Global Leaders in Procurement & Negotiations (PSCMInstitute.com)

Category: Supply Chain Management Training

  • 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 Training ~ Are You Managing Contract Spends?

    Purchasing & Supply Chain Management LawJust about the worst thing that happens in our profession every minute of every day is the overspending of contracts.

    If you ask me what’s one of the biggest sins that purchasing commits, this is the one I’d pick. Busting your tail to negotiate a great contract and then letting the contract get overspent… throwing cold water on all your efforts.

    When you let a contract get overspent, meaning you negotiate for one amount but you end up spending more than that, you are basically giving your supplier an out of cycle Christmas present, wrapped in a pretty red bow.

    And suppliers love you for it. Don’t think for one minute that they are going to tell you a contract is overspent.

    And why should they? They are in the business of making money.

    And contracts don’t expire when they are overspent. Expenditures against a contract do not affect its legal validity, unless you put some provision in there that expressly states so, and no standard template contains such a provision.

    What’s really bad is that I’ve yet to meet a buyer that’s not plagued by this issue. There’s probably billions of collective dollars being left on the table, with thousands of suppliers laughing all the way to the bank.

    Make it stop, please. It’s so avoidable.

    I know the problem. Your systems don’t easily track spends. Pulling the data is difficult, like pulling teeth. And then finding your supplier in the system may be difficult too, because one supplier could have 5, 10, or 20+ listings. Which one do you pick? And do you add up the expenditures for all of them?

    On top of that, you have 50 other responsibilities and deliverables that seem higher priority. It’s a hot mess in reality, and don’t think companies with multi-million dollar ERP systems are better off.

    So what to do? It’s really simple. Start holding suppliers accountable for tracking spends against contracts. Tell them that you want a monthly report stating spends against contract value, and for them to advise you before a contract is ever exceeded so you can act on that.

    Better yet, make this supplier monthly expenditure tracking mechanism a contractual requirement. Failure to do so is a breach of contract.

    And don’t forget, you can always renegotiate a contract. It’s your right. You don’t need to wait for it to expire. You don’t need to wait for the supplier to agree.

    You don’t need to wait for anyone to agree. It’s your contract!

    If you’ve overspent it, you should renegotiate it.

    If push comes to shove, that’s what the termination clause is for, but you really shouldn’t have to go there.

    It’s really simple. You tell the supplier that you negotiated those terms for $x and now you are spending more than that. They are getting economies of scale above and beyond what both of you bargained for, and so they need to come back with a revised proposal that reflects this increased amount of business.

    In my breakthrough skills courses, you will learn contract clause language that will force the supplier to track such expenditures for you, relieve you of detrimental reliance lawsuits if you underspend your forecasts, and also the biggest thing of all…

    …I have the mother of all secrets, which is how to extract savings from the money you already overspent the contract by. I’ll reveal this HUGE secret to you in my new training you can find here: https://purchasingadvantage.com/purchasing-contract-law-training.

    Anyway, the money you already overspent the contract by is not “water under the bridge”. I cover how to retroactively get additional savings on those monies. Money back to you, from checks the supplier already cashed and put in the bank!

    It’s not too difficult, but it is what I consider one of my member’s only type topics and it’s beyond what I can get into a blog entry.

    Suffice it to say that you should

    a) know exactly how much the value is of every contract you negotiate (and make sure your supplier knows too),
    b) know how much is spent against that contract on a regular basis,
    c) have measures in place to prevent over spending, and
    d) have measures in place to address circumstances where a contract is overspent so you don’t leave money on the table.

    Doing world class purchasing doesn’t have to mean that you are solving supply-chain world hunger. Sometimes the basics bring the biggest TCO value propositions. Don’t mess them up.

    In terms of low hanging fruit, this is watermelon. Go get it.

    Don’t forget to take a look at the brand new Purchasing Secrets of Contract Law Training  I’ve put together for you.

    See you next week!

  • Are You Operating in Your Comfort Zone?

    Purchasing Training - Time Flies
    20 years experience, but only 1 year experience 20 times?

    The comfort zone is, well, comfortable. That’s why it’s so easy to stay in.

