favour of ethical products. Some such activity is already underway — for example, in Britain, P&G has recently worked with Ocado to promote environmentally friendly lines, offering a 30% discount through its Future Friendly initiative.

Balancing the twin levers of value and values continues to create opportunities for the food and grocery industry, and the current feedback is clear — shoppers expect values with value.

Contributed by Ben Miller, Head of Shopper Insight IGD ( IGD are the UK's food and grocery experts and its team is dedicated to the development of the food and grocery industry and committed to the needs of its consumers.

© IGD, all rights reserved.

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