Global Leaders in Procurement & Negotiations (PSCMInstitute.com)

Author: OmidG

  • Are You Buying Performance Results From Your Suppliers?

    “Pays for Performance” Purchasing Training

     

    Supply Chain Pays For Performance
    “Pays for Performance”

    Go look at your corporate contract templates. I can already see them in my mind: Goods, Services, Goods & Services, Construction, and Software.

    You might have some other boutique contract templates, but these are the standard norm for big companies.

    The problem is this: all of them are written to buy “stuff” (i.e. goods and services) instead of buying performance results.

    Suppliers want to sell you goods and services, and then move onto the next customer. What happens next is your problem, not theirs, or so they hope. They’ve already got your money, and that’s how they like it.

    Why am I talking about this? Well, I talk about it all the time with in my client engagements, but I’m talking about it today because of an article I just read. It was about Obamacare, specifically about the website. You’ve heard about it too – where the Obamacare website is unresponsive and overloaded, resulting in a rather forgettable launch.

    So what’s the correlation? Well, as I understood it from the article, suppliers were doing all this programming for the website. The article said that the suppliers were having cost overruns AND not performing. What? How does that happen?

    Unless purchasing is totally asleep at the switch, a supplier should never have both cost overruns and performance problems at the same time. Those are supposed to be mutually exclusive events (just like inflation and unemployment – they are never supposed to happen at the same time). If it does happen, it usually means a bad contract was put in place.

    Can you imagine being billed extra for a meal at a restaurant when the meal itself was burned to a crisp? Uh….not gonna happen, right?

    Which makes me assume that the Obamacare website programming contracts were written for the delivery of goods and services (“a website”) instead of for performance results. Mind you I don’t have any inside information on this – I’m just speculating based on what I’ve heard and read.

    Let’s look at how a website development contact might be written for goods and services, what the corresponding issues might be, and how to shift the focus to performance results:

    Purchasing Training - Performance Results Chart

    Remember, you never want to find yourself in a terrible situation – one in which the supplier is being paid to not perform, or even worse, where they are being paid extra to not perform. That’s why you should write your contracts to pays for performance instead of paying for goods and services (“stuff”).

    Now the table I put together above is really incomplete. There are many other areas that need to be addressed, and even what I wrote was not in sufficient depth. I’m limited by the practical length and depth of a blog entry.

    What I want to see from all of you as transformational purchasing and supply chain management professionals is to start writing agreements for performance results instead of agreements for “stuff”.

    The goal is to never find yourself in the unenviable position of owing money to a supplier that isn’t performing to expectations, while having no contract remedies to save you.

    REWARD: Because you have read this blog, it shows that you’re serious about your purchasing career. I’d like to reward you with a huge discount for a copy of one of my books, “Purchasing Advantage – Running a World Class Purchasing Organization”.  

    The regular price for the downloadable PDF copy of this book sells like crazy for $19.97 but you can get your copy today for only $7 with coupon code: 10da9a9260

    CLICK HERE TO SAVE!  When you click that link, you’ll see the regular price, but don’t worry, just click the Add To Cart button. You’ll go to the Order Details page and see a link that says, “Have a coupon? Click here.” Just click that link and enter you code: 10da9a9260 and the price will automatically change from $19.97 to $7.00. 

    This is a very limited time offer to Click Here Now to see what you’re going to get and order your copy now. You’ll be glad you did!

    Work with me to find YOUR purchasing advantage. You can spend 20 years trying to learn these strategies on your own, or you can work with me and catapult your career in a few weeks.

    See you next week.

     

  • Are You Smarter Than the People Selling To You?

    Supply Chain Management Counter Intelligence

     

    Supply Chain Management Counter Intelligence
    Counter Intelligence

    I think I’ve mentioned to you before that I’ve stopped reading purchasing books.

    At the risk of sounding arrogant, I don’t learn anything from them anymore, and haven’t in a long while. Heck, that’s why I started writing my own.

    So what I do now, actually what I’ve been doing for a while, is attending sales seminars and reading sales books.

    Why? Well, it’s counter intelligence. Could you ever imagine the US going into a war without counter intelligence? (Ok, I know what you want to say – just tell me what the answer should be).

    The point is, simply developing your strategy without counter intelligence is a pretty bad move. There are two types of sales counter intelligence. One is generic to the sales community, and the other is specific to the company you are buying from, and the person or persons who are selling to you.

    I’m going to focus on the generic side, because that is where the vast majority of the focus is by the sales community, and all the books and seminars are focused on this angle as well, by design.

    Here’s some of what I’ve learned:

    Sales people want to focus on VALUE, and use that to charge higher prices. This is the whole concept behind pharmaceuticals and software, both of which have a marginal cost of almost zero.

    • Your response: Shift the focus to cost structure and market competitiveness, and if there is no salient difference between their products/services and that of their competitors, tell them that “my customer does not perceive a difference”. Nobody can argue with perception.

    Sales people want to sell you SOLUTIONS. A solution looks suspiciously like a good or service, but it costs a lot more.

    • Your response: “I like solutions. But if I’m going to pay for a solution, then we’re going to need to contract for performance results, and I’m going to deliver progress payments that will be tied to the measurable delivery of performance results over time, not to the delivery of items to my dock.”

