Wednesday, April 23, 2014

Purchasing & Supply Management Salary Trends Revealed on April 30!



One of the most popular pieces of annual procurement research is back for its fourth year:  The Next Level Purchasing Association’s “Purchasing & Supply Management Salaries in 2014” report and webinar!

By attending this webinar, you will be the first to learn of some very revealing statistics about purchasing and supply management salaries.  Are they going up?  In what industry do procurement and supply management professionals make the most?  What difference does certification make?  And how do salaries of women purchasing and supply management professionals compare to those of their male counterparts?

All of these questions and more will be answered and backed by data from a survey of over 1,100 purchasing and supply management professionals from throughout the world.  And like we do every year at the Next Level Purchasing Association (NLPA), we’ll be slicing and dicing salary data in new and informative ways to help you better pinpoint what you could and should be earning!

This is a webinar you do not want to miss!


This webinar will be held on Wednesday April 30, 2014 at 11:30AM Eastern US time. This webinar is open to all members of the NLPA and a Basic Membership in the NLPA is instant and doesn't cost a cent! Here's how to secure your attendance for the webinar:

If you're already an NLPA member: Head over to http://www.NextLevelPurchasing.com/login.html, log into the members' area, and navigate to the "Webinars" tab. There you'll find a registration link, be sure to enter a valid email address as attendance details will be sent to you by email.

If you're not yet an NLPA member: Register for your complimentary Basic Membership in the Next Level Purchasing Association at http://www.NextLevelPurchasing.com/procurement-association.php?pcb. After doing so, you'll receive an email with information about how to log in. After logging in, navigate to the "Webinars" tab. There you'll find a registration link, be sure to enter a valid email address as attendance details will be sent to you by email.

Registration may be limited, so sign up soon to ensure access to this event. I hope that you will join me for this exciting webinar!

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Tuesday, April 22, 2014

Tricky Cost Savings Calculation Example

I hope that you have enjoyed the article, "Tricky Cost Savings Calculations."

In the article, I walked you through four calculations that you may use in situations where calculating cost savings is not cut-and-dried.  I'd like to take this opportunity to walk you through an example.

Let's say that your price for an item was $100 on January 1 of last year.  You bought 300 units at that price until the price changed to $90 on October 1 of last year.  You bought 100 more units at that price last year and 100 more units in the first quarter of this year.  Then, for the rest of this year, you bought 300 units at $85.

What is your cost savings for this year?

Some procurement professionals, in an effort to boost their cost savings numbers, would say that each unit they bought for $90 would produce a savings of $10 and each unit they bought for $85 would produce a savings of $15.  That would result in a cost savings of $5,500.

That's not correct!

The correct cost savings is $3,600.

"Whaaaat?," you ask.  Let me explain...

The issue with the calculation of $5,500 in cost savings is that the highest price from last year should not be your baseline.

So, what should be the baseline?  $90?

Nope, not that either.

Walking through the calculations from the article...

Calculation A: Last Year's Average Price = Total Spent Last Year / Number of Units Purchased Last Year

Last Year's Average Price = ((300 x $100) + (100 x $90)) / (300 + 100)
Last Year's Average Price = ($30,000 + $9,000) / 400
Last Year's Average Price = $39,000 / 400
Last Year's Average Price = $97.50


Calculation B: This Year's Average Price = Total Spent This Year / Number of Units Purchased This Year

This Year's Average Price = ((100 x $90) + (300 x $85)) / (100 + 300)
This Year's Average Price = ($9,000 + $25,500) / 400
This Year's Average Price = $34,500 / 400
This Year's Average Price = $88.50


Calculation C: This Year's Cost Savings = (Last Year's Average Price – This Year's Average Price) x Number of Units Purchased This Year

This Year's Cost Savings = ($97.50 - $88.50) x 400
This Year's Cost Savings = $9.00 x 400
This Year's Cost Savings = $3,600

So, each unit purchased will contribute to cost savings by the difference between the price paid and a baseline price of $97.50.

Got it?

Good!

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com


Friday, April 18, 2014

3 Confessions of a Buying Maverick

Maverick Buyer

(The name has been changed to protect the innocent)

I have a confession to make: my name is Josh and I am a buying maverick.  However, I am in recovery now that I work for the Next Level Purchasing Association.

So how did I come to acknowledge my problem?  In two words, “procurement education”.

Working in an environment where I am surrounded by great material like SPSM Certification courses, “PurchTips” and our express courses, has made it much clearer to me that I had erred in my ways.

I assumed I was saving my previous employers time and money, in the long run, I was causing greater problems for the organizations as a whole.

