20 questions for senior purchasing managers

1

20 Questions for Senior 20 Questions for Senior Purchasing ManagersPurchasing Managers

www.neilfuller.comwww.neilfuller.com

2

The implications of selecting the cheapest has been a constant worry for buyers throughout the

centuries.Some 100 years ago John Ruskin (1819 ‑ 1900)

said. " It is unwise to pay too much, but it is unwiseto pay too little.

When you pay too much you lose a little money,that is all. When you pay too little you sometimes

lose everything, because the thing you bought wasincapable of doing what you bought it to do.

The common law of business balance prohibits alittle getting a lot. It cannot be done. So, if you dealwith the lowest bidder, it is well to add something

for the risk you run.And if you do that, you will have enough to pay

for something better"

3

20 Questions for 20 Questions for Purchasing ManagersPurchasing Managers

Do you know exactly how much your Do you know exactly how much your organisation is spending externally organisation is spending externally each year? each year?

Do you know how much is spent on Do you know how much is spent on each category of spend and with each category of spend and with which supplier? (a category is a which supplier? (a category is a range of purchases – e.g.. energy, range of purchases – e.g.. energy, raw materials. IT) raw materials. IT)

4

75%

90%

100%

10% 25% 100%

Inventory Range

InventoryInvestment

A B C

Pareto Distribution

5

Supplier Perception Supplier Perception MatrixMatrix

Develop Core

NuisanceExploit

High

LowHigh

VALUE

ATTRACTIVENESS OF BUSINESS

6


Do you know the total cost of the Do you know the total cost of the purchases you make, rather than purchases you make, rather than just their price? i.e. the total just their price? i.e. the total acquisition cost (TAC) and the life acquisition cost (TAC) and the life cycle cost of capital purchases? cycle cost of capital purchases?

Do you know how much Do you know how much valuevalue your your suppliers provide and create for suppliers provide and create for your organisation’s success and your organisation’s success and reputation? reputation?

7

Supplier’sSupplier Supplier Buyer Customer

Delivery of a superior value propositionQuality, Innovation & value flow to the customer

Demands for everyday low pricingCustomer/supplier integration across a responsive supply chain

Value acquisition fromSuppliers

Value added inproduction

Value delivery to customers

The supply chain assumes a flow of value to the customer andpricing pressure to the supplier. Reality is more complex.

8

Procurement Procurement ContributionContribution

Appropriate relationships with long term supplier Appropriate relationships with long term supplier relationships or partnership where appropriaterelationships or partnership where appropriate

Supply chain optimisationSupply chain optimisation Reducing waste and all non-value adding activitiesReducing waste and all non-value adding activities Increasing customer service responsibilities e.g. Increasing customer service responsibilities e.g.

reducing lead timesreducing lead times Improved supply chain communications particularly Improved supply chain communications particularly

forecastingforecasting Reduced time for new product development and Reduced time for new product development and

involving suppliers in NPD.involving suppliers in NPD. Coordination of all the component links in the supply Coordination of all the component links in the supply

chainchain Maximising the potential of ITMaximising the potential of IT

9

From Price to ValueFrom Price to Value

P = Clerical/price Mainly in stages 1 to 2 - Sourcing 2 – 5%

C = Price & Delivery (Negotiation) Mainly in stages 3 to 4 Sourcing 10 – 15 %

V = World-class concepts* Stages 4 to 5 Adding value 20 -40%

*Strategic Supply Chain Management

Total Quality Management

Best Practice

10


Do you know who your key Do you know who your key suppliers are? suppliers are?

Do you have pro-active, close Do you have pro-active, close relationships with your key relationships with your key suppliers? suppliers?

Do you understand the risks Do you understand the risks inherent in the purchases you make inherent in the purchases you make and are you managing risk and are you managing risk effectively? effectively?