    Sales people will want to negotiate at their facility under the auspices of “we need you to see our facility to really see how we do things.” Then they gain psychological and logistical leverage in negotiations, as well as control of time. If this fails, they are taught to secure a neutral location for negotiations.

    • Your response: “We only do negotiations at our facilities, and we don’t deviate from that practice. If we need to see your facilities, let’s schedule a separate trip and agenda to do that, but it won’t include negotiations.”

    Sales people will want to ask you a lot of questions that force you to bring out painful aspects of how you do business now, and also do “shaping”, whereby they ask questions that force you to paint yourself in a corner such that you are basically telling them that the big weakness in your business model today is that you are not buying the seller’s product or service.

    • Your response: Publish an agenda before every supplier meeting (not just negotiations) beforehand and own strict control of the meeting. If questions or comments arise that are outside of this scope, indicate so and get back on track. If the question is of value, write it down and tell them you’ll get back to them after the meeting. YOU dictate the flow and content of meetings, and drive them to your TCO objectives.

    These are just a few, I could write a book on this. Heck, I might just do that, not a bad idea!

    But the point is, sales people are not dumb. Don’t forget, sales is a revenue generating department. What does that mean you ask? It means they have FAT budgets for training and for wining and dining your customer.

    It also means they have much more refined and sophisticated tools and processes than purchasing, who is typically underfunded because they are not viewed as a revenue generator. What we should be viewed as is a value added center of profit, but that’s a different blog – or maybe a different book, ha!

    The other point is that purchasing often engages in inbreeding of thought and strategy. If you sit and strategize, alone or with a team, on how to negotiate with a supplier, you are still engaging in inbreeding of thought.

    You need to know how the other side operates. You need counter intelligence. This needs to be both generic (sales side in general) and specific to the company you are working with.

    The last point is that 99.9% of purchasing negotiation courses focus on behavioral/psychological techniques to achieve negotiation success. It’s the same for suppliers. This is a damn shame. For us anyways. 2/3 of your negotiation strategy should be cost based, not behavioral or psychological.

    In fact, the behavioral piece will nearly cease to exist in a supply chain management model where all the links are to partner together as one entity that make decisions for the good of the chain.

    Take control of the power you harness in negotiations, take control of supplier discussions and negotiations, and most of all, take control of information on both sides of the table.

    See you next week.

    P.S. THANK YOU so much for the overwhelming global response to the 4 Day Sale I had on the Power Purchasing Pro Membership. I am so lucky to work with people like you, in the BEST profession in the world!

  • Is Asking Suppliers to Reduce Price All You’ve Got In Your Bag of Tricks?

    Purchasing Total Cost of Ownership Training
    What’s in Your Bag of Tricks?

    I taught a full day public seminar this week on the topic of “Catapulting Your Cost Savings Results”.

    There are so many opportunities buyers leave on the table. It’s my job to get purchasing professionals past that and to help them see all the big TCO areas they’ve never even looked at.

    For instance, purchasing professionals spend so much energy trying to reduce price, and through really sophisticated measures too, such as supply base reduction, expenditure aggregation, reverse auctions, bidding, cost models, benchmarking, negotiation techniques, etc.

    So what’s the problem, you ask?

    Well, If the only thing you have in your bag of tricks is creative and sophisticated ways to reduce supplier price, you’ve missed the boat. Completely.

    There are an entire supply chain worth of unnecessary or bloated costs that are getting passed straight onto you as the purchasing professional. Your goal is to get those costs out of the supply chain, agreed?

    So what happens when you negotiate a price reduction? You reduced price, but did you reduce cost? You did not. All you did was push costs back up the supply chain in reverse gear. As a consequence of your actions, no matter how brilliant and effective they were, you have not made the supply chain any more cost effective, agile, or effective.

    In the final analysis, it was a pretty self serving move. So before you blow up at me, let qualify my comments: We are ALWAYS going to ask for and pursue price reductions, and this should never change. Are we friends again? 🙂

    OK, but let’s continue with this thought process. If you really pay attention, what we have been doing in purchasing is getting more and more sophisticated at pushing costs back UP the supply chain, rather than focusing more energy on the much larger opportunity of taking costs OUT of the supply chain.

    And we talk about Win/Win a lot in purchasing. Is it really Win/Win if you are pushing costs back up the supply chain? If so, who is winning? Even the end consumer doesn’t win, because they still bear the burden of those costs, because all supply chain costs still roll down hill, even if purchasing claims a cost savings on those same costs.

    So my point here is not to point fingers at purchasing. We deserve credit, and you deserve credit, a lot of credit, for how well we have developed the art and science of purchasing, negotiations, and supply chain management. Now it’s time to take the next step.

    So what kinds of things are we talking about? How do we take costs out of the supply chain?

    The surprising thing is that some of these opportunities are really low hanging fruit and are right under your nose. For instance, one of the biggest ones is ensuring the specs and/or SOW are written for TCO.

    If the specs involve custom parts or the SOW involves custom services instead of standard, you will pay for the nose for that. Even if you negotiate the best price in the world, you will still save tons of money.

