Global Leaders in Procurement & Negotiations (PSCMInstitute.com)

Category: Purchasing Negotiation

  • Supplier Negotiation Strategies, Pt 3: Location Control Strategy

    Purchasing Training ~ Supplier Negotiations
    Don’t Split the Pie!

    So we are talking about supplier negotiation strategies. This is a counter-intelligence series.

    Instead of talking about what strategies are in the purchasing arsenal, we are talking about what is in the supplier’s arsenal.

    In doing so, we will learn how to anticipate and respond to such tactics. It’s a critical skill. Recognize though that I can only go so far in a blog.

    My online training solutions and face to face seminars are what provide true “deep dive” analysis.

    Let’s say you go to a virtual stranger’s house for dinner, somebody you’ve recently met and don’t have an established comfort level with.

    How does that feel? Are you comfortable opening their refrigerator? Their food cabinets? Strolling to the restroom without asking permission first? How about taking a spin in their car?!! None of that is very comfortable.

    Well, suppliers are no different. They don’t like having negotiations at your office or facility. It’s not comfortable for them. On top of that, there’s a lot more than dinner on the line – their entire financial livelihood is on the line!

    So it should be no surprise that suppliers want negotiations to happen at their facility. Of what benefit is this to suppliers? Let me count the ways.

    There are logistical benefits. Access to conference rooms, free access to roam the facilities, access to hard copy files, and so on. There is also control of the agenda and what gets covered.

    There are psychological benefits. Suppliers are in their “house”. They are comfortable. Relaxed. At ease. They are intimately aware of and in control of their surroundings. They can also overwhelm you with large numbers of people from their end, and they can even control where you sit.

    There are human resource benefits. Suppliers can access anyone they want, in person and on the spot. They can also decide who attends and who does not, and where and when they attend.

    There are schedule benefits. Suppliers can control the schedule and cadence of activities, who attends, and what gets discussed – and what doesn’t.
    Don’t underestimate the importance of these factors. And suppliers work very hard to get them to work to their advantage.

    However, suppliers are also very smart. They will never actually say “let’s negotiate at our facility” (unless they are completely untrained).

    What they say instead are things like this:

    “This deal is unprecedented. Our COO wants to personally meet you. We’d really like to have you at our facility, as a sign of our commitment to making you and your company successful.”

    “We run world class manufacturing lines, and we really want you to see them. We’ve arranged for a VIP tour of every facet of how we run them. You can bring your engineers too.”

    “I want to put every resource at your disposal. I have players in operations, manufacturing, planning, and logistics that I want at your beck and call. I can’t fly them all to your facility – it just wouldn’t make sense – but I have arranged for them all to block out their schedule to have a full day dedicated just to meeting your needs and requirements.”

    All of these are comments that are designed to make you think going there is all to your benefit. And since they own the agenda, they will naturally work negotiations into them.

    Do you want to hear a story?

    In my first year as a purchasing professional, I naively agreed to meet at a supplier facility. The goal was not to enter into negotiations, but location control allowed the supplier to work that in.

    This was a Fortune 50 company we were meeting. No games were expected.

    It was me and my engineering manager, who was my customer. The day was packed. We were moved like sardines in a packing facility from one room to another, jumping from one topic to another.

    Every meeting was packed with strangers, all of them evidently important to these discussions, but none of them saying much. It was all a part of their strategy.

    When it finally came time for negotiations at the end of the day, we were both tired from the whirlwind of activities. They had put us in a large and long room. They managed to separate me from my customer, and he sat far away, so I couldn’t even confer with him. I was alone on an island.

    The VP of Marketing sat in the “power position” at the end of the table, and bellowed across to me, where I was sitting off on the side, surrounded by his employees, where I was barely even able to make eye contact with my own customer.

    Where was my finance manager? My go-to-guy in engineering? My logistics person? My laptop and all my files? None of them where there, because we were there for a “VIP tour”. They weren’t needed. But there I was in a negotiation room.

    All the forces were working against me. Somehow, despite my lack of experience, I realized something was very, very wrong. I got my wits about me called the negotiations to a halt. I told them that negotiations would resume at our (my) facility and I would let them know then.

    If this strategy doesn’t work, suppliers will then say “let’s do this fair for both sides, let’s pick a location neutral location”. They are trying to say that the pie should be split down the middle to make it fair for both of you.