11

The Kraljic Matrix The Kraljic Matrix (Kraljic, P)(Kraljic, P)

Leverage Product

“Competitive Bidding”Strategic Product

“Partnership”

Routine Products

“Systems Contracting”

Bottleneck Products

“Secure continuity of supply”

H

L

L H

Impact on Profitability

Supply Risk

12


Do you know what you should outsource Do you know what you should outsource and what you should not outsource? and what you should not outsource?

Are you outsourcing services Are you outsourcing services successfully? successfully?

Are you managing suppliers of Are you managing suppliers of outsourced services successfully? outsourced services successfully?

Do you know what your purchasing Do you know what your purchasing strategies are and are they aligned to strategies are and are they aligned to your business strategies? your business strategies?

13

The MatrixThe Matrix

H Competence of Contractors L

L

CORE

H

Outsource

Buy-in

Develop

Contracting

Collaboration

In-house

14

The implication of make or The implication of make or buy for supply management buy for supply management

expertiseexpertiseHigh level of purchasing skill, strategic supply management

Low level of purchasing skill, clerical supply management

Buy all non-core activities

Make or do everything internally

Lean enterprise

Chaos

15

Maintaining Maintaining PerformancePerformance

Adequate Terms and Conditions are essentialAdequate Terms and Conditions are essential The management of the contract requires:The management of the contract requires:

Key Performance Indicators (KPI’s)Key Performance Indicators (KPI’s) Service Level Agreement (SLA’s)Service Level Agreement (SLA’s) Liquidated Damages for poor performanceLiquidated Damages for poor performance Termination (Escape) clausesTermination (Escape) clauses Clear communicated specificationsClear communicated specifications Feedback and review on a regular basisFeedback and review on a regular basis

A key issue has been the placing of contracts A key issue has been the placing of contracts by non procurement specialists (HRM, by non procurement specialists (HRM, Catering)Catering)

16


Do you have appropriately skilled people Do you have appropriately skilled people developing and managing your developing and managing your purchasing strategies? purchasing strategies? CIPSCIPS CPDCPD

What proportion of your external spend What proportion of your external spend is managed by your purchasing is managed by your purchasing professionals? professionals?

If the answer to the last question is not If the answer to the last question is not 100 per cent, why not? What are you 100 per cent, why not? What are you doing about it? doing about it?

17


How do you support your purchasing How do you support your purchasing people to ensure they achieve people to ensure they achieve appropriate business benefits? appropriate business benefits?

Do you direct your purchasing people Do you direct your purchasing people to limit their focus to reducing prices to limit their focus to reducing prices by x per cent each year or do you by x per cent each year or do you direct them to achieve cost-effective, direct them to achieve cost-effective, risk-controlled added value? risk-controlled added value?

18


Do you maximise the use of IT and Do you maximise the use of IT and ensure that you receive the maximum ensure that you receive the maximum benefits from its application?benefits from its application? Reduce transactions costsReduce transactions costs Integrate databasesIntegrate databases Stimulate competition in market (e-Stimulate competition in market (e-

auctions)auctions) Reduce the burden of low-value workReduce the burden of low-value work Low value ordering systemsLow value ordering systems

20


Do you plan effectively for major Do you plan effectively for major negotiations?negotiations?

Do you assess the outcome of your Do you assess the outcome of your negotiations?negotiations? How effective have you been?How effective have you been? Do you try to improve your own skills and Do you try to improve your own skills and

techniques?techniques? Do you ensure that all your people receive Do you ensure that all your people receive

adequate training in negotiation skills?adequate training in negotiation skills? Do you encourage team negotiation where Do you encourage team negotiation where

appropriate?appropriate?