    Want proof? Compare the Mercedes S Class to the Mercedes CLS class. These are two cars that are nearly alike in every way, from a features, engine, luxury, and quality perspective. The S class has 4 doors and the CLS has 2 doors, and the CLS is more aerodynamic looking, but they are about the same size actually. They are pretty comparable in most every way. Except one costs about $25K more than the other.

    Why? It’s simple. The S class comes any way you like it, with or without such options as heated seats, rear camera, ventilated seats, navigation, dual zone climate control, and so on. This means it is made to order. The production line has to constantly make adjustments and incur set up costs and productivity loss in order to accommodate such adjustments. This adds cost. LOTS of costs.

    The CLS comes with one standard package. All you choose is inside color and outside color. The production line goes much faster. No thinking has to happen, no real customization has to happen, and in fact they can produce the same exact type of car many times in a row (including color) before they’ve built enough and move onto the next color car. Nothing changes but color. Fewer machines, fewer parts, almost no customization, no significant setup costs, and so on. This takes tons of costs out of the supply chain.

    Now do you see that the cost advantage of the CLS has nothing to do with getting suppliers to charge less and pushing those costs back up the supply chain? Instead, costs are surgically removed, and you never see them again. In this case, we are talking in the neighborhood of 25% cost savings, without negotiating with suppliers at all!

    There are many other examples, and I’ll go through them in my blogs over time. For now, ask yourself the following:

    Is your exclusive means of achieving cost savings derived through pushing suppliers for a lower price? How long do you think you can keep doing that with the same suppliers? Are you focusing on taking cost OUT of the supply chain instead of just pushing them back up the supply chain?

    Keep being your best, and help us make this profession better. Work with me, and I’ll take your game to an entirely new plateau. We’ll talk again next week.

  • Purchasing Contract Training

    Is the Purchasing Contract Your Best Friend or Your Worst Enemy?

     

    Purchasing contract training
    Best Friend or Worst Enemy?

    A friend of mine recently was going to sign up to a lease for a business location for her family counseling business. Business was booming for her. She had a non-profit organization that was funneling lots of money her way. Life was good.

    I asked her “why don’t you let me take a look at the contract for that leased space before you sign it?”. She gave me a copy. It looked good, really good. All except for one thing: there was no termination clause. She didn’t have a way to escape the lease if business went sour.

    I told her this, and she insisted it wasn’t necessary. After all, times were good for her.

    I quite literally forced her to have a clause put in. We made it as termination for cause clause, sometimes also called termination for default. This is different than termination for convenience, which no building owner would ever sign up to in a lease agreement.

    The termination for cause trigger was related to her losing business contracts or otherwise becoming unprofitable. In her mind, this could not and would not happen, and it was a totally unnecessary exercise that was only meant to appease me.

    However, it did happen.

    About six months into this three year lease, her big non-profit funding agency pulled the plug, and she was left holding the bag, with no path to recovery. She was able to get out of the lease just like that.

    Had we not inserted that clause, she would have been financially devastated, because it was a big space. And it happens.

    Another person I know shut down a pizza shop they owned, and they did not have a termination for cause clause in the contract. As a consequence, they made lease payments for 18 months on an empty shell of a building. How painful is that?

    The point is, contracts can be your best friend or your worst enemy. The fact that this was a building lease example is irrelevant. The interesting thing is that it was not what was in the contract that was the problem, but rather what wasn’t in the contract. You have to know what you are doing to look for both.

    Want another example? A government contract was put in place with a road and bridges building contractor in California. The government agency wanted to make sure the supplier would not finish the project late, so they put a delivery/delay incentive clause in the contract.

    A delivery/delay incentive both gives a penalty for finishing late and a bonus payment for finishing early. If you call it a “penalty”, then the courts will look for there to be an incentive clause as well. However, if you call it a “price reduction”, then you don’t need the incentive clause. I’ve yet to meet a purchasing professional who knows that.

    The project was to take 137 days. The supplier worked around the clock and shocked the government purchasing department by getting it done in 66 days (!!). As a result, the contractor got a whopping $14.8 MILLION incentive payment (not a typo), over and above payments due for the actual work performed. Oops.

    I define “purchasing hell” as when the supplier is doing exactly what the contract states, and you are mad as hell about it. And guess who the only person to blame is? Yes, we need to be accountable.

    There are a wide assortment of contract clauses that can create really bad situations for you, and for the vast majority of them, the legal department is not going to catch them for you. The reason is that they are looking for legal risk, not all risks. A contract with legal approval can still be a terrible deal for the business.

    Some clauses that can give you a one-way ticket to “purchasing hell” if you are not careful include warranty, acceptance, insurance, termination for cause, termination for convenience, indemnification, limitation of liability, definitions, identified breaches and remedies for breach of warranty, and many others.

    The point is not to scare you actually. My biggest regret on behalf of our industry is that, in general, purchasing professionals have a huge gap in contract law knowledge, with insufficient recognition of how big of a problem this is.

    Are you allowing lack of contract knowledge to hold you down? Are you relying on the legal department to catch issues for you? Are you just attaching a SOW or specs to the contract and calling it done? Are you looking at both what terms are in the contract and also what terms are not?