    I was speaking to a large group of government purchasing professionals this week regarding this very topic.

    The problem with the comfort zone, as I put it to them, is that “20 years will pass, and you will suddenly find out that you don’t have 20 years experience, but rather, only 1 year experience 20 times!”

    This is a huge risk in our profession. We get so caught up in customer excursions, supplier excursions, email, meetings, presentations, and everything else that we forget that we got hired to make progress happen.

    Nobody ever got put on the fast track to becoming the next director of corporate purchasing because they were so good at putting out fires. You have to demonstrate that you can drive change.

    And if you wait around for someone else to drive that change and for you to follow, then you are on the “1 year experience 20 times” track that I mentioned above. It’s a very long road to a very small house.

    Don’t wait for someone to crown you. You can crown yourself. Figure out what’s broken in your department and make it your new project to fix that problem.

    I know that’s what I did. I was 23 years old, fresh with an MBA, and I figured out really quickly that my company, a Fortune 50 company no less, had great deficiencies in their negotiation skills and legal knowledge.

    Guess what, I spent time perfecting that craft, and pretty soon, 20 year industry veterans were coming to me for advice. Management took notice, and I started getting moved up the ladder. They also had me start training their purchasing departments around the world. Things just took off from there.

    I crowned myself, and you can do that too!

    Look around you. What are the one or two problems that everyone in your department is struggling with? That takes up their time and makes them frustrated? This has to be a problem that nobody likes, but everyone has just gotten used to, the same way you might get used to a headache.

    Figure out how to become an expert in that area. All you have to do from there is to start implementing what you’ve learned and getting better results than everyone else.
    Then the magic happens.

    Other people figure it out. They start to come to you to ask questions, to ask advice, to ask how you solved that problem.

    Now don’t make the mistake of hoarding information. Share. It’s not enough to perform well if you want to catapult your career. You also have to bring everyone else up to your level.

    Make the department a better place because of your presence. Out-perform your pay grade. That’s when management will take notice.

    Now’s the perfect time. Last week we talked about setting your job goals for the year. Bake these ambitions into your annual goals, and make sure you have actions to back them up – otherwise, nothing happens.

    Here are the kind of areas that you can look at getting really good at:

    • Negotiations
    • Contract Law
    • Post Contract Management
    • Supplier Management
    • Supplier Selection
    • Requisitioning Processes
    • Supplier Expenditure Tracking
    • Shipping Practices
    • Multi-Sourcing Models
    • etc

    I have lots of training products on all of the above, if you ever find you need my help. If you haven’t read my first book yet, go grab your copy by Clicking Here now.  It’s been called “required reading”.

    If you want to know breakthrough purchasing techniques that have been painstakingly gathered from the best of the best in every industry and geography over a 20 year period, married with powerful insight and strategies that you won’t find anywhere else, you should get and read a copy of this book.

    Packed with process steps, templates, checklists, tips, and best practices, you will know *exactly* what to do differently when you get back to your desk.

    Key chapter focus areas include:

    • Total cost analysis
    • Win-win negotiations
    • Sourcing models
    • Complex negotiation pitfalls
    • Key elements of purchasing contract law
    • The process of preparing for and holding negotiations
    • Key behavioral and data based negotiation methods that crack cases
    You could spend 20 years trying to gather this information yourself, or you can make these world class strategies a part of your arsenal right now when you get your copy of this internationally acclaimed book. Check it out by clicking here now.

    The most important thing though is to get a little better every day. Pretty soon it adds up.

    Be careful though, because in our profession, the days are long and the years are short. Take advantage of every opportunity you have, be your best and crown yourself!

  • What Purchasing Professionals Have to be Grateful For

    Supply Chain Management Training
    Happy Holidays!

    It’s the holiday season, and I’m going to keep this short.

    What you have to be grateful for is working in the greatest profession on earth. I mean it. Just think about it.

    You have power that comes with your position. You have the power to give, and you have the power to take.

    You are a people manager, because you have a slew of suppliers and their personnel at your beck and call. If they are not, you are missing an opportunity. There are no individual contributors in our field.

    You get to learn contracts and cost analysis, both of which have huge carryovers to your personal life.

