Selling and Negotiating with Procurement€¦ · Selling and Negotiating with Procurement ... CCWP...

© 2012 Crain Communications Inc

Concurrent Session: Sales & Marketing

Selling and Negotiating with Procurement

• Bryan Peña, VP, Contingent Workforce Strategies and Research, Staffing Industry Analysts

Wednesday, March 14 | 2:00 pm | Veranda DE


Agenda

• About me• CWS Council

~ What's important

• Procurements role~ Purchasing vs. Procurement

• Secrets• Tips and Guidelines


Who is this guy?


“Ask the Procurement Guy”

• Appeared in CWS Magazine

• CWS 3.0

• Q&A focused on best practices in contingent labor space


©2012 by Crain Communications Inc. All rights reserved.

Staffing Industry Analysts launches the CCWP Training andCertification Program for contingent workforce program management professionals.

CCWP Training and Certification will be for both corporate CW program buyers and provider professional staff.

CCWP Training & Certification Program


CWS COUNCIL


CWS Council Members (partial list)


Procurement

• What is it you always wanted to know?


State of the Buyer Community


Blame this guy…..


46%

63%

44%

70%

23%

38% 39%

59%

1,000-1,999employees



10,000 or moreemployees

Percent of Buyers Reporting HR & Procurement in Lead Roles, as a Function of Firm Size

Procurement from corporate/ headquarters

HR from corporate/ headquarters


36%

55%

55%60%

69%70%

57%

54%56% 54%

2005 2006 2007 2008 2010

Procurement vs. HR: Percent of companies where each plays a lead role in supplier selection

Procurement Human Resources


8%

13%

14%

15%

16%

37%

50%

63%

Executives from outside corporate/HQ(other than HR or procurement/finance)

Executives from corporate/HQ (otherthan HR or procurement/finance)

Procurement/finance (from outsidecorporate/headquarters)

Master staffing supplier (lead staffingsupplier/agency)

HR (from outsidecorporate/headquarters)

Hiring managers

HR from corporate/headquarters

Procurement/finance fromcorporate/headquarters

Which of the following plays a lead role in selecting your suppliers?


18%22%

30%42%

24%26%

41%46%

52%66%

29%59%

72%39%

77%

20%20%

16%15%

38%46%

34%30%

28%15%

57%29%

16%49%

15%

HRORPO

Master supplierSignificant use of offshoring

Global CW managementTry new suppliers

Vendor for IC screening, complianceSupplier tiering list

Increase use of WMBE suppliersMSP

CW planning in strategic planningConsolidating suppliers

VMSIncluding SOW workers in CW program

Approved list

In Place Today Likely to be Seriously Explored within 2 years

Staffing supplier management strategies


Purchasing vs Procurement

Procurement is not Purchasing!!!!



The transactional process of buying goods and or services.



A disciplined, systematic improvement

process applied to purchased materials,

supplies and services resulting in

improved competitive position.


Are they ever happy?


Secret #1•Providers should know their value….


Capture Margin

Reduce Cost

Manage Demand

Create Value


Cyclical ProcessSourcing is a cyclical process,

with four distinct phases• Capture Margin • Reduce Cost• Manage Demand• Create Value

Different spend categories/companies are at different phases in the cycle


Stages Have Different Negotiation Approaches

• Capture Margin~ Approach Suppliers for Reduction in Pricing

• Reduce Cost~ RFP for MSP services

• Manage Demand~ Constraint s on internal usage

• Create Value~ Collaboratively work to identify non-direct

sources of value


HighValue

Leverage

StrategyExploit purchasing power, for instance through tendering, target pricing, and product substitution.

StrategicSpecialist nature, or market with few supplies or suppliers. High mutual dependence. Critical to BU continuity. Requires careful management of strategic partnerships.StrategyExploit, Balance, Diversify

LowValue

Non-Critical

StrategyStandardization, process efficiency (p-card) & Inventory Optimization (kanban, fill programs)

BottleneckEssential to ensure supply.StrategyMultiple Suppliers, security of inventories, hedging, broadening specifications, searching for alternative sources, back-up plans, and long term contracts.

Low Risk High Risk

Value is assessed in terms of the value added by the product and the importance of the product to the business and the impact on the company's profitability.

Risk is measured by, supply scarcity, complexity of the supply market, materials substitution, barriers to entry, logistics, and monopoly conditions.


Secret #2•RFP’s are often ineffective decision tools….


How Do You Know?


