Your enemy in negotiations is not who you think it is. They don’t sit on the other side of the table.
Your enemy is within. Almost all external negotiations fail because of internal negotiation failure.
Negotiations do not start when you engage suppliers in potential purchase talks. They start when your end user engages you in potential purchase talks.
So, is your end user the enemy? Not hardly. The design of the SOW or spec is your enemy. And we pay so little attention to it.
You’re waiting, ever impatiently, for the end user to give you the finalized spec or SOW, so you can run with it.
But do you ever stop and ask them how they came up with it? Or shift the focus from what they are trying to buy over to what they are trying to accomplish?
Read this twice: You must always ask and understand how the end user came up with the product or service design.
If the answer is that some person or some team internally came up with it, then you know there will be problems.
Why? Because that’s code for “we’re the first people on the planet earth to ever try out this idea, and we hope it works”.
Custom solutions are overrated. Highly overrated. In every aspect of life. There are no exceptions.
They’re overrated because you’ll be the first customer ever to try out the idea. You’ll also be the first person ever to find out all the mistakes in the design. And it will also cost a lot more than something that was a standard solution.
Standard solutions are underrated. Highly underrated. In every aspect of life. There are no exceptions.
The person with the custom home had their home completed later than they expected, it costed more than expected (and WAY more than standard designs), and they won’t learn all the things they don’t like about the house until the money leaves their account and they move in. Living in a custom house is totally different than looking at it on a piece of paper.
The iconic Concorde passenger airline jet was over twice as fast as any modern day commercial airline plane but had serious cost (and other) problems. Only the rich and famous could afford it.
And it was 100% custom designed from scratch. The enemy of procurement.
And now, the fastest passenger jet plane in the world hasn’t flown a single flight in over 20 years.
Enter Boom, the supersonic jet company that you’ll start hearing a lot more about soon. They’ll replicate the Concorde’s capabilities without the environmental impacts or the financial constraints.
The Boom-Overture will fly from New York to London in the same amount of time as the Concorde but will cost 75% less per ticket (adjusted for inflation).
The development costs for the Boom-Overture will also be far less than for other planes. Two recent clean sheet designs in aviation were the A380 and the 787. The A380 cost about (USD) $25B and the 787 cost over $30B.
The Boom-Overture plane design and development is costing only $6B, and NONE of this savings is coming from procurement deftly hammering suppliers in negotiations.
So if procurement is not achieving these billions of dollars in savings, enabling supersonic travel for 75% less cost, who is?
Answer: it’s the end users. They swallowed their ego and are reusing designs and components.
For instance, the landing gear is reused from the F16 landing gear. It’s proven, it’s already designed, it’s already in use, the molds are already in place, the design costs are already spent, and so on.
In every instance possible, they are reusing existing designs or modifying existing designs – turning a stool into a chair, working off of existing technology.
Standardization is the key to success in procurement. Customization is the enemy. The enemy within.
So what does this mean to procurement? It means that negotiations to achieve cost savings start with the business units and not with suppliers.
By the time an ill-conceived design makes its way to your suppliers, there is nothing the supplier has in their bag of tricks to undo this issue. All they can do is offer to make a little less profit per unit if you buy more of this bad design.
Spread your wings and recognize that your biggest savings opportunities are internal and not with suppliers. Expand your scope. Expand your influence. Expand your skills.
Now go off and do something wonderful. Be your best!
Omid G.
“THE Godfather of Negotiation Planning” ~ Intel Corp
P.S. if you would like to have an internal evaluation done of your organizational negotiation capability, with follow on customized training to elevate capability, we are the global leaders. We’ll put your org on track for 5-10% sustained higher savings across the board after our collaboration is over. Contact my office at support@purchasingadvantage.com to find out more.