    You get to learn and practice how to influence people. How to make them want to be with you, instead of them feeling like they *have* to be with you. This applies to work, friends, family, and all aspects of life.

    You get to learn how to not achieve what you want without using authority. Beyond workplace benefits, this makes you a better parent – or grandparent – as well.

    You are one of two departments in the company who directly generate profit – along with the sales department. And if your company can’t buy, then they can’t sell. Purchasing is critical. Your department is at the center of it all.

    Even so, you still don’t have to hinge your livelihood on swinging deals or not like sales people do. You have the money and they don’t. It’s that simple. And all you have to do is manage it right and help them win too.

    And the most important thing of all that you should be thankful for as a purchasing professional: The biggest thing to hit business since the internet and the industrial revolution is happening, and that is Supply Chain Management.

    And guess which group inside your company will get catapulted to the forefront in leading this new journey?

    You guessed it.

    There is no better place to be right now than in the purchasing profession.

    So take time to appreciate what you have with your job and this profession. It doesn’t get any better than this. Who’s got it better than us?

    Happy holidays to all of you, and thank you for giving me the best job in the world.

    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

  • Look at What Currency Risk is Doing to Your TCO!

    Supply Chain Management training - currency exchange
    Prepare Now for Currency Risk

    We talk a lot about TCO. That’s our business. But there is a huge currency risk issue rumbling and I don’t hear and haven’t heard anyone talking about it.

    It has to do with the Chinese Yuan, and ALL of you are affected by it, whether or not your direct supply base is in China.

    Mind you, this is not an academic or theoretical article. I can send you places to go look for those, but you won’t find them in my blogs, articles, or books. You need to be reading this blog if you are in the purchasing and supply chain management profession.

    First off, ask yourself how much of your supply line is hinged on China. You really have to look deep, but it’s the supply chain that matters, not just your suppliers. The answer is, almost every supply chain runs through China. It’s scary. And there’s only one reason: COST.

    Now, the Chinese government does something known as “pegging”. This means that they artificially manipulate the value of their currency. In this case, they intentionally keep it undervalued. They do this in the open marketplace.

    What’s the benefit of undervaluing your currency? It makes everything you sell cheaper for other countries to buy. Other countries get more Chinese Yuan for every unit of their currency, therefore they are inclined to buy more.

    That’s why US exports always increase and improve in a bad economy – because when the chips are down, currency values goes down, and other countries suddenly find your exports to be much cheaper….and so it becomes Black Friday for US goods, and other countries start buying like crazy.

    I’m sure by now you want me to get to the point. Why are we going through this exercise???

    Well, in 2005, the Chinese decided to slowly decrease the amount by which they artificially devalued their own currency. They introduced a monetary policy that allowed their currency to increase in value by up to 1% per day.

    THAT EQUATES TO UP TO 1% COST INCREASE PER DAY TO ANYONE BUYING CHINESE GOODS FROM OTHER COUNTRIES.

    Now I just read an analysis that if the Chinese government stopped pegging its currency, it would trade at an estimated 3.73 Chinese Yuan to 1 USD (US Dollar). It’s currently at 6.09 Chinese Yuan to 1 USD!

    So let’s use some real numbers. Let’s say you want to buy a direct materials component from China for which they are charging $1,000 Chinese Yuan per unit. Let’s do this under 3 exchange rate scenarios:

    Supply Chain Managemtnt training - exchange rate
    Now do you see what I’m talking about? HOLY COW!! The US price conversion is going through the roof! TCO is taking off like a Ferrari…..only to a bad part of town!

    By the way, the US government is pushing for the last scenario – no pegging of Chinese currency at all. This will introduce devastating inflationary pressures in every supply chain that runs through China. This IS going to happen eventually. You need to be worried! Better yet, be prepared.

    Do you have currency risk mitigation plans in place? Do you have sourcing arrangements in place that allow you to shift your supply line away from currency risk situations when needed? What are you doing about currency risk in your supply line?

    Currency risk is just one part of TCO, but it could get huge if your supply line runs through China. And it probably does.

