Global Leaders in Procurement & Negotiations (PSCMInstitute.com)

Category: PSCM

  • Procurement’s Fatal Flaw is Confusing Negotiation with Influence

    Let me be bold and pull no punches: The procurement function has possibly the least experience with driving influence of any major organizational function in large companies. 

    And you may find this counterintuitive, thinking “but all we do is negotiate huge high stakes deals, more than any other function, so how can this be true?”

    The answer is really simple: we’re the only internal department that has been exclusively taught to get their way *using money*. 

    Do you think HR or manufacturing or marketing influences other internal business units by dangling millions of dollars? Of course not.  They’ve been trained from the very beginning to influence without the presence of money. What a gift. 

    And we in procurement are accomplishing all sorts of marvelous things, largely because of the money.  But cut that money by 90%, and suddenly those marvelous things go away.  

    Procurement achieves external results using the criteria of what is best for them, which is what they’re supposed to do. 

    And suppliers fall in line with procurement’s needs and wants, which is what they’re supposed to do.  But this is a terrible training model for us.

    How many procurement organizations do you know that are accomplishing wonderful things externally, but struggle endlessly trying to influence business units internally?  The answer is every single procurement department out there. 

    And procurement has never been trained on how to negotiate under these circumstances.   We can therefore define INFLUENCE as the ability to negotiate without pushing mandates or dangling money.  This results in the other party falling in line because they want to, not because they have to. 

    Which brings us to the harshest reality of all.  Read this twice: the reason business units engage procurement late is because they don’t see the value of engaging them early. 

    If they saw the value, wild horses couldn’t stop them from engaging you early.  This doesn’t mean you don’t deliver value.  It just means that they don’t perceive it.  Big difference.  

    And if we peel all the layers of the onion, what it really comes down to is really good influencers focus on the other party’s objectives and really bad influencers focus on their own agenda.

    And in procurement, we’ve been trained that when you have money, you can focus on your agenda.  And it works.  Spectacularly. 

    But then we try to do the same when we go to influence internally, and it doesn’t work.  It hasn’t worked and it will never work.  Policies or not. 

    And so, the solution, the way out of this, is for us to drive influence by presenting an agenda that focuses exclusively on what’s in the best interest of the business units instead of what’s in our best interest.  

    This is what business units want to hear.   

    How we present ourselves to the business units, and how we present our strategies needs to demonstrate that we are focused on *enabling business unit success*.  Don’t forget, that’s the reason your company exists. 

    This also requires having a deep understanding of what your business units do, how their results are measured, what initiatives they have in flight, what keeps them awake at night, what’s working and what’s not, and much more. 

    When this is deeply understood and strategies are presented with these goals in mind, then we are no longer an organization that is trading money for goods & services. 

    We become an organization that is enabling PERFORMANCE RESULTS.  We solicit, negotiate, contract for, and receive PERFORMANCE RESULTS.  And we do that with full allegiance to our policies and procedures.  But that’s back office allegiance.  In the front office, where you are end user facing, the exclusive focus has to be on business unit outcomes. 

    I’ve worked with a number of Fortune 100 companies to help drive this transformation.  It’s truly incredible to watch.  The business units perceive procurement as enabling their agenda, and they engage procurement early because they see the value of doing so.

    Procurement in turn is able to not only ensure that a performance outcome driven model is negotiated for, but is also able to start driving upstream demand streamlining initiatives in collaboration with the business unit and suppliers – we’ve been seeing this result in 18% surgical removal of costs on average.  

    All we have to do is unwire everything we’ve ever learned.  Negotiating with money is COMPLETELY different than influencing without money or mandate.  Suppliers have to fall in line.  Business units don’t. 

    Now go off and do something wonderful.  Be your best!

    Omid G.

    “THE Godfather of Negotiation Planning” ~ Intel Corp

    P.S. if you want to engage in world class capability building of your procurement organization or are personally interested in getting rockstar skills with our CPSCM™ program, feel free to reach out to my office at support@PurchasingAdvantage.com to find out more.  

  • The Fatal Flaw in Negotiations Strategy

    Both procurement and sales organizations have been suffering from the same fatal flaw since the invention of currency.   And It’s killing us.  Our profession is leaving money on the table in every single deal.

    It starts really early.  When you were a kid in the playground, fighting over a toy in the sandbox.  Only one of you can have the toy.  You start hard bargaining for the toy, aiming for a winning outcome, resulting in the other child not having the toy and probably crying.