    The problem is, this isn’t their pie to split. This is your pie. YOU are the one with the money, and they are only one of a parking lot full of suppliers trying to get it. They don’t have rights to split the pie. They don’t even get to pick what type of pie it is.

    Do not pick a neutral location for negotiations, and if it can at all be avoided, do not negotiate at a supplier’s facility. Separate the issues.

    If you need to do a manufacturing tour, then separate that from negotiations, and hold the negotiations back home. They are two different things. There is no need to “kill two birds with one stone”, because one of those birds will be you!

    Next week, we will talk about “Supplier Time Pressures” as a supplier negotiating strategy.

    Meanwhile, Click this link and join our Power Purchasing Pro Group now. You’ll be glad you did!

    Be your best!

    Omid G

  • Purchasing Training – Supplier Negotiation Strategies, Pt 2 – “Puppy in the Window”

    Purchasing Training Puppy Dog Trick Puppy In The Window Trick

    OK, so this series is about counter-intelligence. In this context, that means knowing exactly what tactics and strategies suppliers like to use, and being able to anticipate, recognize, and diffuse those attempts.

    Mind you the goal is not for you to win so they can lose. The big name courses out there pushing this concept are still stuck in the 1950’s.

    I cover how to achieve your biggest TCO objectives while still allowing the supplier to win in my award winning training solutions. For now, we are focusing on how suppliers try to shift negotiation advantage to them.

    Last week, we talked about “Nibbling” as a supplier negotiation strategy. This week, we will talk about the “Puppy in the Window” supplier negotiation strategy.

    Puppies are cute. There is no denying it. They just have a teddy-bear like quality and an innocent and clumsy behavior that makes them absolutely irresistible.

    When you buy a puppy, the left hemisphere of your brain – the side that is responsible for logic and reasoning – is on vacation. It’s a complete ghost town on that side.

    The right hemisphere of your brain – the side responsible for emotions – is meanwhile working in overdrive. It’s swimming in emotions and even releasing chemicals that are making you excited.

    The last thing you are thinking about is the total cost of owning a puppy, which is sure to become a dog, which is sure to have vet bills, breed specific issues, behavior problems, and more.

    If it’s a Dachshund, back problems await. If it’s a German Shepard, hip dysplasia is highly common. Bull Dog? Respiratory problems. And so on.

    The goods and services you buy are no different, except it’s the *suppliers* that come with different problems.

    And these problems almost always arise AFTER the supplier has received full payment. And that’s when the heartache begins.

    And while the right hemisphere of your brain goes on vacation, because it was satisfied a long time ago, the left hemisphere of your brain now has to figure out how to solve this mess.

    So what does “Puppy in the Window” have to do with all of this? Well, when you take that cute puppy in the window and put it in your arms, you’ve pretty much already bought it.

    If you’ve taken it home for a 24 hour trial, that “trial” lasts a lifetime. Who can return a cute innocent puppy?

    So how do suppliers use this concept to their advantage? Simple: they put the good or service in your hands for a trial, even a free one.

    Suppliers know that it takes time and energy, on your part and your customer’s part, to use their product or service for the first time.

    They know that you can’t resist just trying out their product or service for free, with no obligation to buy. What have you got to lose?

    They also know that once you’ve taken that puppy home, you’re not bringing it back, and you’re not even going to look at other puppies. Other puppies don’t exist anymore.

    Once you’ve taken the supplier’s puppy home, the search is over. This is no longer a trial. The supplier has just won your business.

    Even if you keep a cool head, your customer probably won’t. They’ve already gotten attached to this puppy, and of course they needed this puppy yesterday, or your company’s doors will close – right?

    From your customer’s perspective, time is short, and this puppy will have to do.

    You are stuck. The “Puppy in the Window” strategy WORKS MIRACLES for suppliers.

    So where does this happen in purchasing? Everywhere! Capital equipment, software, site services, technical support, staff augmentation, hardware, and so on.

    So how do you handle this? It’s simple. You have to hold your customer accountable to do complete evaluations of the product and service offerings of ALL target suppliers BEFORE supplier selection.

    In other words, you force the left hemisphere of the brain to make a rational, in depth, and data-based evaluation of the strengths and weaknesses of ALL supplier offerings (not just one supplier’s offerings, in the form of a free trial), and then make a decision.

