Global Leaders in Procurement & Negotiations (PSCMInstitute.com)

Category: Purchasing Training

  • Negotiating with Suppliers that have ALL the Bargaining Power

    I have more and more clients that are struggling with pandemic negotiations with suppliers who hold all the bargaining power.  There’s really only 2 things that can be done to address this:

    1. Change the bargaining power dynamic
    2. Drive Investigative Negotiations and Value Creation

    Or you can keep hammering the supplier on price, but you are already doing that, and you were doing it before the pandemic too.   And right now it’s not working, or you wouldn’t be reading this I suppose. 

    Changing the bargaining power dynamic comes down to identifying the source of the supplier’s bargaining power, and then taking steps to reduce the value of that source and/or increase your bargaining power in turn. 

    The end goal of changing the bargaining power dynamics is to create a circumstance where your offer is perceived as being more desirable than it was previously. 

    I remember something Carlsberg Beer did with their soda ash suppliers (glass bottles are made of 70% sand and 30% soda ash).  The sand was plentiful, the soda ash was not.  They were dealing with a powerful oligopoly – almost a cartel of sorts.

    The soda ash suppliers were dictating the terms and getting them, because there were few alternatives.  Carlsberg didn’t know what to do.  The source of the supplier’s bargaining power was the oligopoly and Carlsberg’s lower volume. 

    Carlsberg couldn’t change the oligopoly, they couldn’t use something other than soda ash, and they couldn’t wave a wand and suddenly increase their volume requirements.  

    Or could they…..

    Carlsberg decided to take a disruptive sourcing move and talk with supply chain partners buying soda ash as well.  They put their requirements together and went to the oligopoly with a massive volume that was irresistible.  All in one take it or leave it contract offer.

    Now the oligopoly companies were going head to head for the business and a sweet deal was landed.  The bargaining power dynamics, once hard as steel, were melted away and the tables were turned.  

    This is just one example of how to change bargaining power dynamics.  You have to dissect the source of the bargaining power and take moves to undo it.  

    The other thing you can do is to drive Investigative Negotiations and Value Creation.   I have endless client examples of this.

    One example is with Tata Steel.   Tata is probably the biggest company in India – a massive conglomerate that has no equal elsewhere in the world that I’ve seen.  You can’t breathe air or drink a cup of coffee in India without Tata being involved.      

    They were negotiating with a German mining equipment supplier, the best in the business.   The Germans tend to do business cut and dry.  They had a hard as steel fixed pricing schedule.  Tata wasn’t going to get a single penny deviation from that schedule. 

    Tata thought about this problem, did some research – Investigative Negotiations – and realized that the mining equipment supplier had zero foothold in India.  How could this be?  But it was true. 

    That meant that they didn’t understand how commercia precedents worked in India.  They explained to the supplier that the volume at stake was not just that of Tata’s. 

    They explained that when Tata buys from a given supplier, this is an implicit seal of approval that the entire country of India uses to start buying from that supplier.  They then went through a myriad of examples. 

    They explained to the supplier that whichever company wins this business also wins the whole of India’s mining business.   This suddenly made the pie much bigger – Value Creation. 

    The rigid German supplier came back on their hands and knees with an incredible proposal to win the Indian marketplace.  Their first deviation ever from their hard pricing schedule.  

    Tata signed the deal, whereby the German party made far less money at the transaction level, but stood to gain FAR more in the aggregate from this new marketplace.   Both parties were thrilled with the outcome. 

    That’s exactly  how you do Investigative Negotiations and Value Creation. 

    If you are trying to solve your supplier bargaining power problems with management escalations and hammering the supplier, you’ll lose a lot of hair, but you won’t accomplish much else.     

    Read this Twice:  Doing what you’ve always been doing in negotiations will only deliver you the same results that you’ve always been getting.  And that’s not good enough.

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

    Omid G.