    And while still a child, you watched your parents haggle deals, bargaining for a lower price, resulting in the seller making less profit.   It was an exercise in negotiation asset transference. 

    And your parents frequently commanded you to do things with no perceptible gain for you (“Go clean up your room”, “Go take out the trash”, “Turn off that music”, “That’s enough TV”, etc.).  It’s what we do as parents.  We have authority and we use it. 

    Then you grew up watching TV shows where hardball negotiators, the hero in the plot, got what they wanted against a hapless negotiation victim, who received no concessions in return – other than the loss of their own humility.

    These are all normal experiences, and you had them 100,000x before you finished grammar school.  You were fully programmed by this time.   And it’s really unfortunate.  

    Everything you’ve learned from the time you were a kid was focused on PARASITIC negotiation strategy.  The movement of value in negotiations.  Give up the toy so I can play with it.  Give up profit so I can report more savings.    

    Then one day you got a procurement job where you were supposed to actually do negotiating.   And you hold all the cards, because you have the money and the other party wants it.  You can do all sorts of things, and the seller has to go along with it.  Kind of like the parent-child relationship. 

    And your success in forcing the supplier’s hand may have nothing to do with your skills at all.  They just want your money.  Really bad. 

    And the consultants and trainers are making it worse for the most part, as they are teaching us how to get better and better at parasitic negotiations.  Why do they do that?  Because that’s what sells.  But our body of knowledge is working against us.

    I’ll never forget the negotiation training advertisement from a very well-known company that I saw on a plane, showing a businesswoman leaning back in her black leather executive chair, feet up on the table and crossed, wearing smart high heel shoes, and smoking a cigar – while sporting a wry smile.  The caption indicated something like “THIS is what it feels like to get an Unfair Advantage in negotiations”.  

    It saddens me to see that.   Is this really an accomplishment?   Is that what our profession has come to?  Demonstrating excellence in Parasitic Negotiations?   Is this how the supply chains of the future will operate?  Each supply chain link getting an unfair advantage over the next link? 

    We’re better than this.  

    Time to unplug everything you’ve learned, and probably are still being taught. 

    There is Value Transference and there is Value Creation.  Everything we’ve been taught about in negotiations has been focused on Value Transference.  Give me the sandbox toy.   You won’t have it anymore. 

    Value Creation strategies find out what keep the suppliers awake at night, followed by the inventing of solutions to help resolve them, in return for a steep discount.  

    For instance, one of our clients is a major potato chip manufacturer that was at a stalemate in pricing with their biggest potato supplier.  They hammered each other for years to no avail.  The buyer was extremely frustrated. 

    The buying company was advised to do Investigative Negotiations.  They discovered that while they needed potatoes all year, their supplier only harvested once a year! What a fiasco this must create! They surely thought that this issue must be keeping their supplier awake at night.

    The buyer came back with the unsolicited proposal to solve this problem for the supplier – a problem that never came up in negotiations, but the buyer researched on his own.  The buyer proposed to shift potato cold storage to the buyer’s facilities, which had capacity for such.

    The result?  The potato farmer was both surprised and thrilled at this new approach, and was delighted to offer an additional 20% discount to the already aggressive pricing schedule.  This after the buyer couldn’t even get 1% in traditional at-the-table negotiations.  

    When was the last time you had a supplier delighted to deliver a 20% additional discount?  There are endless other examples of this that we have seen and worked on with our clients. 

    The other area of opportunity is driving savings in the actual design of the product or service, BEFORE supplier negotiations.   We call this Upstream Design for TCO. 

    One of our clients is one of the biggest healthcare companies in the US.  In looking at their purchase strategies, we found their biggest money on the table was not in pricing, but in what they were purchasing. 

    We found for instance that they were buying 140 different types of catheters.   Their internal medical board, which approved all medical product purchase decisions, was presented with this information and they were so embarrassed and apologetic and promised to fix it. 

    They then came back with 8 catheters that they would request exclusively moving forward.  Reducing from 140 to 8 catheters resulted in dramatic savings from the supplier, because now economies of scale by product improved and order fulfillment, logistics, and inventory management all became much easier.  

    This was then replicated across many other products they were purchasing for significant savings.

    Again, there are endless examples of driving Upstream Design for TCO.  We’ve been finding 18% savings on average in such cases, and that’s before going to supplier negotiations!  

    Do these things well and be the Rock Star in your department, and put your career on the CPO Fast Track. 