21

NegotiationNegotiation

Always prepare and remember your Always prepare and remember your BATNABATNA It makes you strongerIt makes you stronger

Always prepare you MIL’sAlways prepare you MIL’s MustMust IntendIntend LikeLike

Prepare the teamPrepare the team

22

The best negotiatorsThe best negotiators Seeking informationSeeking information

Spend 20% of the time asking questionsSpend 20% of the time asking questions Average negotiators spend 10%Average negotiators spend 10%

Gives controlGives control An alternative to disagreementAn alternative to disagreement Reduces the other parties thinking timeReduces the other parties thinking time

Testing understanding and summarisingTesting understanding and summarising Ensures clarityEnsures clarity They spend twice as long as average They spend twice as long as average

negotiatorsnegotiators Consequently the implementation is more Consequently the implementation is more

successfulsuccessful

23

The best negotiatorsThe best negotiators

Behaviour labellingBehaviour labelling E.g., “I am going to ask you a question E.g., “I am going to ask you a question

on your quality”on your quality” Applies social pressure and slows things Applies social pressure and slows things

downdown The best negotiators are five time more The best negotiators are five time more

likely to do thislikely to do this

24

Things the best Things the best negotiators avoidnegotiators avoid

IrritatatorsIrritatators Five times less likely to use themFive times less likely to use them

This is a very fair offerThis is a very fair offer To be perfectly honest/quite frankTo be perfectly honest/quite frank You wont get a better deal anywhere elseYou wont get a better deal anywhere else

Defend attack spiralsDefend attack spirals Argument dilutionArgument dilution Inappropriate questionsInappropriate questions

25

We cannot accept your application for a 10% price increase because we know that raw material costs costs have only increase by 5%

26

We cannot accept your application for a price increase.

27

Successful negotiators –Successful negotiators –personality traitspersonality traits

Strong ego and self confidenceStrong ego and self confidence Intelligent and seek informationIntelligent and seek information ConceptualiseConceptualise Set targets which they relentlessly Set targets which they relentlessly

pursuepursue Try to understand others and build Try to understand others and build

relationshipsrelationships Are high on trust and integrityAre high on trust and integrity

28

The right questionsThe right questions

Good negotiators use the right sort Good negotiators use the right sort of questionsof questions What criterion are you using?What criterion are you using? What are your priorities?What are your priorities? How did you calculate those numbers?How did you calculate those numbers? How do you feel about these issues?How do you feel about these issues? Can you explain that to me?Can you explain that to me?

29

The wrong questionsThe wrong questions

Good negotiators avoid the wrong Good negotiators avoid the wrong sort of questionssort of questions Are you listeningAre you listening Do you think I am stupidDo you think I am stupid Is that your final offerIs that your final offer Is that the best price you can do?Is that the best price you can do?

30

Tough negotiatorsTough negotiators

Not intimidatedNot intimidated Stick to their goalsStick to their goals Trade few, small concessionsTrade few, small concessions Concessions tend to become smallerConcessions tend to become smaller Don’t fear deadlockDon’t fear deadlock

31

Good night

And

Good purchasing

32

CIPS Student EventCIPS Student Event JAGUAR CARS – HALEWOOD, LIVERPOOL: JAGUAR CARS – HALEWOOD, LIVERPOOL:

Wednesday 9th March, 9:30am - 12.00 Wednesday 9th March, 9:30am - 12.00

This event offers a guided tour around Jaguar’s Body & This event offers a guided tour around Jaguar’s Body & Assembly Facility, followed by a talk from Jaguar’s Assembly Facility, followed by a talk from Jaguar’s

Supply Chain Manager. This is organised by Liverpool Supply Chain Manager. This is organised by Liverpool John Moores University who are offering limited places to John Moores University who are offering limited places to CIPS students in Merseyside. Places are limited and on a CIPS students in Merseyside. Places are limited and on a

strictly first come, first served basis. strictly first come, first served basis.

To book your place, please contact: To book your place, please contact: Jo Meehan, Senior Lecturer in Supply Chain Management, Jo Meehan, Senior Lecturer in Supply Chain Management,

Liverpool John Moores University,Liverpool John Moores University, [email protected]@livjm.ac.uk

20 questions for senior purchasing managers

Documents