    Remember, the contract is just a generic template until you bring it to life. It has NO idea what you are buying, and only you can customize it to meet your specific requirements. If you are buying office supplies, your needs will be very different than if you are buying manufacturing capital equipment. Buyer beware.

    Don’t let lack of contract knowledge be a crutch for you. Make contract knowledge your biggest asset. If you do it right, you will save tons, and I do mean tons, of time on the back end. Almost all customer and supplier excursions are due to poorly written contracts that don’t specify performance and remedies for breach of performance.

    Develop knowledge in contracts, invest the energy up front, and enjoy the benefits on the back-end. Educate yourself and take these steps to find your purchasing advantage!

  • Fatal Practices That Drag Cost Savings to a Halt

    Purchasing Training ~ Fatal Practices

     

    Purchasing Fatal Practices
    Purchasing Fatal Practices

    I was teaching a couple of seminars this week at a purchasing conference in Albuquerque, New Mexico. They were training on Purchasing Contract Law (slashing contract cycle time and catapulting TCO results) as well as on Supplier Management for Agility/TCO.

    The feedback was awesome; it’s a big part of what makes my job so fulfilling.

    Anyways, there were some public purchasing professionals in the audience.

    I asked them why they don’t aggregate their demand across like agencies and negotiate mega-contracts that deliver far greater savings…. You know, aggregation of demand. Most government entities don’t do this, so I just made the presumption that they weren’t either.

    The answer was interesting. I’m used to hearing “but we’re all different” (which I don’t buy), but that’s not what I heard this time.

    They kind of read my mind and told me “we’re all buying the same things, you are right.” “So what’s the problem?”, I asked. Aggregating demand under this scenario should be a slam dunk, I was thinking.

    “You see, it’s not that we need different things, it’s that our customers ask for the same things differently.” What? What does that mean? She went on to explain:

    “It’s true our county purchasing departments are right next to each other and buying the same things. There are some normal challenges, such as separate budgets, separate local level leadership, etc, but there’s something else that’s a much bigger problem.” I asked for further clarification.

    She basically went on to say, in different words, that the problem is that there was too much innovation. But how can innovation be a bad thing? I immediately knew what she was talking about.

    Here’s the problem: The engineers in each county are allowed to design their own specs for the same basic things. She gave me examples of this.

    In one county, the light poles might be 1 INCH taller than in another county. You read that right. Also, the wiring that is used for the same application in one county must have a “special coating” whereas the wiring for the same purpose in the adjacent county needs no such coating.

    They also said that in one county, a particular city amenity may be designed so it can come off the side of a delivery truck, while in the adjacent county, the same item was designed differently so it could come off the back of a truck.

    This results in extreme customization. Customization is a money sucker. It’s also a time sucker. More time to create custom specs. More time to bid custom specs. More time to select suppliers for custom specs. More time to contract with custom suppliers. And finally, more time to manage custom spec suppliers.

    Is anyone winning in this deal? I seriously doubt suppliers like being forced to have a manufacturing line that goes at a snail’s pace because they can’t churn out standard products at higher volumes. So they add on tons of cost to pay for this “death by customization” purchasing model. Can you imagine how much they must hate it? They can’t say anything because they don’t want to lose the business over non-compliance to bid specifications.

    Now here’s the irony: These are smart people making these requests for extreme customization. They are making what is probably the best design for their specific needs. They just don’t see the big picture at all.

    So while this may make sense for an individual business entity (public or private), it is completely unacceptable when you have hundreds of like entities in the same corporate structure (once again, private or public) creating costly custom specifications to solve the same problem.

    If you think this is only happening in the government, think again. Internal customers, especially engineers, like to tinker. They like to leave their mark on big purchases. There’s no pride in submitting some standard specification or just adopting someone else’s specification. Nobody gets rewarded or recognized for that. They want to design it their way, whether it’s a good or a service. It’s THEIR specification, they rationalize.

    That is what I call “the bad kind of innovation”. We have to educate our internal customers that REUSE is much better than innovation in many cases. Innovation is only good if it solves a problem better than it is already solved today. That kind of innovation creates progress.

    Innovation for the sake of innovation, when there is already a PROVEN solution that someone else created, is a big fat waste of time and money, especially when the innovation creates little to no improvement in results, but comes with a huge price tag, both in extra processes and in extra costs.

    We need to be educating our internal customers, especially the engineers, that REUSE is more important than innovation when there is already a proven solution in place. Similarly, standard parts and components and services are always preferable to custom parts and components and services. Or at least the benefits need to outweigh the TCO negatives.

    Internal customers need to start getting recognition’s and rewards from purchasing for their efforts in driving reuse, not innovation.

    Have you ever seen a car with “fake” buttons on the dash that can’t actually be used? That’s because the dashboard template mold is reused for that whole model series, instead of customizing each dashboard to fit the specific options that the end user ordered. It would look nice that way, but at what cost? Reuse is where it’s at in purchasing and in specification design.

    Are you driving specification and services design reuse with your customer base?

    Are you rewarding your customers for reuse strategies that reduce TCO?

    Are you standardizing good and service components wherever possible to allow for aggregation of demand and TCO reduction?

    This is just one piece of the TCO puzzle, but it’s an important one. You need to nail this as a part of your overall individual and departmental TCO strategy. Make it happen.