    P.S.   Our CPSCM™ Certification Program does a deep dive on Investigative Negotiations, Value Creation, and Upstream Design for TCO.  No other program does.  Almost 50% of the Fortune 100 have invested in it.  Get your department certified or invest in getting yourself certified.  You’ll be glad you did. 

    #purchasing #procurement #negotiation #procurementtraining #purchasingtraining #negotiationtraining #purchasingcertification #procurementcertification #negotiationcertification

  • Procurement Leaders – Take This Performance Test

    If you are a procurement leader, the onus is on you to make a difference.  I’m seeing a lot of CPOs getting better results at traditional activities, but is that what we really want?  Just meeting and exceeding cost savings goals is a very 1990’s accomplishment. 

    Here’s a quick questionnaire (Yes = 3 points, Sometimes/Maybe = 2 points, No/Unlikely = 1 point)

    1. Does your company have a CPO, and does that CPO report to a CXO, giving procurement a seat at the table with the C-Suite?
    2. Is your organization viewed and minimally funded like a cost center, or more fully funded as a profit center, such as the with the sales organization in your company?
    3. Do the business units pull you into deals early not because they have to, but because they see the tremendous value that procurement brings to the table?
    4. Sales people spend 20% of their time in training.  Is your organization, who is negotiating with sales, keeping up with this in a fashion that systematically elevates organizational capability?
    5. Are your procurement professionals adept at driving influence of product and service designs for cost and total cost reductions with the business units?
    6. Are your procurement professionals trained in how to architect Value Creation negotiation strategies through investigative negotiations, allowing them to achieve greater savings than through traditional supplier profit compression strategies?
    7. Are you soliciting innovation ideas from your suppliers as a regular course of business, including inviting feedback on every spec and SOW to see if they know of a better way to solve that problem at a lower total cost? 
    8. Have you transformed your procurement processes/templates/tools from end to end to negotiate and contract for PERFORMANCE RESULTS instead of goods & services? 
    9. Do your procurement professionals know how to surgically identify and remove unnecessary costs from the supply chain?
    10. Are your procurement high level strategies, savings, and accomplishments clearly listed by the CEO in your company’s annual report?

    How to score:

    25 – 30: World class procurement organization with a CPO that is driving a leadership agenda

    20 – 24: Above average procurement organization with CPO leadership results and opportunities.

    15 – 20: Improvement required procurement organization with CPO needing to take significant actions to elevate organizational capability.

    < 15: Back-office procurement organization with legacy practices and legacy results.  Overhaul required on all fronts.  

    These 10 areas above are the core focus areas of the CPSCM™ Certification Program, which almost half of the Fortune 100 have invested in over the past 5 years. 

    How did you score, and what are your learnings from taking this quiz?

    Now go off and do something wonderful.  Be your best!

    Omid G. “THE Godfather of Negotiation Planning” ~ Intel Corp

    www.PSCMInstitute.com  

    #purchasing #procurement #negotiations #CPO #purchasingcertification #procurementcertification #negotiationcertification

  • Negotiating with Rainmakers

    There’s an existential crisis in procurement.  One we never talk about. The crisis is this: companies invest probably 10,000 times more in the sales function than they do in the procurement function. And procurement is negotiating with sales.

    If you pay really close attention, your sales negotiation counterparts, when coming from a company of similar size, will have more resources, better systems, better data, more insightful market research, more budget, more training, and all of this…. is because they are positioned as rain makers inside their respective companies. 

    Anytime you are negotiating with a large supplier, their resources are more than yours. Period. They might even know more about your company and your demand requirements than you do. The main thing we have in our bag of tricks, at the end of the day, is money. How good of a negotiator would you be without it?

    I’ve read an excessive number of “woe is us” articles on procurement in LinkedIn and elsewhere. Too many, in fact. This is not one of those. 

    This is a reality check. Up to 82% of every dollar that comes into companies in the form of revenue goes straight back to procurement. Sales makes revenue, not profit. Procurement delivers savings straight to EBIT.  

    So why are we viewed differently, and more importantly, funded differently? Why is sales a rainmaker function while we are not? 

    There are so many answers to this question. Get us in the C-Suite, with a seat at the table. Force policies that require procurement involvement. CPO leadership. Involvement in corporate planning cycles.  Etc. All valuable, but I don’t think any of them are the right answer. 

    I actually think the problem, and the opportunity, is much simpler than any of us recognize. 

    Right now, procurement reports Monopoly savings to the C-Suite. “We saved you $226.5 million dollars last year”, we proudly tell our executive management chain.   So where’s the money? The CXO is excited and wants that money, now. The sad truth is it doesn’t exist. It’s all Monopoly money. 

