Best Practices in Supply Management Journal

51st Edition, August/September 2011

Articles In This Issue
"Preparing for Winning Negotiations - Part 2"
"Has Strategic Sourcing Really Been Done (Reprint)"

SPS News, Founder Appearances, & Career Opportunities

 

Mark Trowbridge will be the keynote presenter at on the topic of the Changing Role of Negotiations in Strategic Sourcing sponsored by ISM Northern California at the prestigious Le Meridian Hotel in San Francisco.  Find out more by emailing ISM NC

Executive Director Jim Hays at jhays1@ix.netcom.com  

 

Mark Trowbridge will be a keynote presenter on the topic of Finding Additional Savings through Supplier Management, and will also present our two day Advanced Procurement Negotiation workshop in Dubai at the MENA Strategic Procurement Conference October 30 - November 2.  Find out more at Dubai Conference Sign Up

 

Mark will also be presenting our two day Supplier Performance Management workshop in Malaysia (Kuala Lampur) on October 17 - 18.  Find out more at Malaysia Conference Sign-Up

Job Opportunities:  We are currently helping clients fill the following SCM career opportunities.  Please contact Strategic Procurement Solutions through our website if interested...

 

-  Information Technology Contract Negotiation Consultant, Must be US Based.  Temporary Contract Position.  Contract Compensation between $150K and $180K (Annualized).  Placement of 3 to 6 Months, Negotiating the Consolidation of Master IT Agreements.

 

 -  Procurement Technology Technical Liaison, Oil/Gas Industry, Anchorage, Alaska.  Strong Experience Implementing and Optimizing ERP and Procurement Sourcing Tools Required.  Permanent Hire Position, Base Salary Between $120K and $140K.  Excellent Benefits and Bonus Package.  Relocation Negotiable.

- Technology Procurement Manager, South Carolina, Permanent Hire Position, Base Salary Between $100K and $110K, Excellent Benefits and Bonus Package.  Relocation Negotiable.

 

- Procurement Team Leader (MRO Products), Oil & Gas Sector, Southern California.  Permanent Hire Position, Base Salary Between $120K and $140K, Excellent Benefits and Bonus Package.  Relocation Negotiable. 

 

- Global Inventory Management "Best Practice" Leader, Oil & Gas Sector, Europe or USA.  Permanent Hire Position, Base Salary Between $120K and $145K, Excellent Benefits and Bonus Package.  Relocation Negotiable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


This electronic journal is now distributed bi-monthly to nearly 10,000 Supply Management Professionals around the globe.  Click on the "Join our Mailing List" button if you would would like to receive without charge, and feel free to forward to your SCM colleagues!  In return, just keep SPS in mind if your organization ever needs top quality Supply Management Consulting, Employee Skills Testing, Training, P2P Efficiency Reviews, Cost Reduction or Staff Augmentation Services.

 

"Preparing for Winning Negotiations - Part 2..." - by Mark Trowbridge - Principal, CPSM, C.P.M. 

Since writing the first article in this series, Strategic Procurement Solutions has had the privilege to lead a number of global company sourcing groups and a large SCM conference audience through our two day Advanced Procurement Negotiations™ training workshop. Feedback from the participants about important lessons they had learned confirmed again just how important proper preparations are to a winning negotiation strategy.

Football legend Paul "Bear" Bryant once observed that, "It's not the will to win that matters-everyone has that. It's the will to prepare to win that matters."

And American founding father Benjamin Franklin said, "By failing to prepare you are preparing to fail."

So how can procurement leaders best prepare to conduct high-dollar negotiations? As we discussed in the first article, 75% of the total time spent in a complex negotiation process should be occupied by preparation activities. The first article in this series outlined several simple preparations we should conduct. This article will describe more techniques to outmaneuver the supplier's negotiating team by being better-prepared...

Technique #4 - Prepare by Reviewing History- When a sourcing team is preparing to enter negotiations with a supplier, they should not neglect to check on any past relationship which may have occurred with that company. Information about the supplier's past performance can be extremely valuable leverage in negotiating a new relationship:

 

First - Review Supplier Past Performance - if your company has a good supplier management program in place, then reviewing past performance records (including scorecards) is an essential task in preparing for a new negotiation.

 

Second - Interview Past Supplier Managers - it is well worth your time to interview your organization's personnel who have managed prior relationships with this supplier in the past. The old expression holds true that, "Those who cannot remember the past are condemned to repeat it." These persons may also have useful advice for negotiating with this supplier.

 

Several years ago, I helped a corporate client to renegotiate an outsourced technology service relationship. This was a single source circumstance, and thus our negotiating team had little leverage. And the client firm's management warned me that the supplier had successfully increased their prices at all prior contract renewals.

 

 Sure enough, the supplier notified the client of a cost increase before we even entered the negotiation session. Seeing what we were going to be up against, I had our negotiation team review the supplier's historical performance with them. One key metric put them at a historical 95% performance level (this level was actually acceptable to the client, by the way). But I found in the contract, and also in the supplier's published marketing materials, statement that said most of their customers experienced a 98% performance level for this metric.

