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Pain Point # 2 – ESTABLISHING

PURCHASING VALUE FOR MANAGEMENT &

CUSTOMERS

“THE Godfather of Negotiation Planning” ~ Intel Corp

Omid GhamamiPURCHASING AND NEGOTIATIONS EXPERT

Scott Adams Quote (Dilbert)

“The purpose of purchasing is to prevent people from getting the things they need to get their jobs done. The job qualifications are a low sloping forehead and an inability to get the big picture.”

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Harsh Reality of Purchasing

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I was busy working every day adding value the last two weeks!! How is it

that I have NO IDEA

what to write in my status report?!

HOW DOES THIS HAPPEN??

Purchasing vs. SalesSales

• Gets lots of attention, because they generate revenue

• Sales people spend up to 40% of their time in training

• Sales has special software, templates, market research, and big budgets

• People plan for careers in sales

• Sales & marketing report directly to the CEO

Purchasing• Gets very little attention, despite

an average of 48% of revenue going to purchasing

• Runs a tribal knowledge system and spends only 2% of their time in training

• No highly custom software, tools, market research, or big budgets to better manage negotiations

• People land in purchasing by accident

• Purchasing is tucked under obscure functions, because the CEO has no idea what they do

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Purchasing Value Breaks Down Somewhere in Reporting Chain

• Purchasing eventually reports into some person or group that “doesn’t get it”

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Purchasing

Finance

Manufacturing/Operations

Customer

How many companies have a Chief Purchasing Officer reporting to the CEO??

Finance Reporting

• “Direct cost savings are the only savings that are tangible to us”

• “We don’t recognize soft cost savings or avoidance savings, they don’t exist”

• “We prefer low risks and tight controls over business agility in purchasing”

• “Budgetary compliance is far more valuable than cost savings.”

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Manufacturing/Operations Reporting

• “We only recognize one thing, and that is keeping the factories running.”

• “No cost savings are worth a supply line interruption”• “Why give purchasing more headcount when most of

what they buy doesn’t support manufacturing? ”• All these cost savings are nice, but show me where all

that money went, because it’s not left over in my budget”

• “We shouldn’t spend so much money funding a function that goes so far out of our manufacturing scope”

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Customer Reporting

• “Your most important indicators are customer service scores and on time delivery”

• “Purchasing’s job is to support our objectives and timelines, that’s why they report to us.”

• “We measure your success by cycle time on purchase orders and negotiations – don’t get in the way of the business.”

• “Don’t forget who writes your performance reviews”

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Purchasing is also Its Own Enemy!

• Only tracking direct cost savings, because that’s all management will accept

• Not knowing how to track indirect/soft or avoidance cost savings

• Achieving cost savings and not recognizing/reporting it

• Spending vast majority of time in non-value added activities

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Purchasing Time AllocationCurrent State

• 5% of time spent in strategic activities

• 20% of time negotiating• 75% of time spent fire

fighting

Desired State• 80% of time spent in

strategic activities• 10% of time negotiating• 5% of time fire fighting

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“We never have the time for strategy, but we always find the time

to put out fires”

Break the Cycle!• The entire way in which you are structuring your work

today is WRONG• Every single thing you do is either contributing to TCO,

or giving you less time to spend on TCO reduction – challenge everything!

• There is an established step by step model to do this – the NEW way of doing purchasing

• EVERY purchasing professional can make this transformation.

• On top of being good for your career, it’s also very personally enriching and fulfilling.

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1) Success

2) Structure

3) SLAs

4) Showcase

4S Execution

Model

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4S Execution Model

1. Success Metrics: Ensure the right Success Metrics in place to measure purchasing value

2. Structure: Separate ‘meets’ from ‘exceeds’ indicators and structure your schedule to be focused on 10% meets & 90% exceeds

3. SLAs: Service Level Agreements (SLAs) put in place with top business partners along with success metric commitments

4. Showcase: Results visibly showcased through newsletters, status reports, graphs, intranet, 360 performance reviews

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Step 1 – Success Metrics

• Purchasing is overwhelmed with metrics to track

• Goal is to establish the MINIMUM # of indicators necessary to run the business

• Start with cost savings and justify all other indicators to be added

• Look at your last performance review – What are you getting paid to achieve?– What indicators weren’t mentioned?

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Step 1 – Success Metrics, cont.

• Look at your boss’s status report– Which indicators are continually referenced?– Which are continually ignored?

• Develop an indicator package and review with your manager

• Ask him/her to prioritize them, perhaps into two or three clusters – A = Top priority, B = Medium Priority, C =

Lower Priority*

* This is still an important category, don’t let this go blank

Step 2 – Workload Structure

• Purchasing spends 75%+ of their time in non-value added activities

• Re-architect your entire workload to map to these indicators

• Kill meetings, activities, processes, etc that don’t support your top metrics– You must undo everything you’ve learned– STOP DOING WHAT’S NOT WORKING

• Reduce allocation of time to ‘C’ level activities16

Step 3 – Service Level Agreements

• Negotiate win-win service level agreements with top customers

• Start with what the customer wants, and what their definition of success is– It will be: agility (response time), cost (TCO),

flexibility (to customer’s needs)– Put indicators against those

• e.g. 24 hour response time, performance to schedule, cost savings, etc.

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Step 3 – Service Level Agreements, cont.

• Tell them what you need in order to provide those things– Early engagement – the minute demand is

defined– Supplier engagement rules

• No wining and dining, no budget discussions, no quotation solicitation, no expression of supplier preference, no expression of timelines

– Pool of suppliers to select from (not one)– NO After the Fact POs

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Step 4 – Publish Results Vigorously

• Don’t stay quiet about results!• Graphics with cost savings dollars need to be

plastered in the hallways of the purchasing dept– Run rates, comparative results, goals

• Submit purchasing value add articles to your company’s intranet news administrator for distribution

• Have purchasing as a link on your company’s intranet site– Right next to payroll, human resources, A/P, etc

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Step 4 – Publish Results Vigorously, cont.

• Publish “Did You Know” posters capturing purchasing value add– Use both affect and cognition as marketing strategies just

like companies do!!• If you say “this won’t work in my company”, then you

are accepting mediocrity– Nobody ever improved anything by making sure no feathers

were ruffled!• Purchasing’s biggest problem is both capturing and

publicizing their value add to the company!– Don’t wait for corporate, the customer, or management to

crown you, you have to crown yourself!20

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Sample “Did You Know”

Poster

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Sample Intranet News Article

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Sample Purchasing Hallway Poster

Call To Action

1. Success Metrics: Ensure the right Success Metrics in place to measure purchasing value

2. Structure: Separate ‘meets’ from ‘exceeds’ indicators and structure your schedule to be focused on 10% meets & 90% exceeds

3. SLAs: Service Level Agreements (SLAs) put in place with top business partners along with success metric commitments

4. Showcase: Results visibly showcased through newsletters, status reports, graphs, intranet, 360 performance reviews

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Thank you for watching!

www.PurchasingAdvantage.com1-888-TCO-4889 1-888-826-4889

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“THE Godfather of Negotiation Planning” ~ Intel Corp

Omid GhamamiPURCHASING AND NEGOTIATIONS EXPERT