    Why doesn’t it exist? Because we gave it back to the business units in the form of residual budget, and they used all that money to buy more stuff. And so all those “savings” don’t actually exist. We just bought more goods and services than we thought we could have. 

    So the problem, and the answer, is how to deliver cost savings to the CFO instead of back to the business unit. That’s the only way to get procurement out of the back office. 

    That’s the only way to show our value. That’s the only way to get our resources, budget, systems, training, capabilities, and much more beefed up to where it should be. 

    That’s the only way to make procurement viewed AND funded as rainmakers inside of our companies. As we should be. 

    Solve this problem, and we will be sitting at the table with the C-Suite, instead of being on the menu for lunch.

    Now go off and do something wonderful. Be your best!  

    Omid G. 

    “THE Godfather of Negotiation Planning” ~ Intel Corp

    P.S. The CPSCM™ certification program has been invested in by almost half of the Fortune 500, and we’ve made entry level pricing for individual procurement professionals more affordable now, with a new 60% lower entry price that is irresistible. This is the ONLY procurement and negotiations certification program in the world for which you have your own private instructor throughout. You will see the materials and hear my voice throughout. And we don’t skim the A-Z like other procurement programs. We do a deep dive only on those areas that catapult procurement careers. The alternative is, you can keep doing what you’ve always been doing, but you’ll keep getting what you’ve always been getting.   Join the best in the world today at www.PSCMInstitute.com

    #procurement #purchasing #negotiations #procurementtraining #purchasingtraining #negotiationstraining #CPO #procurementcertification #purchasingcertification

  • Writing the Other Party’s Negotiation Victory Speech

    Something we focus very little on in negotiations is how to make the other party look and feel successful out of the deal.  All of our focus is on how to make ourselves look, feel, and actually be successful in negotiations – and letting our management chain know. 

    But the other party has a management chain too.  And do you know what happens when they look and feel cleaned out in negotiations?  The other negotiator may get demoted.  They may get a bad performance review. 

    Additionally, their management chain may deprioritize your account.  They won’t pick up the phone. And every single time you ask for something small, you’ll get an invoice for it.  They’ll get their money back. 

    You have to have a CONSCIOUS STRATEGY to ensure that the other party looks and feels successful out of the deal.  It’s good for them.  It’s good for you.  They’ll treat your account better, and they’ll service you better.  They’ll want you to be successful.  

    Probably the best example of this you’re going to find is in the National Football League.  Even if you’re not into sports, you will learn endlessly by watching sports negotiations play out.  If you want to be a world class negotiator, this has to be part of your ongoing training regimen.

    I just saw an announcement from a football team that they signed a much better than average football player to the richest deal for his position in NFL history – 5 years, USD $100 million.  It’s a mind blowing deal for someone who is very good but not the best at his position. 

    But the details have not yet been made available.  This is intentional, to let the player and his agent both bask in the limelight. 

    The player gets to say that nobody in the history of the NFL has ever gotten more at that position, and the agent gets to say that they were the one who brokered such a deal – enticing other players to sign up with him.

    And the NFL team gets to bask in the limelight too.  The message is “We pay our players above market value.  Come play for our team.  We pay more than anyone else.”

    Now what will the details of the deal look like?  I can tell you without them ever having been announced. 

    It’s probably in reality a 3 or 4 year deal that has been structured as a 5 year deal.  The last 1 or 2 years will have a ridiculous salary that the team will never pay, because they will have put a termination for convenience clause just before those years kick in. 

    The team knows it, the player knows it, and the player’s agent knows it.  They all know that it’s really, say, just a 3 year deal for $52M – fair market value for the player.

    All 3 parties agree to add artificial years and compensation the backend that all 3 parties know will never happen.  It’s all about writing each other’s victory speech. 

    And when the actual details go out, nobody will talk about them, because it’s not to anyone’s benefit to do so. 

    And when year 3 or 4 rolls around and they release the player or renegotiate a new and more reasonable salary, nobody in the public will remember what was announced when the deal was first struck.  Nothing lost.

    This is just one of many strategies that can be employed to write the other party’s victory speech.  We go through this in detail in the CPSCM™ Certification Program.  Contingency agreements can be put in place.  The way in which concessions are captured and communicated can be modified. 

    There are many ways to go. But this has to be part of your arsenal.  It’s good for all parties involved, and you’ll get better results as well.  

    Now go off and do something wonderful.  Be your best!  