    “THE Godfather of Negotiation Planning” ~ Intel Corp

    www.PSCMInstitute.com 

    P.S. If you want to be a ROCK STAR at driving strategies like the above, check out the 100% online CPSCM™ Certification Program at https://pscminstitute.com/certification/.  You will see the materials and hear my voice throughout, as your own private instructor.  With almost 50% of the Fortune 100 having invested in CPSCM™, there is no equal in the marketplace.  Invest in your career and results today.  

  • 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/

  • Here’s Why Your Legal Dept Holds Up Negotiations

    Here’s Why Your Legal Dept Holds Up Negotiations

    I’ll cut to the chase on this one: The problem is not the legal department.  The problem is you and your procurement dept.  Let me explain.

    There’s really a few pieces involved.  We’ll knock one of them out now.  The legal dept is viewed as overhead.  That means they will never be sufficiently funded, and all stakeholders get impacted by that.  But we can easily overcome this by doing some other things right.  Lets keep going.

    Another part to this problem is that procurement throws red-hot contracts over the fence to legal and asks them to swiftly approve.  You might ask “what else are we supposed to do?”. 

    Well, you have to remember that contracts are risk shifting vehicles, and there are two basic types of risk: legal risk and commercial risk.

    Legal risk includes the potential for financial loss, litigation exposure, vulnerability to damages, public relations exposure, etc.  In short, the legal dept is really focused on limitation of liability, damages, indemnification, insurance, dispute resolution, and intellectual property. That’s their basic scope. 

    And with all the endless hours the legal dept spends in negotiating those clauses, how often have they actually gone wrong for you?  The answer is never.  Most procurement professionals go an entire career without needing any of the provisions that legal negotiated for those clauses.

    So why do we negotiate them at all?  Because they’re like seatbelts.  You put them on 500,000 times in case something happens once.  They’re important, and we need them. 

    Now the remaining clauses are all related to supplier performance.  Clauses that define what the supplier is to deliver, tying payment to performance, and ensuring that there are pre-defined remedies for failure to perform to these measures.

    Do you know how often these factors go wrong? How about almost every single contract you sign!  And do you know how much training your legal dept has in negotiating these clauses?  How about almost none at all! 

    And it’s not their fault.  It’s out of their scope.  It’s in your scope exclusively.  Did you know that?

    Read this twice: The #1 mistake procurement professionals make is to assume that when a lawyer approves a contract, that means it’s a good deal for the business. 

    WRONG.  It could be a terrible deal for the business. The lawyers are just focusing on the legal terms.  The commercial terms, which you are supposed to own, the ones that always go wrong, aren’t a part of their focus at all. 

    And so all the supplier performance trainwrecks that you have are because of the above.  Contracts that are highly effective in mitigating the risk of things that NEVER go wrong, and highly ineffective at mitigating the risks that ALWAYS go wrong!

    Now we get to the third part of the problem.  Our profession likes to save the contract language for last.  We tell the supplier “let’s negotiate price/warranty/leadtime/etc first, then we’ll get to the Ts & Cs.”

    Well, I have news for you.  When you tell that to a supplier, you’ve just become red meat in front of a lion. 

    What they hear you saying is “let’s finalize the commercial terms so you have the business in the bag.  Then once you’ve fully secured the business and have nothing left to lose, we’ll review the contract, and you can redline the entire contract because there’s nothing I can do about it.” 

    Read this twice: Contract terms that are “saved for last” in negotiations will always result in endless heartache for both you and the legal dept.  And those contracts take three times as long for the legal dept to process, because so much more is redlined. 

    And why does the supplier redline so much more when you save the contract for last? 

    Answer: Because they can.  Because you encouraged and incentivized it.  Because they’ve already won the business. 

    The final piece that procurement does wrong which results in the legal morass above is to not be legally savvy themselves and to not have a Service Level Agreement (SLA) with the legal dept. 

    The procurement dept needs to know contract law the same way a mechanic knows a wrench.  The relationship must be that intimate.  And once this knowledge level is established, then an SLA can be negotiated with the legal dept whereby many of the clauses can be negotiated by procurement, absent legal dept involvement. 