    In puppy speak, this means you would have done enough research on breed specific behaviors, illness, hyperactivity levels, exercise requirements, vet requirements, etc. before ever putting yourself in the highly vulnerable position of holding one in your hands inside of a pet store.

    Recognize when suppliers offer to do this and make sure if you are going to do an evaluation, the evaluation is happening with all target supplier offerings and not just one.

    Use the left hemisphere of your brain and make a rational, logical, data-based decision.

    If you don’t, be prepared to have that initial excitement and feeling of victory followed up by the polar opposite experience of coming down like a roller coaster when reality hits.

    That’s a terrible place to be as a purchasing professional. Don’t let it happen. Recognize and diffuse supplier “Puppy in the Window” negotiation strategies before they ever start.

    Next week, we will talk about the supplier “Neutral Location Negotiation Strategy”.

    Be your best!
    Omid G

  • Supplier Negotiation Strategies, Pt 1: Nibbling

    Purchasing Negotiation Secrets
    Purchasing Negotiation Secrets

    You’ve heard me say it many times before: I’ve virtually stopped reading books on purchasing negotiation strategies, mostly because there’s very few good ones.

    It’s why I wrote my own, and it’s also why I almost exclusively read sales books on negotiation strategies – to get counter intelligence.

    Counter intelligence. What a concept. It’s of so much value in our profession.

    So I’ve decided to start a series of blogs on Supplier Negotiation Strategies. This is the first one, and it’s going to focus on “Nibbling”.

    What is Nibbling? Picture a mouse eating away at cheese. Or better yet, picture the person who eats unnoticeably thin pieces from a cake, in the hopes that nobody will notice.

    And sometimes nobody does notice. That’s the whole idea behind Nibbling.

    Nibbling happens in areas where you are not paying attention. I once had a car dealership sales manager tell me that’s how they make all their money.

    People focus so much on certain things such as base price or monthly payment that the dealership can sneak in costs elsewhere that nobody catches.

    Nibbling sounds cute and insignificant, but reality is that it can be like a Las Vegas feast for suppliers if you let it.

    Purchasing professionals tend to focus most of their attention on price. Nibbling therefore happens everywhere BUT price. The whole point is to do it without anyone finding out (see the cake ex above).

    So suppliers will divert the pack. They will agree to a price that makes you happy. Your guard is down and you’ve already started claiming victory deep inside. Meanwhile, they are just getting started.

    The supplier will try and slip in costs for everything. Warranty deductibles, late payment penalties, adders for various product features, change order costs, spares and replacement parts, overtime costs, and on and on.

    And then there are costs that they don’t include anywhere that they know your customer will need to incur later. Those are the worst.

    A good example is buying software (and getting a killer deal on it) only to later find out that your customer has incurred a huge consulting and training bill with the supplier – something that never even came up in negotiations.

    I know, because this exact situation happened to me early in my career! Let me tell you, I came down like a roller coaster. It was my first real experience with nibbling.

    If you use a supplier contract template, then you can forget about it (and I don’t mean in a good way!), because a supplier contract is not looking after your best interests…. It’s going to have all these “supplier goodies” already baked in.

    One good way to counter all of this is to have an Entire Agreement clause in your contract, basically stipulating that this is the entirety of the agreement between the parties and any other changes need to be done by amendment or addendum.

    Point them to this clause and tell them you don’t want bills for anything outside of the contract down the line.

    Another good way is to catch a supplier in the act of trying to nibble and tell them the following:

    “Look, it’s in my best interest for you to be successful. I want you to make money, believe me. However, you aren’t going to make money on every aspect of this deal. You need to make money overall, and that’s where we need to keep the focus. The kind of thing you are trying to charge me for here is not something I pay for with other suppliers. This is just part of the cost of doing business with our company. I don’t want to get a bill from you every time I need something from you. So let’s focus on making sure the price we negotiate is all encompassing, ok?”

    Both of these strategies are preventative in nature and get in front of supplier nibbling. One is used as an insurance strategy after the contract is signed (the Entire Agreement contract clause) and the other is used when you catch suppliers in the act.

    Are you ready to put more of these powerful and eye-opening secrets to work for you?