    Omid G.

    “THE Godfather of Negotiation Planning” ~ Intel Corp

    P.S.  We are constantly making CPSCM™ even better.   Two new game changing modules (Module XIII & XIV) have been added to the CPSCM™ Certification Program.  Have you seen them?  Check it out!  https://pscminstitute.com/cpscm-for-individuals/

  • Preemptive Concessions in Negotiations

    Preemptive Concessions in Negotiations

    So many procurement professionals, and sales professionals for that matter, make the fatal flaw of making preemptive concessions in negotiations.

    It just happened to me last weekend.   I was at a simple kiosk at a beach boardwalk.  I told the proprietor that I wanted to buy 4 of a particular item.  I knew the price of each and that the total would be $50.  I conveyed intent to purchase. 

    He responded with “well if you want to buy 4, I’ll give them to you for $40.”  I realized right away that he was making a preemptive concession.  Meaning, he gave me a discount when I wasn’t even negotiating.  I was just going to pay the $50, and if he was just paying attention, he would have known that.   

    Making preemptive concessions is a rookie tactic in negotiations.  It stems from one of three things; consider these the 3 legs of the stool: 

    1. bad negotiation form (i.e., not knowing better)
    2. Lack of information about the other party’s willingness to agree to your terms
    3. Lack of confidence in negotiation positions, which is usually tied to #2.

    How does it happen in negotiations?  Consider the following hypothetical scenario:

    Seller: “What are you looking to get in terms of pricing on our product?”

    Buyer: “Our target here is 15% discount, but we are willing to sit down and discuss.”

    Did you see it?  It just happened.  By saying “but we are willing to sit down and discuss”, a preemptive concession was made.  It’s unmistakable. 

    Why did it happen?  Maybe because the Buyer was trained that way (#1).  Maybe because the Buyer didn’t do their advance homework on the supplier’s pricing schedule (#2).  Or maybe lack of confidence  (#3) because either the price thrown out was way too high, or because the price thrown out was arbitrary, or most likely of all, it stems from #2 – not having done the homework necessary to build such confidence. 

    A lawyer in court never asks a question of a key witness to which they don’t already know the answer inside and out.  The reason is because they do depositions in advance.  And subpoenas.  And evidence analysis.  When it’s game time, they’ve got good form, good information, and good confidence. 

    And if one leg of the 3 legged stool is missing, the stool falls.  If you’re sitting on it, so do you. 

    The very first corporate negotiation I ever did was for logic analyzers and oscilloscopes.  30 years ago.  I thought because I was working for a Fortune 50 company and spending a lot of money, that this was enough.  I had enough confidence to run for President of the United States. 

    We were getting 12% and I confidently asked for 15%. But nobody had trained me, and I hadn’t done my homework.  The Seller said “Why 15%?  Why not 18%?  Why not 25%?!”  I had absolutely no answers and I learned a huge lesson:  No leg of the stool can overcompensate for the others. 

    Your homework is done in advance by benchmarking, finding out if the supplier has a published discount schedule, doing should/must/total cost analysis (whichever is applicable), doing bargaining power analysis, looking at alternatives and substitutes, seeing if the product design spec can be simplified or standardized for lower cost & TCO, looking at dual & multi-sourcing models, and so forth. 

    Once you’ve done all those things, then you can take your positions with confidence (externalized behavioral) and with rationale (internal research).   You can make concessions, but they should never be preemptive, and they should always be data driven.  

    Now go off and do something wonderful.  Be your best!

    Omid G.  “THE Godfather of Negotiation Planning” ~ Intel Corp  

    P.S. It’s just a couple weeks away now.  Purchasing Advantage and The Center for PSCM Excellence are rebranding, and the CPSCM™ is going to be offered at aggressive price points that will be irresistible to all of you.   We are also going to offer a free membership model that will bring procurement professionals around the world together and also offer very valuable free benefits, including $397 of training the day you sign up.  Are you ready? Get ready to join the best in the world today.

  • Purchasing Training ~ Validation of Demand

    Are You Performing “Validation of Demand” With Your End Users?

    Ok, you’ve heard me say before that I prefer we not call anyone inside of our companies the “customer”.  The only customer we have is the Board of Directors, Taxpayers (for public entities), Shareholders (for private companies), and Internal Audit (for all companies!).

    So the right term is ‘end user’, because that’s what they are.  And our job is not to delight them, but rather to meet their business needs and requirements in a way that Demand Valuation Purchasing Trainingdelights the REAL customer – the groups noted above.