Under the Radar:
I worked for a gentleman for many years whose goal was for our department to do things “under the radar”.  He himself was somewhat of a maverick and instilled such qualities into our team.  Admittedly, it made us a stronger group utilizing the “us against the world” mentality which is so often seen in professional sports.  Purchasing wise, it wasn’t beneficial for our company.  We had no accountability and were able to purchase items that on occasion became huge assets to the business, but more often than not became paper weights in our offices.  Purchase Order reviews were done by the Human Resources department who “rubber stamped” just about everything because they didn’t know our business function and didn’t want to be bothered.  Talk about a lost opportunity for measuring ROI, cost savings and containment!

Enablers Along the Way:
In one of my previous positions, I was told by one of the owners of the company to, “skip the procurement manager on hardware purchases”. Since I reported directly to him, I took it as a great opportunity to make my life easier.  However, there was a caveat to this directive.  I had to use a particular “buyers group” for all hardware purchases.  As I quickly learned, this “buyers group” was no bargain, purchases of desktop PC’s alone were 25% higher than buying online straight from the manufacturer!  Even though I reported my findings back to my boss, I was told to keep purchasing hardware in this way.  You can draw your own conclusions from this story, however it did keep me away from the purchasing manager’s office.

There’s No Such Thing as a Free Lunch:
In my first senior level position, I was suddenly overwhelmed with all the attention I received from vendors, consulting organizations, etc.  Somebody always wanted to take me out to lunch to discuss their latest and greatest offering.  In the past, I’d never had a problem saying no to people. But let’s face it, regardless of how ethical one tries to be, such perks eventually wear you down and your judgment becomes a bit clouded.  Purchasing SaaS or technical support services is easier to do when someone is schmoozing you and talking up their product line constantly than when you have to dig really deep into the nuances of a product or service you truly know little about.  Hence, you make buying decisions based on the words of convenient acquaintances rather than sound judgment. 

4  Realizations of a Buying Maverick:
  •        Maverick buying is harmful to all levels of your organization.  Just say no.
  •             Maintaining a standard of ethics at all times in crucial to your employer.
  •              While your input is important, leave purchasing decisions to the purchasing department – that’s  their specialty!
  •            Businesses need to have an educated purchasing professional; no longer should purchasing be cast upon someone with no procurement experience.
H      Here are 6 critical tips to stop maverick buying within your organization.

Share with us your stories of maverick buying and how you have dealt which such detrimental situations.


To your career success,


Greg Uhrlen
Next Level Purchasing Association

Thursday, April 10, 2014

50 Procurement Tips for the 100th Day of 2014

This week, we here at Next Level Purchasing Association (quietly) celebrated Charles' 300th PurchTips newsletter.  Over the years, PurchTips has become a "must-read" for over 260,000 purchasing professional across the world.

Since I am in the mood to celebrate, (hey it is the 100th day of the year, it's almost Friday and the sunshine has finally reappeared in this part of the USA!) I have taken 50 quick procurement tips Charles has authored over the past 300 issues of PurchTips and condensed them into one article.  Enjoy and here's to the next 300!

1.  Your supplier's first impression of you impacts how much you will be able to persuade that supplier in a negotiation.
2.  Require suppliers to complete and return a Notice of Intent to Participate provided in your RFP so you can predict participation.
3.  Identify the risks to achieving your terms, timeline, and other goals and plan to mitigate those risks.
4.  Anticipate your supplier's reaction to each tactic.
5.  Create tiered risk/rewards scenarios for Service Level Agreements.
6.  See if the supplier has implemented a leading quality improvement program like Lean, Six Sigma, or Lean Six Sigma.
7.  Determine the format (i.e., face-to-face, phone, etc.) and location of your negotiation sessions.
8.  Regular oversight can ensure that your global suppliers are behaving properly and reduce risk for your organization.
9.  Don't make your offer seem like a predictable negotiation tactic.
10.  Factor internal customers' interests into supplier selection criteria.
11.  Find out what motivates the vendor and make it win-win. 
12.  Create an agenda for the negotiation and practice.
13.  Develop a timeline for the negotiation process.
14.  Identify your second-best option in case you cannot reach agreement with your primary supplier.
15.  For each metric, determine the value that would separate "good" performance from "average" or "mediocre" performance in your particular situation.  
16.  Analyzing suppliers' "financials" is a critical activity in supplier qualification.
17.  Look for small "value adds" to enhance the deal.  
18.  Self-assess after each negotiation session and adjust strategy and tactics if necessary.
19.  Identify the risks to achieving your terms, timeline, and other goals and plan to mitigate those risks.
20.  Check if the supplier has a quality-related certification like ISO9001.
21.  Develop and share internally a communications plan stating who must be updated on negotiation progress and what information they must keep confidential.
22.  Comply with your employer's policy on accepting gifts, meals, and entertainment from suppliers.
23.  Ensure/insist that the supplier assigns a negotiator with decision-making authority.
24.  Review notes from previous negotiations, courses, etc. for tips for success.
25.  Start the negotiation confidently.
26.  Evaluate the probability of political unrest in the supplier's country including uprisings, war, or sanctions by your country.
27.  Knowing how direct costs, overhead, and profits comprise suppliers' prices gives you a negotiating advantage.
28.  Decide what to concede if necessary to reach agreement.
29.  Evaluate the probability that the supplier will covertly use prohibited materials (e.g., lead paint).
30.  Agree on an objective price adjustment method for the future.
31.  Evaluate the likelihood that the supplier's quality performance will not be within acceptable limits.
32.  Identify changes that you can make that will help you improve your numbers. If you already exceed the standard, aim even higher!
33.  Evaluate the probability of new legislation that would require a design or materials change.
34.  Invite the primary supplier to negotiate and learn who the supplier's principal negotiator is.
35.  Evaluate the probability of work stoppages (i.e., strikes) for multiple tiers of suppliers.
36.  Identify all the terms that you will negotiate.
37.  See if the supplier uses parts-per-million (ppm) as its quality unit of measure, not percent defective.
38.  Define the criteria for being a good purchasing professional.
39.  Set targets and least acceptable alternatives for each term.
40.  Never buy or hold the stock of your employer's suppliers.
41.  Research the probability of a natural disaster (e.g., proximity to fault lines, hurricane belt, flood plains, etc.) in the supplier's region.
42.  Determine your overall negotiation strategy (e.g., hardball, collaborative, etc.
43.  See if the supplier's quality efforts are focused on preventing defective items from being produced.
44.  Never share a supplier's proposal details with another supplier unless required by law.
45.  Investigate how a safety issue (e.g., fire, explosion, accident, etc.) might disrupt supplier production.
46.  Prohibit maverick buying as a company policy.
47.  Investigate if the supplier has a documented record of continuous quality improvement over several years 
48.  Identify at least one secondary source in the event of a failure of the primary supplier.
49.  Evaluate the probability of the supplier going bankrupt or experiencing financial challenges.
50.  At the end of the negotiation, help the supplier feel positive about the new relationship rather than feeling like it lost the negotiation.