    To Get Started Now Click Here

    Don’t fall victim to Nibbling and use these strategies to avoid it. When you catch suppliers trying to do it, call them on it and tell them you want all cost components on the table and negotiated.

    All the heartache and headache that comes with negotiating contracts is preventable.

    Want to know one secret clause that isn’t in your contracts now that will save you 75% time in your negotiations, and how to include it?

    Click Here and get that plus much more

    These are YOUR negotiations, be in charge!

    Next week we are going to talk about a supplier negotiation strategy called “Puppy in the Window”.

    Be your best!

    Omid G

  • Purchasing ~ Are Your Single/Sole Sourced Suppliers Price Gouging You?

    Supply Chain Management Negotiation Training
    Are You Being Price Gouged?

    I was presenting at an International Purchasing Conference in South America this week.

    This is for one of the organizations of the IFPSM – The International Federation of Purchasing and Supply Management – and this organization is chartered to drive purchasing excellence for the entire region of South America.

    I was their headline speaker for this two day international conference. None other than the founder of this purchasing association – and long time purchasing veteran – said that mine was the best presentation on purchasing practices he’d ever seen in all his years in the purchasing business.

    Talk about humbling.

    It’s my honor to teach my systems and strategies. Our industry can be so much better and it’s my goal to help you in this endeavor.

    Anyways, one of the questions that came up repeatedly was the following:

    “we have a single/sole source supplier that won’t cooperate with us on price because they know we have no other choice but to use them, how do we regain control of TCO given this fact?”

    This is a problem that plagues purchasing and supply chain managers the world over. But it doesn’t have to.

    You see, in these situations, what you need to do is to call the supplier on exactly what they are doing – firmly, but diplomatically – and let them know exactly what the consequences of their behavior is going to be. You can do this really wrong if you are not careful though.

    Here’s how it works. You tell them “We both know that we are in a sole/single [<–pick the right one] situation in our business relationship. I want to be very honest with you and tell you that the perception inside our company, and there is data to support this, is that we are paying a premium to your company because your company knows we can’t get this product or service elsewhere at the moment.”

    Then continue, “Now as of this moment, this strategy is working for you, and you are right that there is nothing we can do about it. However, I want you to be really clear on what’s happening as a result of this premium pricing model.”

    “We’ve been in this situation before with other suppliers. The suppliers that wanted to continue to benefit financially from the single/sole source situation that they thought would last forever got a rude awakening. We went off and developed another source. That’s right. It wasn’t easy, but we had no choice.”

    “And guess what happened after we developed another source? The supplier’s business with us fell off a cliff. Sometimes they still maintained a healthy share – 50 or 60%, but that is a big drop off from 100%. Other times they were cut off altogether.”

    “And the common denominator? All of these suppliers did not give us competitive pricing because they had a customer without options. All of them thought that good times would last forever. But I want you to know that our company can and does create options in these situations.”

    “By the way, this is not a threat. Far from it. This is courtesy advance notification of what’s coming. I’m actually trying to do you a favor. In fact, I’m giving you an opportunity. Come back to me in two weeks with a substantially revised proposal that sends a message loud and clear to my management that your company is committed to this relationship.”

    “And if you decide you don’t want to, that’s OK, but please just recognize that I will be forced to start working on the development of a second source until I get one in place. This is not punishment. It’s just good business. For the next two weeks though, you really have your destiny in your own hands.”

    And that’s it. You call them on it, and you make THEM COME TO YOU and say that they want to lower pricing, so that you don’t feel like they’re taking advantage of the situation. They need to do it because they want to, not because you put a gun to their head.

    On a related note, you really shouldn’t let yourself into these kind of situations in the first place. If supply line is critical, single/sole sourcing is usually a completely unacceptable strategy.

    And don’t believe that you can’t get better prices or lower TCO by spreading business over two to three suppliers instead of one. In fact, the competition can take your TCO to places you never dreamed. I can teach you how to do that as well. Let’s just say that it doesn’t happen by accident!

    Thank you for your readership. It’s because of you that I have the best job in the world; catapulting the purchasing and supply chain management profession to the next level, one company at a time. Yours should be next.

    See you next week!

    Omid G

  • 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!

  • 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!

  • Do You Cost Model? Why Not? Part V

    Supply Chain Management Training

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