    Now there is a function in the overall procurement process called “validation of demand” that every end user is supposed to go through when they generate any kind of demand – usually through a purchase requisition.

    Validation of demand entails answering the following questions:

    1. Why is it you want to buy this?
    2. Why is it you need this many?
    3. Why is it you need these items now – as opposed to two quarters from now?
    4. What will happen if you don’t purchase this item at all?
    5. How will this purchase make your department better, and how will it enable your organization’s business objectives?

    Now the question I want to ask you is, is ANYONE asking these questions?  Do you even know?

    Traditionally, three groups own driving validation of demand.

    Before the PO is Approved: This should be the end user’s manager and someone in finance (two people total, at a minimum) that are approving the requisition.   This is a preventative control.  Meaning, the goal is to prevent a problem from occurring.

    After the PO is Approved:  That is the job of internal audit.   This is a detective control.  Meaning, the damage is already done, and everyone at this point is hoping internal audit is not smart enough to figure it out.

    Obviously the focus is on ‘before the PO is approved’.  So my question to you is, why can’t purchasing play a role in this space?

    In fact, let me word that differently.  I’m advocating, and have been advocating for a long time, that purchasing DOES play a role in this space.

    Why? Because I’m betting that the end user’s manager and finance rep are both focusing on whether or not there’s budget for these items and that’s about the end of the discussion.

    That’s not nearly enough.  I have always said that the majority of TCO opportunities are found before you go to bid, and simply assessing budgetary availability won’t get you there.

    Once you know the answer to #5 above – and you REALLY need to understand how the purchase enables your end user’s business, otherwise you can’t challenge them on anything – then you can ask a few key questions (these are just starters, for the purpose of a blog post):

    1. How did you come up with this SOW or Spec?
    2. Why do you need these particular bells and whistles?
    3. Did you use standard components and offerings instead of custom? If not, why?

    You need to integrate yourself into the validation of demand function.  If you simply jump to who supplies these items exactly as requested and try to create competition, then you are presupposing that your end user created the SOW and Spec and everything else in a way that is TCO efficient…….

    ……….Which is a totally false presumption.

    So step out of your comfort zone, step out of what you think is your role, and add value even earlier in the end user engagement process.  Challenge your end users.

    Don’t just get the lowest TCO on what the end user says they want, challenge the end user on what they think they want and make changes that utilize more standards and less customer parts and services, only as many bells and whistles as necessary, and the right quantity to enable the business and not a single unit more.

    You might not thrill the end user, but you’ll definitely thrill the Board of Directors, the Shareholders, the Tax Payers, or whomever else your allegiance SHOULD be aligned with.  Make the right people delighted, and watch your career prosper.

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    We’ll see you next week.  Be your best!!

    –          Omid G

  • Purchasing Training – Specifications and Scope of Work Analyst

    Watch this purchasing training that picks up where last weeks left off about why you need to STOP buying goods and services and instead, start buying PERFORMANCE RESULTS.

    Eliminate almost all of your procurement problems becoming a Specifications and Scope of Work Analyst.

    Email readers, click the video image below or Click Here to watch now.

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  • The #1 Deadly Mistake Purchasing Pros Make

    After twenty years of doing thousands of hours of purchasing training and seminars and consulting in 15 different countries, I think I’ve seen it all. Purchasing Training - Contract Negotiations

    There are so many lingering opportunities in our profession to do things better. Purchasing pros are deeply disconnected with what’s not working however.

    How do I know? People only want me to come talk to them about “negotiations”. That’s all they want to know about. They don’t want to hear about any other topics.

    Maybe because Intel Corporation named me “The Godfather of Negotiation Planning”, I don’t know. I do know that I started out just like you, but Intel allowed me to restructure how their entire purchasing process was done, from top to bottom.

    Because of that, I went from being stressed out and miserable with my profession, to quickly rising through the ranks and running Intel’s entire global purchasing operations organization, with $2.2 BILLION in total scope and responsibility. The stress vanished and I now had fun and made truckloads of money in our profession.

    Please don’t think that I’m being braggadocios, that’s not why I tell you this. It’s only to let you know that there is so much opportunity for you in this profession that in so many ways, still resides in the olden days of the 1950’s.

    You can change it all, so much for the better and that’s why I do my best to help you achieve that paradigm shift from the antiquated, useless industry standard, to the tested, proven, and highly effective strategies that my world-class purchasing students now use and enjoy.

    Our profession has been reading too many glossy negotiation seminar advertisements in airline magazines. I have no other way of explaining it.