— Eliminate (or “freeze”) uncompetitive suppliers— Incorporate best supplier ideas into our MDO— Drive toward MDO with preferred supplier(s) using

maximum available leverage

• First Round

• Second Round

• Third Round

• Subsequent Rounds

Round Typical Techniques (May Vary By Buying Company)

Strategic Sourcing negotiations typically last three or more “rounds”

• Each round will have different objectives and incorporate different techniques

— Clarify information submitted in response to the RFP— Establish each suppliers' specific interest— Explore/test options that favor our interests

— Redefine MDO, LAA & BATNA— Identify real “players” — Push back aggressively on laggard/unresponsive suppliers

— Make orderly concessions to reach agreement always being cognizant of LAA & BATNA

— Form basis for long-term relationship (if applicable)


Hard Criteria:• Agreement to Contract Terms• Company Size• Delivery• Distributor vs mfg• Financial Stability, Market Share, Return on Assets• Geographic Compatibility• Industry Position• Insurance • Price• Quality Processes• Ownership


Soft Criteria:• Available Resources• Capabilities & Technology• Capacity• Commitment to Continuous Improvement• Corporate Sustainability• Ethics• Flexibility• Honest Open Communication/Culture• Management Support • References• Strategic Importance to Client Company• Strategic Synergy


Potential Sourcing Strategies• Total Cost Reduction• Utilize competitive bid

process.• Renegotiate with

incumbent.• Rebates• Cap Prices• Volume Leveraging• Redistribute volume.• Bundling with other

commodities or services• Improved Quality• Improved Process• Reduction or elimination of

waste.• Reduction in transportation

or energy.• Waste elimination.


Levers for Procurement – Pricing

•Benchmark internal prices•Renegotiate/rollback prices•Unbundle prices and model “should-costs”•“Threaten-back” leverage•Use competitive bidding•Use commodity hedging/trading•Index/cap prices•Compare total cost•Base pricing on profitability•Develop long-term contracts


Procurement Consultants


Secret #3

•Savings….yeah it matters……


Revenue ValueA dollar saved is more than a dollar earned!

Assuming a 6.56% net earnings

A savings of $1,000,000

Equals ……….

~$16 Million in Sales


Shareholder ValueA dollar saved is more than a dollar to stockholders!

Assuming a P/E of 17.17


Equals ……….

~$18 Million in Equity


Human ValueA dollar saved is more than a dollar to Employees

Assuming burdened cost of $15 per hour


Equals ……….

~32 FTE’S


YOU SAY TOMATO……….


• Procurement usually follows the Six Sigma approach for quantifying savings:

• Separately track hard savings and cost avoidance

• If soft is tracked it is seldom in performance reviews • Only receive benefit for realized savings (not estimated savings)

• Track savings generated for 12 months (savings beyond 12 months is rewarded, but doesn’t count towards savings target)


Savings?


Hard Savings Cost Avoidance• Reduction in historical price or discount -

last year BU paid $100 and we reduce current year price to $90; we currently receive a 25% discount but negotiated a 50% discount off list

• Reduction in current year budget/accrual –BU accrued for $100 in budget, but Corporate Procurement reduced actual expense to $50

• Consumption reduction – move from desktop printers to shared network printers; inventory reduction

• TVM of additional discounts/terms – secured discount for pre-payment and/or negotiated better payment terms

• Incremental reduction in negotiated cost due to Procurement's efforts - reduction beyond another department's activities (department was ready to sign an agreement but pushed entire negotiation effort to Corporate Procurement)

• Reduce/Eliminate a proposed price increase– Company issued a 10% price but Corporate Procurement mitigated price increase

• Reduce/Eliminate an expense that wasn’t accrued/budgeted – If Corporate Procurement helps reduce an outstanding settlement for software

• Free products – Corporate Procurement secured a free license or a free printer in connection with a larger purchase arrangement

• Reduce/Eliminate transaction and acquisition costs - These are the transactional costs to design, specify, requisition, receive, store, issue and pay for material or services


Secret #4

•Its important, but not always ….


What is important to Procurement pros?• Adoption• Compliance• Escalation• Risk mitigation• Cash flow • User experience

• Process efficiency• Ethics• New Opportunities


Do you know:

• What your program owners goals are for 2011?~ Departmental goals?~ Personal goals?


• Learn as much as you can about the Procurement Contact:~ How long with company?~ What type of training do they go through?~ Who does he/she report to?

o Executive sponsor~ Does he/she have P&L responsibility?

o What is their input in pricing/buying?o Do they stay with your project or move on after close?