    And if you do all the above correctly, by the time the contract goes to legal, the contract will have far fewer redlines, many of the issues will have been resolved by procurement already, and the supplier will not yet have the business in the bag, because the contract terms were negotiated first and not last.  Also, the commercial terms, negotiated by procurement, will be rock solid. 

    Lets move this profession forward together. You can do this.

    Now go off and do something wonderful.

    Be your best!

    Omid G.

    “THE Godfather of Negotiation Planning” ~ Intel Corp. 

    P.S.  We are pleased to announce our new brand: Procurement and Supply Chain Management (PSCM) Institute.  Our new website is www.PSCMInstitute.com.  We have a special offer waiting for you: sign up for Free Membership and get exclusive access to our Power Purchasing Pro course, normal price $397.  Many other benefits await.  Register now!

  • The Fallacy of At The Table Negotiations

    The Fallacy of At The Table Negotiations

    I saw an article just this last week in LinkedIn describing different scenarios for buyer and seller to go back and forth on negotiation terms for best outcomes – offer, response, counter offer, counter response, etc. 

    It was touted as a game changing system, and was even given a name and trademarked, indicating it was something new and innovative. 

    It’s something I’ve been familiar with since the early 90’s, and I regret that it’s still being taught.

    If you go back to the invention of currency, and probably much earlier, this is how we always negotiated.  Each party trying to get more of the pie in return for less of what they have to offer in return. 

    This was the earliest form of what I call “At the Table Negotiations”.

    Meaning, this trademarked system is hardly new.  Yet it’s highly glorified.  It’s what we picture when there are the greatest stakes of all – with parties intensely negotiating at the table. 

    But all of that is for people who learned how to negotiate by watching TV shows and movies.  Or perhaps as a child, watching your parents barter at the local market. You’re not going to win any negotiations this way.

    Read this twice: Negotiations are won and lost before they ever start.  They are won FAR before you ever engage in At the Table Negotiations.  Anyone who tries to teach you how to win negotiations at the table is at best still stuck in the 1950’s.

    There really needs to be a well rounded approach for achieving success in negotiations.  In fact, the very definition of negotiation success needs to be redefined.

    The 1950’s and prior definition of negotiation success is how much of the pie you can get.  It’s parasitic negotiations.   You gain at the other party’s expense.  Value is being transferred instead of created.

    Negotiation strategies need to involve value creation before going to the table.  This involves researching what keeps the other party awake at night, and creating strategies to help make them more successful out of the deal, while costing your side very little. 

    This is why you are paid the big bucks, and it’s not optional in high stakes negotiations. 

    The other piece that has to be done is bargaining power analysis.  If you find yourself in a negotiation where you lack bargaining power, then you’ve driven yourself to the middle of the desert knowing you have no gas or drinking water.  You can’t let it get to that stage.

    You need to do an in depth analysis of what the source of their bargaining power is.  What exactly and specifically is it that gives them their bargaining power?  You need to understand this FAR in advance of negotiations very, very well.

    What might it be?  Almost anything.  Here are just a few:

    • Perception of highest quality
    • Monopolistic supplier
    • Switching or startup costs associated with adding or switching to new supplier
    • End user or business unit allegiance
    • Production capability
    • Access to critical material(s)
    • Etc.

    Then you need to architect a strategy to change that bargaining power to your favor.  The shift may not happen right away – it may even take years – but you can conspicuously lay the seeds right under the supplier’s nose.  They’ll get the picture. 

    Then there’s internal negotiations.  Most external negotiations fail because of failed internal negotiations.  Being fully aligned on the SOW/Spec hardly qualifies as internal negotiations alignment. 

    There’s alignment regarding procurement and negotiation strategy, sourcing approach, business shifting, standardization, alternative materials, timing, external communications, internal communications, management influencing, deal positioning, cost modeling, vendor evaluation criteria, and so much more.

    This is just skimming the top of things that need to be done in advance of At the Table Negotiations.  If all you are doing is getting trained in and executing to At the Table Strategies, you are stuck in some very old quicksand. 