    Ask me about products and services I offer to catapult your TCO results, your career, and your income. I do personal coaching, in-house seminars, and I have many online solutions. If you are not more capable every week than you were the week before, then you are stagnant in your career.

    Best of all is that “shake the world of purchasing” announcement that I keep telling you is coming. I keep getting mails asking what it’s all about. I’m not even going to let the cat out of the bag on that yet. Not even a little. Look for an announcement around the end of the year.

  • It Happened Again! Are You Watching Your Customers?

    Purchasing Training Risk
    Eliminate Kickbacks

    I have to tell you guys, I was completely out to lunch, asleep at the switch for 20 years as a purchasing professional.

    I’m talking about one particular area of course.

    There are all these courses on “code of conduct” for purchasing professionals, but whose watching the customer?

    Are you familiar with the psychological concept of projection? Since I would never consider pursuing kickbacks from a supplier, it never occurred to me during that span that my customers might be.

    It’s only since I left corporate America that I have been shocked at the prevalence of customers receiving bribes from supplier, and more importantly, I have realized that these are almost never initiated by the supplier.

    I never saw any of this while I was a purchasing executive. Frankly, I was clueless.

    So, it happened again. I got an email today from a customer inside a major company who has been wanting to broker a large consulting contract with me.

    Nothing out of the norm, right?

    Well, in his last email to me, prior to us getting down to final contract execution, he wrote this:

    “think of a way you can mabe help with backup support to me .confidentially”

    I kept all the fonts and formatting exactly the way it was when I received it for effect. I want you to see exactly what I saw. I’m guessing he sent it by cell phone, because it was sent on a Saturday and because of the broken grammar. None of that matters though.

    Can you read between the lines? I’m not sure I could have 20 years ago. He is asking me to give him kickbacks. This is how it starts.

    I keep racking my brain asking myself who else in my career was possibly receiving kickbacks. All those customers who insisted that the company’s doors would close if we didn’t use a particular supplier.

    All those prenegotiated deals by rogue customers. Was this the real motivation that purchasing is a roadblock? Now I’m really wondering if this is just a manufactured cover-up.

    Now I personally know of people who are millionaires from kickbacks. You read that right. One of them told me that he would only accept such payments in cash or gold. All non-traceable. You can’t make this stuff up.

    And I know sales managers who openly tell me that they bribe their customers. NFL tickets, family tickets to Hawaii to attend a “training” session, trips to Napa Valley, etc. The recipients include people in the most visible of positions, from private to public sector. Nobody is exempt.

    What this tells me is that suppliers need to be told early in the discussion process, prior to negotiations, that if they are ever contacted by someone in your organization with request for kickbacks or bribes, that you are to immediately be notified. Or give them a confidential email address to notify.

    Also tell them that if they ever participate in such an activity, they will be forever blacklisted from your vendor pool. Remember, suppliers don’t like this any better than you do. They want a way out too.

    What really needs to happen is a comprehensive risk assessment process in your department and your end to end purchasing processes, inclusive of the customer piece. I do this regularly for many companies. It’s a huge time saver and a huge results saver.

    Plus, internal audits become a no-brainer activity. No rush to clean things up and put processes in place. Everything’s in order already.

    What I really want to get across is don’t assume that just because you are well intentioned in your job, that your customers are too. Don’t fool yourself and think this only happens in other companies. It took me 20 years to figure out that’s a complete pile of manure.

    Here is all you need to know, and I promise you this is not a scare tactic:

    IT IS HAPPENING WHERE YOU WORK, RIGHT NOW, AND RIGHT UNDER YOUR NOSE.

    It was for me too. I don’t know how to be any more clear about it. Don’t wait for internal audit to find this stuff, they never do. We are way smarter than they are.

    Ask me for training solutions I offer to help you address this and other risks in your purchasing department. You can’t afford to let this stuff keep happening.

  • Data Analysis to Catapult Your Cost Savings – Are You Doing This?

    Purchasing Training ~ Data Analysis

     

    Purchasing Training - Data Analysis
    Purchasing Training – Data Analysis

    I’ve spent over two decades making a living off of the fact that our profession is in complete disarray.

    I want to fix that problem of course. It doesn’t matter what company or agency I go to, I leave thinking “wow, they are leaving so much money on the table”.

    Yesterday was the first time that I visited a client and didn’t get this impression. Ever.

    I was completely unprepared for this, because prior to that, it was just like watching a series of bad re-runs.

    I was supposed to talk about negotiation planning practices today (that’s what I promised in my last blog anyways), but I just can’t do it. I have to talk about what I saw. It’s everything I’ve been pushing companies to do for the last 20 years.

    And it changed everything for this company.

    You see, the problem in most purchasing departments is not lack of competent people, it’s a lack of competent practices.

    What I see over and over in big, spread out companies is a lack of ability and knowledge on how to look at corporate spends and analyze them to make strategic purchasing decisions.

    Purchasing professionals KILL themselves trying to find data. Data on commodity spends, supplier spends, existing contracts elsewhere in the company and actually accessing them, and so on.

    Riddle me this: If I were to ask you how much your company spent on office chairs at a particular location in (say for instance in your Singapore branch only), how long would it take for you to tell me? Or if I were to ask for a copy of all global contracts your company has for copier toners, landscaping, and carpet installation, how long would it take you?