 

 So we took a different approach... We entered the negotiations, and agreed to a modest fee increase (not what the supplier had proposed). The supplier was somewhat surprised. But later we told the supplier that fee level would pertain only to performance at the 98% level, and that we were insisting on tiered penalties for lesser performance. For each single point percentage drop in monthly performance, we insisted on a 5% reduction in total fees. The supplier reluctantly agreed. Two years later, they have still not gotten their performance to the promised level...and the client has received a cost savings as a result of our approach.

 

Technique #5 - Prepare by Preparing the Negotiation Team - Inadequate time spent preparing the negotiation team will invariably result in a poor negotiation. Key factors include...

 

First - Select the Right Team Members - The initial step in preparing your negotiation team is to select the right team members. Just like choosing the right actors determines the success of a theatrical performance, having the right persons on our team can determine our negotiation success.

 

Ideally, negotiation team members should be persons who have been on the cross-functional sourcing team leading up to the negotiations. They will have a common understanding of the history and goals surrounding the negotiation. Team members should be chosen, or excluded, based on their leadership and negotiation abilities.

 

Your team needs to be comprised of persons with particular responsibilities and abilities. They must represent decision makers that cover the scope of the negotiable elements to be discussed.

 

Second - Exclude the Wrong Team Members - Let's face it. There are some employees who really shouldn't be part of a negotiating team. This could be the senior manager who always manages to work around procurement. Or the engineering director who is friendly with the supplier's VP. Or simply the manager who always gives in to others requests. Don't allow the wrong person to be on the negotiation team. It's impossible for them to concede on an important issue if they aren't in the room.

 

Third - Assign Team Member Responsibilities - In addition to their presence on the negotiation team by organizational responsibilities, each participant must be assigned additional responsibilities that facilitate team functionality. One person should be assigned to take notes (because the buying organization should be the team which volunteers to prepare and distribute meeting minutes...you definitely don't want the supplier to summarize negotiation concessions from their perspective). Another person(s) might be assigned to perform financial calculations, hopefully using an Excel workbook that can recalculate TCO with simple cell entries. Other persons might be tasked with observing and reporting on body language exhibited by the opposing team...or even being aware of notes the opponents are taking.

 

Technique #6 - Prepare by Rehearsing Non-Verbal Signals - If your child's soccer or baseball coach can have hand signals rehearsed, so can your negotiation team. Failure to have silent signals means that difficult topics may be aired in front of the opposing group. It it might mean trying to kick a colleague under the table to stop them from sharing confidential information. 

 

But simple non-verbal signals can be a great asset in negotiations.  At a minimum, our team needs to understand when to: (i) Take a caucus break, (ii) Stop talking, or (iii) Change direction. Signals can be simple ones like tapping or clicking a pen, touching an ear, closing a notebook, etc.

 

Technique #7 - Prepare by Completing a Strategy Worksheet - Beyond the scope of this short article, a negotiation team should go through a structured thought and strategy development process well in advance of any key supplier negotiation. That process, which may involve review or creation of many pages of analysis, can typically be summarized down to a single Negotiation Strategy Sheet (procurement practitioners can email
us at
Info@StrategicProcurementSolutions.com for a sample). But don't make the mistake of letting your opponents see your summary sheet. I firmly believe that every salesperson is taught (in Sales 101) how to read writing upside down. I'll be frank...my years in procurement negotiations have also taught me to read things upside down across a table. The five minute fix?  Go to the supplier's website and right-click on their logo. Copy it to the middle a clean Word document, and title the page something like "Negotiation with ACME Corporation", and staple the document in front of your strategy worksheet and supporting documents. The supplier will be surprised that your company is taking the negotiation more-seriously than their other customers.

 

Hopefully these two articles have provided some helpful ways to Prepare for a Winning Negotiation. Taking time to prepare for negotiations will greatly improve the outcomes of those interactions.  As US president Abraham Lincoln once said, "If I had eight hours to chop down a tree, I'd spend six sharpening my axe."

Please email Info@StrategicProcurementSolutions.com if you would like more information about the Advanced Procurement Negotiation™ workshop or our other supply chain management testing or training programs.

About the Author - Mark Trowbridge is one of Strategic Procurement Solutions' founding principals.  His 27 years of procurement leadership experience have included 12 years in the consulting industry, following successful corporate positions in the Manufacturing, Transportation, and Financial Services sectors that culminated in a role directing all Contracting Management and most Strategic Sourcing activities for Bank of America (then the USA's 3rd most-profitable company).  Mr. Trowbridge's business travels have taken him throughout North America, Europe, Asia, Malaysia, and the Middle East.  He is a frequent author for publications like

Inside Supply Management Magazine, Supply Chain Management Review Journal, and

eSide Supply Management.