    The CPSCM™ Certification Program – already invested in by half of the Fortune 100 – will position you to fast track your career and be a Negotiation Godfather.  In exactly 32 days, a huge announcement is coming and all of you need to be paying attention.   CPSCM™ Certification is going to be attainable by everyone.  Don’t miss it.

    Now go off and do something wonderful.

    Be your best! 

    Omid G.

    “THE Godfather of Negotiation Planning” ~ Intel Corp

    www.CenterforPSCMexcellence.org

  • Purchasing Negotiation Training – Get Out of Dark Ages

    Get Your Negotiations Out of the Dark Ages

    No matter what industry or geography I get contacted by, the request is always the same: “come talk to us about negotiations”. Purchasing Negotiation Training

    It’s a hot topic, that’s for sure.  I’m just not happy with the state of the union though.

    There’s so much bad information out there on negotiations.

    There was a time when purchasing was very transactional, by design.  We’re talking pre-1980’s.

    Customers opportunistically decided who they would do business with and the goal was to get what you wanted, as fast as possible, from whom you wanted, at the price you wanted – it was all about the win, for the person with the money that is.

    High stakes negotiations were viewed as warfare, and like any war, the goal was to make out on top in the conquest.  If the supplier didn’t like it, they could go pound sand, because you were the one with the money, and you could call the shots.

    The goal was to get an unfair advantage, to get the upper hand, to use deceit and aggression, to use psychological warfare to to paint the supplier in a corner.

    We are now entering the era of supply chain management.  It won’t just be companies competing;  supply chains will be competing too.  Without an effective supply chain, companies are rendered ineffective as well.

    Supply chain councils will be governing the effectiveness of the supply chain.  The council’s scorecard success metrics that are measured and monitored will be for the good of the chain, not for the good of the individual links. Costs will be taken OUT of the supply chain instead of forcing suppliers to make less profit – so purchasing can report more savings.

    If an individual company in the supply chain is faltering, they don’t get dumped like yesterday’s newspaper and unceremoniously have their business put out to bid.

    Instead, the supply chain council will try their best to support the companies in the chain in good times and bad, investing time and resources in them to help them be successful – for the good of the chain.

    Only the worst of conditions will result in a supply chain link being replaced, because – just like divorce – the total cost of doing so is very high.

    Back to negotiations training.  Given this supply chain model above, if the goal is to make the supply chain effective, it makes absolutely no sense to employ 1950’s tactics to get the upper hand or get an unfair advantage in negotiations.  How does that benefit the supply chain?

    This sort of antiquated negotiation training, which is out there everywhere in our profession being taught, needs a one-way ticket to the nearest landfill.

    You know the type of boss who you would take a bullet for?  It’s probably been a while, but you know exactly what I’m talking about.   You really cared about them, because they cared about you.

    Negotiations are no different.

    What you want is a set of powerful negotiation strategies that invoke INTRINSIC MOTIVATION and make the other party WANT to help make you successful, and leaves them feeling great about the deal.

    You cannot negotiate effectively with anyone unless they know, like, and trust you.  Period.  And you’re not going to achieve that with 1950’s tactics and counter-tactics that involve psychological leverage.

    If you’re doing these things, it’s not your fault, it’s probably what you’ve been taught.  But it’s time to stop.

    Do you know how you’ll know that “you’ve arrived” as a purchasing and supply chain management professional?

    You’ll know you have arrived when you can exceed your TCO objectives in a negotiation and the supplier feels great about the deal.  There’s a lot of strategy that goes into making this happen, and it doesn’t happen accidentally.  But that’s the outcome you want.  I can put you on that track.

    Procurement pros, we are in the BEST profession in the world.

    My challenge to you, as always:  Be your best!  Don’t ever settle for anything less.

    See you next week!

    Omid G

    P.S. We’re putting the finishing touches on my new negotiations course, “Negotiation Strategies for Breakthrough TCO”, that will get you out of the old and into the Now.

    There is nothing like to this new training that will put you into a league of your own, and I can’t wait to get it into your hands. Stay tuned!