    Or what if I asked if there was a corporate agreement in place for curtains and blinds and wanted to know the pricing and terms, right now? Or if I asked you to sort all outstanding contracts by dollar amount and expiration dates, how long would it take you to tell me?

    The business I went to, which is spending $11B/annually in total, could do all of the above with the stroke of a mouse, literally on demand. I watched it, and I’m going to leverage them as a use case in the future.

    And guess what, they were a government agency. I’m not kidding.

    And all of this spends analytics and spends aggregation and contract sharing was being done across all of their sister agencies, not just in their own agency. In other words, they were acting like one big purchasing organization across these various agencies in the state of California. What a concept!

    How did they get all of this? Well, someone at the top “got it” and took a leadership position on the behalf of all the agencies.

    There was a massive budget crisis coming 5 years prior, and so instead of cutting purchasing (which is the normal response), this person said “the only way we’re getting out of this is through having better purchasing tools. Purchasing holds the key to us coming out of this budget crisis ahead. The time to make this investment now, because we are having a financial crisis.” (note the powerful paradox)

    And so they invested in elaborate tools that allowed real time business analytics, dramatic aggregation of spends, a best in class ePurchasing implementation, true cross agency commodity management models instead of decentralized purchasing like most other agencies do, and real time access to information that slashes cycle time and catapults TCO.

    And they even had their modules set up to allow them to select lowest TCO vendors instead of being forced to go with the lowest bidding vendor, like most other government agencies do.

    These tools have resulted in this agency now saving an additional $200M a year for taxpayers. Wow!

    But if you think your company can also just buy a bunch of systems, plug them in, and then stroll into a rose garden of cost savings right afterwards, you will be sorely disappointed. If you just buy systems and quickly implement without doing process and controls redesign, all you will be doing is automating a bad process.

    I’ve worked with companies who’ve done these implementations, and helped them find these rose gardens. But they take work. Burning calories has never come free. But the payback is phenomenal if you do it right.

    What you really have to ask yourself is, how much time do you spend looking for information, and how many times do you move forward with a purchasing decision while lacking the right information?

    If you really start paying attention, you will be shocked.

    So let’s be honest here. If you don’t have such a system in place now (and remember, system means not just the application, but also the right information and business processes and controls), you probably won’t be getting one real soon either.

    But there are things you can and should be doing to completely revamp how you go about doing purchasing, absent these tools and investments.

    True aggregation of spends, development of centralized global commodity structures, development of forward looking commodity expenditure and savings plans, having contracts in place that aren’t seat belts but instead enable supplier continuous quality improvement, driving 90% of your business to 1% of your suppliers, spending 80% of your time in strategy and only 20% of your time in tactical mode, taking costs out of the supply chain instead of trying to get suppliers to cut profits to give you a lower price.

    All of these shifts have to happen if you want to be a world class purchasing professional. I’m going to do as much as I can through blogs, but I can do much more if we work together.

    Ask me about professional coaching services and in house purchasing and supply chain management training seminars.

    I’m also coming out with a game changing, purchasing training solution near the end of this year that’s going to shake the foundation of this whole industry. Hang tight, it’s going to be a really wild ride!

  • Selecting Negotiation Team Members – Are You in Control of the Process?

    Purchasing Negotiation Team Training

     

    Purchasing Negotiation Team Training
    Choose Your Negotiation Team

    Are you struggling with too many people wanting to be a part of your negotiation team? People who feel like they have to be represented? I’m talking about the big-deal negotiations here.

    When it comes to negotiation team development, sometimes there are too many cooks in the kitchen, or worse yet, too many people who want to be in the kitchen, but can’t cook, don’t have time to cook, or don’t actually want to cook.

    Still worse than that is some want to be invited to the kitchen, and want to say they are in the kitchen, but don’t actually plan to ever step foot in the kitchen. These are the people who get offended when they are not invited to be part of the negotiation team but make no attempts at contribution when they actually are.

    Too many negotiation team members can also make it hard to get anything done. Someone is always on a business trip or tied up in a critical project or on vacation when you want to meet. Too many opinions and too many voices also make it hard to agree on anything.

    How do you handle all this when so many groups want to feel “represented”, and want to have a seat at the table? How do you satisfy all these groups and still get anything done?

    You have to take control of the reigns and the process. There is ONE negotiation process and results owner, and that is you. Period.

    You can’t do this by throwing your weight around and burning bridges with people you don’t want on your team. What you need to do is to exercise a bit of diplomacy.
    For the purpose of this blog and this particular topic, diplomacy is the art of creating the illusion of inclusion on other people’s terms, while actually having it be on your terms.

    Actually, that’s a pretty good definition of leadership – the ability to get people to adopt and evangelize your ideas while making them feel really good about the whole process. Difficult stuff.

    Recognize that not all negotiation team member positions should be created equal. What you need to do is classify them by ‘core’ and ‘extended’.

    Core members are those few members who really need to be a deep part of every step throughout the negotiation process. For smaller negotiations, this may just be you. For bigger deals, it may include you, the customer, and possibly players from finance, engineering, receiving, etc.