    Work with me to be the best there is in the purchasing and supply chain management field. I’ll train you and your organization to produce world class results, period. And it costs you nothing, because you will save so much more TCO than you were before.

    See you next week!

  • How Suppliers Let Themselves Off the Hook for Poor Performance

    Supply Chain Management Contract Training
    Beware of Force Majeure

    Suppliers perform poorly everywhere. Sometimes it’s their fault, sometimes it’s not.

    Ever see a sports star go to another team and then suddenly lose their magic? You have to wonder if it’s a coaching problem. In our case, a poorly performing supplier may be a purchasing problem!

    In any event, the one thing you have to remember is suppliers are in the business of making money. Period, end. The more you write your contracts to allow them to be guaranteed the money without contractually having to deliver performance, the worse off you are.

    Just one of the clauses you really need to pay attention to, and what will be the focus for this week’s blog, is the Force Majeure or Contingencies clause in your contract. Force Majeure means “major force” in French. That’s the only French I know, don’t get excited!

    What does this clause do? Well, it gives one or both parties a “get out of jail free pass” when they fail to perform due to certain circumstances that are undeniably outside of their control. These are called “Acts of God” in the legal community.

    Put your religious beliefs outside and just keep your focus on the intent here. What this means is if it’s an “Act of God”, then it is not an act brought about by you or the supplier.

    What kind of things qualify? Tornado, hurricane, natural flood, tsunami, earthquake, war, attacks by foreign enemies, mass civil riot and unrest, things like that.

    Now this clause can be unilateral (applying to the supplier only in our case) or bilateral (applying to both parties). It’s better to have it bilateral, because your company may be hit by one of these things and then be unable to pay the supplier on time. Instead of being a breach of contract, you’d be able to claim temporary exemption due to Force Majeure, without damages being invoked.

    Here’s a typical Force Majeure clause that a supplier would like to see inserted in your contract, and they will very frequently try to slip some tricky things in, just to see if you are paying attention. See if you can catch it:

    If either party hereto is prevented in the performance of any act required hereunder by reason of act of God, fire, flood, or other disaster, malicious injury, strikes, lock-outs, or other labor troubles, supplier late deliveries, supply line interruptions, riots, insurrection, or war, then performance of such act shall be excused for the period of the delay and the period of the performance of any such act shall be extended for a period equivalent to the period of such delay except that if any delay exceeds six months, then the party entitled to such performance shall have the option to terminate this Agreement.

    Did you catch it? Read it again if you didn’t.

    The supplier wants YOU to be responsible if THEIR labor goes on strike, or if THEY choose to lock the building and keep employees out or if THEIR suppliers deliver late to them or if THEY experience a materials supply line interruption.

    They also included things like fire or flood. Now, if an entire city was flooded or on fire, then that would be acceptable. However, if their building was not to code and they flooded their own building or the building caught on fire as a result, the supplier would once again want to chalk this up as an “Act of God” and be off the hook for performance. Not a bad deal for them, huh?

    In other words, suppliers want their own mismanagement of their labor force and their supply line and their building to be considered an “Act of God” and for YOU to pay the consequences without right or recourse. Not going to happen!

    But the sad reality is that purchasing professionals sign up to this all the time, and suppliers laugh all the way back to their office afterwards. My purchasing friends and followers,we are better than this.

    Now, let me make this a little more dismal. This is just ONE clause that makes us vulnerable in the contract when we don’t have proper knowledge. There’s probably 100 such clauses and potential “gotchas” in every contract you sign.

    And you never realize you got duped until way after you signed the contract…. when something goes wrong. And if you get duped bad enough, you tarnish your results and your perception inside your company. You may even have to brush off your resume and look for a fresh start elsewhere.

    Does it really have to get to that point though?

    The ground shaking announcement coming from me personally on January 1st, 2014 is going to solve this and all your other purchasing and supply chain management nightmares. It is going to give you the tools to catapult your career, your income, and your results forever.

    I can’t wait. Don’t you dare miss it.

    See you next week!

  • 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!

  • Purchasing Contract Training

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

     

    Purchasing contract training
    Best Friend or Worst Enemy?

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

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

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

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

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

    However, it did happen.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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