  • 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 ~ Bribery, Corruption & Kickbacks!

    It Happened Again! Bribery, Corruption, & Kickbacks!

    It happened again.  It happens all the time actually.  I just read the CNN headline: “Ex-New Orleans Mayor Ray Nagin gets 10 years in prison”.  An excerpt from the article below:

    “A January 2013 indictment detailed more than $200,000 in bribes to the mayor, and his family members allegedly received a vacation in Hawaii; first-class airfare to Jamaica; private jet travel and a limousine for New York City; and cellular phone service. In exchange, businesses that coughed up for Nagin and his family won more than $5 million in city contracts, according to the indictment.” Purchasing Training - Corruption

    Now why am I bringing this up in my blog?  Well, I have been saying over and over that the corporate and government focus on putting all of their code of conduct and conflict of interest training and auditing on procurement alone is a big mistake.

    I am convinced, just completely convinced, that most of the bribery and kickbacks happen not within procurement itself, where everyone expects it to happen and is paying the most attention, but with other powers that be – executives and especially end users.

    In the government sector, you see it more with those in executive functions, and with the private sector, you see it more with end users.

    I have so many firsthand accounts I’ve seen, and guess what, I was blind to all of this when I was working procurement like you were.

    Do you think just because you are not doing it, then therefore nobody else is doing it either?

    I have news for you: if that’s what you think, chances are you are wrong… dead wrong.  It’s happening.  I tell you, it’s happening.

    Remember: every company that focuses all of this energy on training their procurement organizations on code of conduct expectations writes a completely different set of rules for the sales organization inside the very same company.

    What do they tell their sales people?  “Here’s a fat budget, now go use it.  Do whatever you need to do to land and keep business deals, just don’t get us in jail or in the newspaper.”

    And who do you think the suppliers try to sell, you or the internal customer (end user)?  You guessed it, they try to sell the internal customer.  And they do whatever it takes to land the deal.

    I work with a lot of suppliers.  I hear all their stories, because they are unashamed to tell me.  It’s the way things go; it’s expected in the sales profession.

    One supplier I work with was having endless trouble breaking into a particular government entity.  His point of contact wasn’t even returning phone calls or emails.   He told me over lunch recently that “now she’s my new best friend.”

    I asked him how this could be.  He said “Simple.  Two sets of season tickets to the xxxxx football team”.    I’m not going to say the team name.

    Another supplier told me he paid off a senior government official who then promptly mandated the purchase of that solution for his entire state organization.

    Another individual told me of a senior government official that mandated the procurement of a particular product that was being sold by his own company.  Purchasing told him this wasn’t the lowest cost or total cost option and he told them “just buy these from this company.”   And that’s exactly what happened, in plain view for all to see.

    I know someone else who lives in a very nice mansion on a very nice lake.  How did this lowly engineer generate these kind of funds?  Simple.  He told all his major suppliers: “if you want my company’s business, you need to give me 8%, in gold or cash.”  And they do.

    I saw another major company have an ENTIRE division of their company in South East Asia fall to corrupt practices – bribery and kickbacks,  from the President on down.  It started at the top.  The whole division got shut down.  I helped shut them down in fact.

    I’m telling you, if you think this is not happening under your nose, you are crazy.  And I was crazy for 18 years, as a Fortune 50 Purchasing Executive, when I thought it wasn’t happening under my nose either.

    Sometimes you have to be on the outside looking in before things are readily apparent.

    The only way you are going to get around this is

    a)      Get over your “this doesn’t happen where I work” beliefs.  Just throw those beliefs out the window.

    b)      Stop the focus just on the procurement department for code of conduct training and audits.  Executives and end users need to get the same level of scrutiny.

    c)       Get trained in Risk Assessments, Controls, Risk Management, and take control of your internal audit organization and tell them what to audit to.  They have no clue otherwise, despite their great training as auditors.

    My Power Purchasing Pro Training Program tells you exactly how to do the above – plus many other focus areas that comprise the 7 Deadly Sins of Purchasing.