~ How often do they do deals of this size?~ How is he/she evaluated~ Do they have authority to negotiate? Do they have authority to sign?~ What are their “hot buttons”

o Afraid of confrontation?o Bad with numberso Emotionalo ???

Who are you negotiating with?


GPS Example:


Actual Sample:Planned Objectives /Key Responsibilities

Planned Objectives /Key Responsibilities

Weight

Hard Savings/SoftSavings

Work with print procurement manager and IT commoditymanager to identify and implement $XX million in savings initiatives (includingcarryover) for 2006, in support of Corporate Procurement's goal of $XX million. Work onat least 2 projects dedicated to improving process and yieldingsoft savings

?


Actual Sample:Planned Objectives /Key Responsibilities


Weight

TeamFocus/Participation

Act as a strategic and critical member of the Corporate Procurement team to achieve the2006 savings objective. Provide ongoing encouragement, input and feedback, and guidance to other team members on their savings initiatives. Support thevision and objectives of CorporateProcurement being a customer-focused, strategic resource within Avery Dennison.

25%


Actual Sample:



Weight

Work with Key Stakeholders inprofessional servicescategory as defined byThe positiondescription to identifysavings andopportunities forchange.

All projects will be developed and initiated with theinvolvement (direct or indirect) of the relevant stake holderBusiness Unit/DepartmentWill visit with significant BU core team members twice ayear to discuss process

5%


Actual Sample:



Weight

Professional ServicesProcurement

Work with HR to expand and implement an ProfessionalServices procurement and management system.

10%


How to use this information

• Understand how buyers own goals relate to project at hand~ Determine strategies on how to help achieve~ What is the committed savings amount?

o Is it realistic?

• For existing customers you should know what program owners time frame is and be prepared with savings or other opportunities

• Develop savings strategies and value propositions which play into the “four phases”


Secret #5

•Providers often have the upper hand


Why?

• Deeper understanding of process and product• Access to talent• More experienced• Better compensated sales forces• More RFP experience• Power to say “NO”


Once I sign the deal……….


We have a vested interest in you being successful…


Tips/Guidelines

• Have a clear consistent plan and process~ Every deal or negotiation should have the same ”feel”

• Plan for the “NO” as much as the “YES”


Tips/Guidelines


Tips/Guidelines

• You are selling and negotiating all the time.

• Seldom, if ever, say “Yes” to the first counter offer.

• Always attempt to get a counter-concession when making a concession

• Do not be afraid to take sidebars as needed *****


Guidelines

• Position the other party for easy acceptance (i.e., develop options that meet their needs)

• Be flexible, provide options

• Put everything in writing

• When negotiating contracts, use web conferencing


Guidelines

• Don’t “split the difference” unless you planned to from the beginning

• 80% of concessions are made in the last 20 % of time so don’t leave details until the last minute

• The party under the greatest time pressure is at the biggest disadvantage in a negotiation

• Don’t reveal real deadlines*


Guidelines

• Don’t negotiate on the phone if possible

• Watch for sudden changes in body language rather then the body language itself

• Typically use small increments of change when altering prior positions

• The keys to negotiation are planning, communication skills and knowledge of the subject


Negotiation Resources• Case Studies

http://www.negotiations.com/case/

• Program on Negotiation at Harvard Law Schoolhttp://www.pon.harvard.edu

• Beyond Intractabilityhttp://www.beyondintractability.org

• Beyond Reason website and toolshttp://www.beyond-reason.net

• CR Info: The Conflict Resolution Information Sourcehttp://www.crinfo.com/

• Negotiation Tip of the Week - Joshua Weiss, Ph.D.http://www.negotiationtip.com/

• Negotiation education resources at Harvard University Harvard Business School Publishing caseshttp://www.hbsp.harvard.edu/products/cases/index.html

• Kennedy School of Government Case Programhttp://www.ksgcase.harvard.edu/


©2012 by Crain Communications Inc. All rights reserved.

Staffing Industry Analysts launches the CCWP Training andCertification Program for contingent workforce program management professionals.

CCWP Training and Certification will be for both corporate CW program buyers and provider professional staff.

CCWP Training & Certification Program


Question?Phone: 650-390-6188 or

[email protected]

Selling and Negotiating with Procurement€¦ · Selling and Negotiating with Procurement ... CCWP...

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