    The ability to negotiate effectively is a gap, no question, but it is not the biggest gap. Not even close.

    Half of my job is convincing purchasing pros that they have bigger issues.

    The other half is then training with world class principles on these other areas, once they’ve actually understood that they have many other pressing issues.

    So what is the #1 mistake that purchasing pros make?

    I’m putting all my cards on the table. All in. The #1 mistake is unquestionable.

    HERE IT IS: Purchasing professionals, even the best of them, consistently write bad contracts. Really bad contracts. And worse yet, there is very little interest in getting better at writing them well. Worse than that, they don’t even know they are writing bad contracts.

    Why should you care about your contract skills? That’s what the lawyers are for, right? They approve the contracts, why do you need to care?

    Let me tell you a little secret: lawyers aren’t looking out for your interests. They are focused on legal liabilities. Maybe this pictorial will help out:

    Purchasing Training - Legal Liabilities

    Get the picture? And what % of the time are the areas in the overlapping section the ones that are causing your problems after the contract is signed? Something really close to .00000001% of the time.

    That’s right. All your purchasing problems with customers and suppliers is coming from the section on the left. Your section.

    Now I could have made this section on the left an entire book. I did in fact. But I had to stop here due to real estate constraints in this pictorial. The purchasing professional’s list is actually much longer.

    The point is this: almost every problem you waste your day chasing is preventable with a good contract.

    Bad contracts ensure you get “stuff”. Suppliers love to sell “stuff”. The reason is, they give them to you, and their job is done. Onto the next customer. Next!

    Good contracts ensure you buy PERFORMANCE RESULTS. Do you know how to do that? Do you really? Is your idea of a good contract one that is your standard Ts and Cs with the SOW or Specs attached as an addendum?

    If that’s the case, you are in a world of hurt. The standard contract template has no idea what you are buying. It’s just a piece of paper. It wasn’t written to give you very much protection. It’s written to help you buy “stuff”.

    And have you been lead to believe that a contract that has legal approval is a good contract? I’m sure the answer is yes. Well, look at what legal is looking for and tell me if that’s where your daily problems are with suppliers.

    You are killing yourself by lack of contract knowledge!

    It’s causing you to chase unnecessary customer and supplier excursions all day, every day. And is that what you got hired to do? How does that look on your status report? On your annual performance review?

    Are you getting promoted year after year because you put out fires better than anyone else? Highly unlikely.

    Here’s the Opportunity

    • You can be the only one in your department who doesn’t rely on the understaffed and overwhelmed legal department as a crutch.
    • You can be the only one in your department who has lots of spare time because you are modifying the standard contract to be a performance agreement that PREVENTS excursions and has pre-determined remedies for breach of performance.
    • The contract does it’s work while you focus on other more strategic things that actually build your results, your career, and your income. The contract, written correctly, puts 90%+ of your current unplanned daily activities on auto-pilot.
    • You will virtually eliminate supplier redlining.

    What’s that worth to you? You know how many flustered and frustrated purchasing professionals I meet? It doesn’t have to be this way.

    I’ve got a little surprise for you. I’m going to take you this promised land. I’m making you a totally risk-free, unprecedented offer.

    From today through April 1st, you can grab my newest membership training on this very subject for only $97. This is early-bird pricing that is no April Fool’s joke and is $300 off the regular price.

    Here’s what you need to do right now:

    1. Click Here to learn about everything you’re going to get with your membership to have the paradigm shift I’m talking about.
    2. Grab your early-bird coupon code (68d2ad4ea6) to save $300 and get your instant Membership for only $97.
    3. Click the Add To Cart button and you’ll go to a page with a button that says, “Have a coupon? Click here”. Click that button and enter the coupon code and you’ll see the price automatically change from $397 to $97 and proceed to check out.

    Why am I making such a crazy offer? Simple, since this is a new product I need your testimonials. All I ask is that you take the Membership for a full 30 day test-drive. If you love it and experience the new-found freedom and total control over your contract dealings, please send me your testimonial.

    If for any reason whatsoever you don’t like it, just let me know and I’ll refund every penny, no questions asked.

    This new membership program really will set you free from the stress and hassles of contract dealings. You’re going to learn some awesome secrets.

    Click here to find out exactly what you need to do differently, starting now, to put your career on the fast track. You’ll be glad you did!

    I personally guarantee your success, and I can’t wait to hear from you with your success stories.

    Talk to you next week!