    You don’t want to be doing this kind of training after an excursion.  Otherwise you will be like the person who gets fire insurance *after* your house has burned down.  That’s a bad place to be.

    And in all likelihood, the fire has already been burning right under your nose, and you and most everyone else in your firm or agency is unaware.  If it happened to me, it can happen to you.

    Keep pushing for excellence and integrity in our profession.  Don’t wait for someone else to do it….. It has to start with you.

    Talk with you next week.

    Be your best!

    –          Omid G

  • Purchasing Negotiations Training

    Purchasing Negotiations – Is Your Style Adaptive?

     

    You’ve been doing a lot of things the same for a long time.  Life would be too complex otherwise. Purchasing Negotiation Training

    Imagine if every time you wanted to brush your teeth, you had to sit and think about which teeth to start with, what type of strokes to use, how much pressure to exert, etc.

    The mundane would suddenly become a huge time sink, and there’d be no guarantees that you’d end up with better results.  It would be a nightmare.

    Luckily, your brain has accounted for the mundane.  It’s a part of your brain called the “Paleo-Cortex”.  No higher order thinking happens here.  Just the mundane, your regular rituals.

    Even making coffee or breakfast is governed by this part of your brain.  Unless you are using higher order thought when you scramble your eggs – and if you are, you have more problems than I can help you with!

    In any event, why would I even bring this up in a negotiations blog?

    Well, my concern is this: I’m worried that your negotiation strategies are stuck in your paleo-cortex, where they shouldn’t be.

    Why do I care?  Because all the training in the world does you no good if, in the heat of the moment, you revert to learned behaviors that are very possibly part of the problem.    Just because they are learned behaviors doesn’t mean they are productive ones.

    Worse yet, there will be no flashing neon sign telling you that your paleo-cortex has taken over.  In fact, you will be more at ease than ever.

    Why? Because the mundane is, well, mundane.  It requires little energy and little thought.  It just happens. And in our industry, that is not a good thing.

    Many bad things happen when let your paleo-cortex take over in negotiations.  Probably the worst is that you will employ a “one size fits all” approach in negotiations.

    Why is this a bad thing?  Why can’t you use a consistent strategy in negotiations?  Because a consistent strategy in negotiations will get you consistently bad results.

    Why? *Hear me clearly*:  Because your ability to be successful in negotiations hinges on you reading the situation and customizing a negotiation strategy for that situation.  Negotiations involve people and personalities, all with different motivators.

    Heck, even my 3 kids, all of whom are close in age, have completely different motivators. Each of them gets motivated by and responds to something different than the others.  I have to change my approach depending on which one I’m trying to influence.

    Why would adults, with all their idiosyncrasies, be any different?

    Negotiations is the art of achieving your high value TCO objectives while ensuring the other party feels good about the deal.  Even a cave man can sacrifice on price to make the supplier happy.  That doesn’t take any skills.

    Therefore, if your job is to find out non-price related motivators, you have to put your paleo-cortex to sleep and start really focusing on why the other person is in this negotiation with you, and what they need out of it to be successful.

    You also need to figure out what personality type they are.

    Some personalities are impatient and want short and succinct communications that get to the point – they thrive on time to results.  Others thrive on rich face to face communication and interactions with no rush.  Still others thrive on process flow documentation to ensure no excursions. Finally, some thrive on the status quo – they are willing to change, but they want to know why before they do.

    These are in fact the 4 high level personality types that you will find when working with people.  There’s much more to this, but for the purpose of a blog, this is what you will find in a nutshell.

    By understanding the personalities of everyone around you with whom you negotiate (and believe me, that’s everyone), you can do something incredible:

    Instead of negotiating using principles that are comfortable for you, you instead negotiate using principles that are comfortable for the other party, because you understand how they tick and what motivates them.  This gets you breakthrough results, with suppliers feeling good about the deal.

    The paleo-cortex couldn’t do this to save its life.  So keep that part of your brain focused on the things you truly don’t care about – like your methodology for washing your hands.  Once you check into work, put the rest of your gray matter to work and nail those TCO results.