    Suffice it to say however that more is not better when it comes to core. Keep it to the people that YOU really want engaged in the process. People don’t vote themselves to core, you assign them to core.

    Extended members are those who are copied on the agendas in advance and are copied on the minutes following meetings and are also copied on the calendar hit, but invited as an ‘optional’. They then only attend meetings where they see a topic of particular interest or you ask them to be there on an exception basis for a particular topic.

    Absent attendance at a meeting, they are also asked to voice any opinions they may have in advance of any given meeting, by email or or by other communication method. That’s why they see the agendas in advance. If they have issues with the content of the minutes, they need to voice that right away. Otherwise, silence = acceptance. You need to tell them that.

    How do you sell this to people you want to be on the extended negotiation team, such that they don’t get offended? This is especially important for people who you don’t want/need on the negotiation team, but insist their participation is necessary, or will cause you endless heartache if they are not included.

    The simple answer is that you just need to stroke their ego. Something like this:

    “You know, I am really seeing the value of having you participate in the entire negotiation planning process for this big deal we have here. Your inputs are going to be absolutely critical to the process. However, I’m concerned about using your time properly.

    I really want to save my silver bullets with you so that when I pull you in, it’s to help nail a particular angle of our strategy and objectives that you have exception insight into, but at the same time, I also don’t want to waste your time when we’re covering the many other areas that don’t tie into you as much.

    The best way I can figure to do that is to have you on my ‘extended’ team, which gives you full insight to everything we’re doing, full input capabilities, and also allows me to recognize the value of your time overall for the company. You’ll get agendas beforehand and minutes afterwards, and you can cherry pick which discussions you want to be there for, or I may ask you to be at a particular discussion – burning one of my silver bullets.

    All I ask is that if you have any concerns or inputs at any point in time, you voice them right there and then. Otherwise, my assumption throughout the process is going to be that you are fully on board with what we’re driving.

    I can’t think of a better way to harness the value you bring to the table. Does this work for you?”

    You can do this. Don’t let anyone else dictate any aspect of the negotiation planning process. You are the undisputed leader and decision maker.

    This is just the start, of course. There are many other things we need to cover as it relates to negotiation planning and team/organizational dynamics.

    I want to talk next week about establishing negotiation ground rules so that all team members are aligned and you are in charge of negotiation strategy. Stay tuned.

  • Purchasing Negotiation Training

    In a Time Crunch? Use This Negotiation Technique!

    Save time purchasing negotiation trainingIf there’s one thing that hasn’t changed in 20 years of my training purchasing professionals all over the world, it’s that they are completely swamped. There just isn’t enough time in the day.

    Even when you take a vacation, the work doesn’t go anywhere. It waits for you to come back, and then you’re busier than ever.

    In particular, the supplier negotiation process takes time, and there are too many suppliers in the hopper to get to them all the way you would like.

    Things fall off the plate, deals get under-negotiated, money gets left on the table, deals get negotiated late, things that should go out to bid don’t, and so on.

    The purchasing professionals who get to everything are usually corporate martyrs – making their jobs their life, much to the dismay of their friends and family.

    Neither situation is good.

    What exacerbates the negotiation timelines is that both sides start with opening positions that they plan to move from, which means time spent going back and forth. Additionally, negotiations rarely start and end in one meeting. Multiple sessions are often required. Who has time for all this?

    On top of that, negotiations aren’t all we do, right? Staff meetings, customer excursions, supplier excursions, supplier diversity, green initiatives, internal audits, systems implementations, and keeping up with a million metrics not related to negotiations. Something has to give.

    Enter one of my favorite strategies to deal with time crunches and slash negotiation cycle time.

    The Best and Final Offer (BAFO) Strategy in negotiations is a life saver. It’s not a new strategy, but it’s always been taught as an influencing technique. Lost in the mix is that it is a huge time saving strategy, and that is actually the biggest value this strategy delivers.

    It’s a shame that the real value of this negotiation tactic has been completely overlooked. It’s not about improved results, it’s about improved time to results. I haven’t seen this angle covered anywhere.

    The key is to *not* actually convey to the supplier that you are using this approach because of time urgencies. Then you are exposing yourself to being pushed against the wall.

    Chinese suppliers are known for doing this. They will often announce a contract signing date in advance, and on a 3 day trip to negotiate, they will spend the first two days taking you on fancy tours. Reality hits in day 3 , and with no time left to spare, you are forced to agree to things under duress, and not likely in your favor.

    To avoid this scenario but still reap the benefits, the way you pitch this to the supplier is something along these lines:

    “I’d like to convey how I’d like our negotiations to proceed. I want for us to cut straight to the chase. I am assessing multiple suppliers, and I need to have a mechanism to help me best assess where everyone stands. If suppliers aren’t putting their most aggressive proposal up front, then it creates extra work for all parties involved to get to the bottom line, and in the end, I may end up picking the supplier with the most aggressive opening position, but not the most aggressive bottom line position, which I think you will agree is a problem.”

    “Given that, what I’d like you to do is to come back to me with your Best and Final Offer. I’m asking the same of the other suppliers. My intent is to make a decision from what I get back with no further discussions, so please be sure to come back with your best foot forward; you might risk the business otherwise. I’m asking suppliers to get me their proposals by ________. Can you support that date?”