    Omid G

  • Purchasing Training ~ Are You Killing Yourself with Your Own Warranty Clause?

    Purchasing Training - Contract Warranty Clauses
    Are You Killing Yourself With Your Warranty Clauses?

    One of the most misunderstood clauses in any contract is the warranty clause. Purchasing professionals everywhere get it wrong.

    And the reason why is really simple: the standard warranty language in your contract doesn’t know what you are buying, so it’s not written to help you.

    Think about it! Your standard contract template doesn’t know if you are buying toilet paper or nuclear weapons. It has no idea. It’s just an innocent piece of paper…a generic template.

    Only one person can bring a warranty clause to life and make it useful for a specific purchase. Guess who that is? Grab a mirror! It’s the person who is reading this blog!

    The other problem is that purchasing professionals don’t really understand is what a warranty is, and as a consequence, purchasing professionals tend to measure the goodness of a warranty in terms of how long it lasts….which, on the whole, is completely unacceptable.

    A warranty is only a promise that something is true. That’s all it is…. nothing more. So throw out this preconceived notion you have that all warranties are good. They’re not.

    A warranty is neither good nor bad until you read the details. Until then, all the warranty is doing is promising something is true. And that “something” might be something really bad for you!!

    For instance, let’s say I sell you my car, my beloved 911 convertible. Only I won’t sell it to you, but work with me for a minute while we work through this hypothetic example. Here’s the warranty clause I give you in this example:

    “Seller warrants that this car shall be in good working order for the next 100 years. Should this car ever fail to perform to specifications or Buyer’s expectations for any reason whatsoever, Buyer shall promptly notify Seller, and Seller shall log this issue immediately.”

    Great warranty, huh? You see what I did? I warranted – I promised it was true – that if the car ever failed to perform in the next 100 years, I would log the issue. That’s all! That is your wonderful, glorious, remedy for breach of warranty. And it isn’t worth the paper it’s written on!

    Of course I could have made it uglier, by disclaiming all other warranties, express or implied, but I want to keep this simple for now.

    Now let’s take another example. Let’s say you are buying manufacturing capital equipment – something that is critical to your company to have 100% uptime. Now here’s a standard warranty clause you might see in your contract:

    “Supplier warrants that this product shall be in good working order for a period of three years from the date of purchase. Should the product fail to perform to specifications at any time during this three year period, Buyer shall notify Seller in writing, and Seller shall repair or replace, at Seller’s discretion.”

    Sounds great, right? Well, remember, the contract doesn’t know what you’re buying. The contract presumes it is not critical. Office supplies are not critical. Manufacturing equipment IS critical though, with a capital ‘C’!

    So how could this clause burn you? Well, what if the supplier takes their sweet time to repair or replace? That clause makes no references to the time frame allocated for doing so.
    The supplier might take weeks to get their act together, and meanwhile, your company might lose hundreds of thousands, or even millions in lost profits from their manufacturing line being down!

    And guess what, if the supplier takes weeks, they haven’t breached the contract, because the warranty clause above didn’t state in what time period they would remedy the breach of warranty.

    Even if it did state time frame, the devil is in the details.

    When you say “hours” or “days” to remedy, does that mean business hours and days or calendar hours and days? Who pays for the supplier to fly people out and back? Who pays for return shipping of the old equipment? How about installation of the new equipment? Does the warranty start over again for the new equipment? The list goes on and on.

    Your warranty clause language needs to be customized to fit the purchase. THAT is the bottom line.

    Here’s what you need to customize:

    1. Specify EXACTLY what you want to be warranted as it pertains to product or service performance
    2. Make sure that performance is measurable, or that you have some other way of being able to contractually identify a breach
    3. State that failure to perform is a material breach of contract if it is a critical purchase
    4. Give a crystal clear remedy for breach of warranty – WHAT do you want done, HOW FAST do you want it done, BY WHOM do you want it done, HOW do you want it done, WHO will pay the costs for taking care of it (including cost of cover), and whether or not LIQUIDATED DAMAGES should be in place in the event such breach of warranty does occur.
    5. Make sure you are effectively covered by your damages, limitation of liability, and insurance clauses in the contract in case of disaster.

    It’s easy as pie to just grab a contract template, slap a SOW or a set of Specs to it and call it done, but you are ASKING FOR IT when you do that.

    Contracts are a pay now or pay later process. When you pay later, you will pay through the nose. Don’t do that.

    Gotta love this stuff. Getting good at contract law is the most liberating feeling a purchasing professional can ever experience. I promise! See you next week!

    Omid G