    We’ll talk with you next week.  Be your best!

    Omid G

    P.S. Become Elite in our profession. Get my Elite Purchasing Training Here. 

  • Purchasing Training ~ Breakthrough Negotiation

    Getting Breakthrough Negotiation Results

    Suppliers are pretty smart.  They are smarter than you think actually.  Did you know sales people spend up to 40% of their time in training, while purchasing on average spends less than 2% of their time in training?

    It’s no wonder they are able to be so capable in selling solutions.  And as the old purchasing saying goes, “a solution looks suspiciously like a good or service, except it costs a lot more.” Purchasing Negotiation Training

    Here’s the deal.  Suppliers are well trained in negotiations.  More than most purchasing professionals.

    What does this mean to you?  It means when you aren’t prepared, or aren’t prepared enough, they will know it.  They WILL know it.

    But the issue continues.   They are not going to tell you that they don’t feel you are prepared.  They are actually trained on how to respond.  They are sure as heck not going to let the cat out of the bag and send you back to the drawing board for further planning.

    What kind of responses do suppliers come up with?  Their goal is to show you that the knife is cutting deep, and that you are the one wielding it.

    In fact, they will also make you feel like a superhero in the process.  Be prepared to hear things like this:

    “Nobody has ever been able to drive this kind of negotiation outcome like this before with us.  I had to break every rule in the book to make this happen, and getting this deal done required approvals all the way up to the head cheese.  You should really feel good about what you’ve negotiated with us.  This is not the norm. ”

    Pretty compelling, huh?  The problem is almost none of it is ever true.

    You see, there is only one thing that defines a good deal, and that is DATA.  Benchmarking, competitive bidding, favorably written Most Favored Customer contract clauses, cost models, value analysis – these are what define a good deal.

    But the supplier’s goal is to keep the focus away from those things, because then suddenly things become difficult.  Data is difficult to refute.

    It’s not their fault for doing all of this by the way.  Think about it, are any of your suppliers non-profit organizations?  Probably not.  They are in the business of making money.  That’s their job.

    So you need to do your job.  Don’t judge your negotiation skills and capabilities be judged based on  a supplier’s response, words, or actions.

    Judge your negotiation skills and capabilities by your preparation, and look at what the data tells you.  Let the data paint the picture.

    Not only that, let the data guide your strategy.  Negotiations are won and lost before they ever start – it’s all down to how you prepare, and what sort of analysis you do, and how you use it.

    On top of that, you need to get your behavioral strategies down pat.  We’re not trying to “get the upper hand” – that’s a 1950’s strategy.

    We’re trying to identify what unique motivators your supplier has and determining how to leverage those to create intrinsic motivation models for them to give you an even better TCO value proposition while still feeling good about the deal.

    There is an art and science to achieving breakthrough negotiation results, and I want to key you into these strategies.  I want to give you a chance to learn the powerful and game changing insider secrets I’ve developed to give you the tools to generate these kind of breakthrough negotiation results.

    To that end, I invite you to join us on my upcoming Advanced Purchasing Excellence Training Series Webinar, “Negotiation Strategies for Breakthrough TCO”.

    To learn all about it and join us, Click Here Now.

    Talk with you next week!

    Omid G

  • Purchasing Training ~ Managing Currency Risk

    Are You Managing Your Currency Risk?

    I’m vacationing in Italy and France right now with my wife, but being the dedicated guy that I am, I’m sneaking in a blog – being typed as I fly from Venice to Paris.

    After feeling the personal sting of currency exchange using the once mighty dollar (and it’s interesting to note that the root cause of the collapse of the dollar is all purchasing Purchasing Training - Managing Currency Riskrelated – by consumers, businesses, and government – but let’s not go there in this blog) here in Venice, I’m more sensitive to this topic.

    I had my US Dollars converted to Euros at pretty bad rates for the first few days.  It wasn’t until I took the time to do a quick internet search and found out that the market rate is .74 that I started to negotiate and convert in larger quantities – getting the best rates in the process.