    Just like that, you’ve slashed negotiation cycle time!

    Remember, you are the one with the money. You don’t need to solicit opinion on negotiation processes. You also don’t need to explain why you want to take a particular tact. You also don’t need to ask if suppliers will comply with your desired approach. You can just tell them.

    Some purchasing professionals aren’t comfortable with making mandates to suppliers like this. This is a flawed perspective. This is not mandating, this is leadership.

    And suppliers will comply. Remember, their job is to support your success, not to just sell you goods and services. If they don’t have this attitude, then somewhere along the line, you didn’t set expectations properly.

    Like everything else, this is not a one size fits all approach. This should be one of many items in your bag of tricks, and you have to know what to use and when, without being predictable.

    I’m doing purchasing and negotiation training all over the world during the rest of this year – As of now, I’ll be hitting 3 different continents at a minimum (Africa, Asia, and South America). Why not put your company on my roadmap?

    The #1 impediment is the belief that it’s not a good time for training right now. It’s never a good time for training. You will have to force the issue or it never gets done.

    Send me a note and let’s talk about how to catapult your capabilities and career as well as your departmental results!

  • Are You Managing Your “Under the Radar” Spends?

    Purchasing & Supply Chain Management Training

    Managed Marketplaces

     

    Supply Chain Management Training - Managed Marketplaces
    You, the Maestro

    Purchasing professionals put so much energy into managing their top expenditure suppliers and contracts. Makes perfect sense, and that will probably never really change.

    However, I am increasingly seeing that purchasing is experiencing “death by a thousand cuts” by the suppliers and expenditures that don’t individually merit attention based on spends levels alone – what I’m calling “under the radar spends”.

    We’ve got to figure this out in our profession.

    One solution that has been put in place is procurement cards (p-cards). These allow for purchasing to remain undistracted by small expenditures that would present too much opportunity cost for purchasing to pursue.

    In other words, chasing after savings on these “small deals” would be at the expense of getting to the big deals, so we use p-cards.

    However, absent NAICS industry code blocks, p-card proliferation can result in unauthorized purchases. Also the financial and management review process doesn’t kick in until AFTER the purchase is already made. You never want to wait until an accident happens before you find out something is wrong.

    Further, the funds may still go to the wrong suppliers and they may also go un-negotiated. And do you know what terms and conditions go to the supplier when you do a procurement card transaction?

    In 20 years of asking this question above, I’ve yet to find a purchasing professional who knows the answer for their purchasing organization. It’s a big mystery inside every company. I’m sure it’s not your PO Ts & Cs. So what is going out? Credit card terms? And how could those possibly protect your company?

    Still other companies go the consolidator route. They contract with companies that sell everything from coffee filters to construction equipment to try and funnel this business in a one-stop shopping manner. These companies are all resellers, meaning none of the product is actually theirs. They specialize in fulfillment only.

    This has problems too. Rarely are these items coming at a good price or TCO. You are paying for convenience, like buying milk at a convenience market. This is still true even if you negotiate a corporate discount model. You will still pay through the nose for this convenience, and almost every company is doing it.

    ePurchasing offers some solutions for these “below the radar spends”, but once again, this usually necessitates having to contract with purchasing consolidators and adding them as a vendor in the ePurchasing application. It’s an awesome solution, but as it pertains to consolidators, all this does is automate a bad process.

    In the final analysis, the purchasing professional has a choice: Do I lose time chasing these one-off deals or do I lose money chasing convenience through consolidators? Neither one is attractive.

    Most recently however, I’ve found that there is another way, and it’s got me fairly excited. I plan to become one of the foremost industry experts on this topic. I’m talking about managed marketplaces.

    A managed marketplace is like a reverse auction, but only in the same way that a motorcycle is like a bicycle – they both have 2 wheels and you sit on them both, but the similarities pretty much stop there.

    Managed marketplaces are an end to end platform solution whereby a third party vendor manages these “under the radar” transactions on your behalf, aggregating the business and putting them out to bid to a global set of qualified vendors that they do financial checks on.

    Reverse auctions are merely a platform for running an auction, but the buyer still ends up doing all the work before and after the auction. All you get is automation of a very small part of the purchasing lifecycle. It’s also pretty stressful for the suppliers involved; just ask them.

    In contrast, the managed marketplace solution provider will sort through the supplier responses and take the top bidder responses and qualify those bids, making sure that all buyer specifications are being met. There is a full cycle quality control check in place.

    They also track in amazing detail all relevant small/minority/veteran/disabled/woman owned business revenue details (diversity spends) and actually make your indicators in this space take off. One less indicator to have to worry about hitting at work!

    In my research, I’ve been seeing around 12% average savings from purchasing’s target price, while also having dramatic improvement in diversity spends figures. That’s pretty good, considering somebody else does the work for you. Finally, purchasing can just be the maestro instead of trying to be the orchestra too! Not bad, huh?

    I’d like for you to really start asking yourself how much “under the radar” spends you have, how they are being managed, and where they are going. Do you know? Do you care? Why not?

    I plan to do more blogs on this topic, and will have a publication on the same topic coming out soon in Supply Management magazine, an acclaimed international purchasing journal. Stay tuned!