 

 

"Has Strategic Sourcing Really Been Done?"- by Robert Dunn, Principal, M.B.A.

[The link to this article in the last journal had the wrong title.  So we're reprinting this since the content is very meaningful]

 

Well, Strategic Sourcing has now been around for about 20 years.  What started as a movement from several leading consultancies and spread into the corporate marketplace due to articles like that in Fortune Magazine titled "Purchasing, the CFO's Secret Weapon", is now advertised as a success by many procurement teams. 

 

But it still surprises Strategic Procurement Solutions' practice leaders to find how few organizations have truly "sourced" their large spend categories.  This confusion seems to exist because many supply chain professionals still hold misconceptions about what Strategic Sourcing really means

 

This article will discuss three misconceptions about Strategic Sourcing held today:

 

Misconception #1 - Strategic Sourcing is the same as Competitive Bidding:  Many supply chain practitioners still largely equate "sourcing" with "competitive bidding".  They figure if most contracts were established according to organizational policy by following a solicitation process, then the spend category has been "sourced".  Wrong.  Wrong.  Wrong.  This misconception fails to recognize that real Strategic Sourcing requires a systematic approach to supplier consolidation, leveraging, and SCM re-engineering across entire spend categories.  Just doing "three bids and a cloud of dust" does not accomplish the goals of true sourcing.  And even though everything may have been "bid", it has not necessarily been "sourced".

 

The governmental sector is one where this is especially true.  By policy, nearly every public sector organization requires competitive solicitations to be performed for most transactions (except for true "sole" or "single" source expenditures).  But it is widely-recognized that most governmental agencies have not done a good job of consolidating and leveraging entire spend categories.  They may have bid out the expenditure, but spending, supplier selection, and product specifications remain largely fragmented between different buying groups.

 

Private sector companies also share this misconception.  They too have usually bid out some subcategories of spending, without ever doing large scale leveraging across an entire sector.  In the many 360 Degree Supply Management Efficiency Assessments that Strategic Procurement Solutions performs for leading companies, opportunities for greater sourcing leverage are a frequent finding.

 

Just because a procurement team is actively involved with their customer groups in doing bids and negotiations for standalone supplier acquisitions, does not at all mean Strategic Sourcing has been performed.  Only when entire spend segments have been properly leveraged can sourcing yield the benefits designed.

 

Misconception #2 - Strategic Sourcing requires Competitive Bidding:  This popular misconception fails to recognize that collaborative negotiation is one of the key techniques used by advanced supply management groups in the Strategic Sourcing process.  When we teach corporate procurement groups how to analyze specific spend categories, and put together a sophisticated sourcing strategy (we have a great three day onsite training workshop titled Expert Strategic Sourcing™), one of the key techniques is to correctly-identify sector attributes and choose a pathway (either Competition or Collaborative Negotiation).  

 

 A study of 5,000 procurement groups performed several years ago by the Institute of Management Administration (IOMA) found that the single-most-beneficial "best practice" they utilized was "renegotiation of existing supplier relationships".  

 

But for Strategic Sourcing to have been performed in processes which may involve collaborative negotiations rather than bidding, again a sourcing strategy methodology must have been designed, explored, and leveraged.

 

Misconception #3 - Strategic Sourcing results in more work for Supply Management:  False.  While the extensive requirements to do sourcing do take quite a bit of initial time, true sourcing reduces the transactional activities of the procurement team in several ways:

 

First, proper sourcing should consolidate the supplier base by a factor of 3x to 5x.  Fewer suppliers should be used, since a proper selection path has been followed that narrows down the qualified suppliers in each spend category (in many cases, establishing single source supply relationships).

 

Second, proper sourcing results in long-term contracts being awarded.  Less-frequent renewals and contract preparation should result in greater time availability from sourcing personnel.

 

Third, with the establishment of long-term contracts and implementation of eProcurement ordering technologies, procurement should be involved in a lesser degree of transactional purchasing activities.

 

These are just a few misconceptions which exist today about whether Strategic Sourcing has actually been done.  More certainly exist today.  The failure to recognize whether proper sourcing strategies have been applied means that value and efficiency have still not been achieved.  Strategic Procurement Solutions has measurable metrics and tests to properly help organizations answer this question about their key spend segments. 
 

Please email Info@StrategicProcurementSolutions.com if you would like more information about the Expert Strategic Sourcing™ training workshop or our 360 Degree Supply Management Efficiency Assessment™ evaluation services.

 

 

About the Author: Robert Dunn is one of Strategic Procurement Solutions' founding principals. His corporate career has included procurement leadership roles in the Government, Technology, and Financial Services sectors, finally leading all procurement operations for the third most-profitable firm in the United States.  He served as President of two ISM chapters, and chaired the CAPS Banking Benchmark Committee.  He has taught in the field of supply chain management at the post-graduate level for universities, including St. Mary's University and Cal State Hayward.   Mr. Dunn's 35+ years of business experience have taken him throughout North America, Europe, Latin America, and Asia.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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