    But what I realized was I made a rookie mistake.  My wife and I spent so much time researching and planning tickets, hotels, tours, etc that had good early rates with high reviews, that we totally overlooked currency exchange as a huge cost sucker.

    (Note: Keep reading and you’ll understand the connection to your job in a few paragraphs – there is a purchasing parable here)

    Until we figured out the system here, we were first getting .52 Euros for every dollar.  By the third day, I was getting .7 Euros to the dollar.  For you math geeks, the exchange companies were making 35% extra currency exchange profit off of me early on.

    So while my focus was on not getting ripped off on everything from a PRICE perspective, unbeknownst to me, I was getting ripped off not on price (well, I was, but not more than anyone else), but rather on exchange ratios.

    I also figured out that Europeans practice the “nibbling” strategy when selling things (e.g. try booking an inter-Europe flight and see how much the total cost comes out, as compared to the ticket price you were quoted up front), but we’ll save that for another blog.

    The bottom line is this:  virtually all supply chains are global now.  It’s an inescapable fact.  And with that, one of the costs we rarely spend time looking at are currency fluctuations, yet it’s one of the most impactful.

    I challenge you to find one person who knows that China’s exchange rate has increased from ~ 8:1 to around ~6:1 over the last decade.  And they are gradually making their currency stronger and stronger, through a pegging process – which means your country currency will buy less and less Chinese goods, Ceterus Paribus (“all things being equal” – an economics flashback for some of you I bet).

    That also means massive inflationary pressures for supply chains that run through China.  How many of those do you think you have?  TONS.   And the Chinese government plans to keep on bringing the exchange rate closer and closer to natural equilibrium – which means again more inflation for those buyers in other countries.

    Same thing with Brazil – their currency strength relative to the USD has doubled in the last 8 years.  DOUBLED.  That means the price to you doubled if you are paying in USD.  Not to mention world cup related inflation that’s happening now.

    Even if you aren’t sourcing internationally, your suppliers probably are.  And guess who that currency risk gets passed onto?  You guessed it!

    Well for starters, if their exchange rate becomes more favorable, your suppliers are going to quickly enjoy a fatter profit margin.  They’re certainly not going to contact you and let you know that you are due a currency driven discount.

    However, if currency rates change to a supplier’s detriment, you are the *first* person your supplier is going to call.  So if you aren’t paying attention, what will happen is you will bear the brunt of currency risk, but will never reap any benefits when it changes in your favor.

    You should also be looking at taxes and tariffs.  I know of one Fortune 50 company that legally has as many of their purchases go through their Oregon based purchasing department as possible, because Oregon doesn’t have sales tax.   Hey, if there’s a legal loophole that your company approves, why not take it?

    So don’t just look at your own currency risk management strategy, look at your supplier’s as well.  If your company is of reasonable size (say, Fortune 1000), then you should have a treasury department of sorts with at least one person who has professional training, experience, and current job scope related to management of currency risk.

    Talk to this person!  Make them earn their money!  Find out who is paying attention to currency risk for your materials and services purchases.  Is anyone?  It’s not enough for your price in USD not to change, you total cost has to not change.  And for that matter, if exchange rates change to your benefit, then your costs should improve.

    So now here I sit with Euros in hand, purchased at a favorable rate for current economic conditions.  It doesn’t mean I’m going to get a good deal though.

    Chances are, Parisian vendors of food, local transportation, and various trinkets all have ensured that my work is cut out for me.  While I’d like to tell you that I’m going to issue an RFQ for lattes, croissants, museums, and taxis…..it’s just not so.

    I’m afraid this is one market for which multiple sources are available for everything, but due to unique market conditions, all suppliers act like sole source vendors – they have you over a barrel and they know it.

    It’s all good.  My only objectives are to have a good time and not gain weight.  I already know a blanket PO is the only thing that works on these kind of trips.  For once, I’m not going to negotiate.  Not too hard, anyways.

    I’ll be back with you again next week, from someplace in Italy. Until then, be your best!  Ciao!!

    Omid G

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