To your success,

Greg Uhrlen
Next Level Purchasing Association

Tuesday, April 08, 2014

Your Supplier Needs To Get His/Her Boss Involved In Your Negotiation...Now What?

I hope that you have enjoyed the article, "In Negotiations, Small Talk Can Be Huge."

In the article, I mentioned that buyers can push for more concessions than a supplier's salesperson is authorized to give.  At that point, the salesperson will say “I’ll have to ask my boss if we can do that.”

I've seen buyers react to this in various ways - some great, some atrocious - throughout the years.  Here are three reactions I've observed and my commentary on each.

"Oh, that's alright."  This is the worst possible response.  It means that you have gotten all of the concessions you're going to get.  You've given up.  Called it a day.  Thrown in the towel.  It probably comes from a polite person's innate desire not to inconvenience others.  But, let's face it, it is not in any buyer's job description to make suppliers' salespeople's lives as convenient as possible.

"OK."  Unlike the previous response, the negotiation is staying alive and that's good.  And, as described in the article, the salesperson may in fact be an advocate that will go to bat for you and get a good deal.  But the opposite can be true, too.  So, even though the negotiation is still alive, you have conceded control.  And conceded control to someone who may have goals that are quite different than yours.

"Thank you for that idea, but it may be a great time for me to meet your boss.  Why don't she and I have that conversation directly."  A core principle of powerful negotiation is to negotiate directly with the people who have the authority to give you what you are asking for.  This is your opportunity to do just that and ask for much more than your front-line sales counterpart would ever be authorized to give.  Go for it!

To Your Career,
Charles Dominick, SPSMSPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com

Thursday, March 27, 2014

The Most Common, Stupid, and AVOIDABLE Excuse For Procurement Ethics Violations

Cheswick, Pennsylvania is a small town.  For most purposes, it's pretty much irrelevant. But, for this story, it is very relevant.

Why?

Because there are probably just over a bajillion small towns just like Cheswick in the USA.  And, right now, procurement ethics violations could be happening in each and every one of them right at this very nanosecond just like they were happening in Cheswick from about 2010 to 2013.

What was going on in Cheswick?

Well, apparently, a Cheswick councilman during that period owned a company that was a vendor of the town.  Now, that itself isn't necessarily an ethical violation.  But, according to an article in the Pittsburgh Post-Gazette, the former councilman, Brian Harvanek,  failed to file documents or abide by contract value limits that would have made his being a vendor permissible.

That, my friends, is what you call a classic conflict of interest.

And, unfortunately, Harvanek's "excuse" for this conflict of interest was equally as classic.

The article states that Harvanek said that all of this stuff went down because of him being "ignorant of the ethics laws when he took office."

Almost every time that someone is investigated for a procurement ethics violation - either in the public sector or in the business world - they always say "but I didn't know that was an ethical violation."  While we would all like to think that procurement ethics are common sense, they clearly are not.

And that's sad.

It's sad because organizations have done implemented so much new employee training on other "grey areas."  Sexual harassment is a good example.  From what I understand, back in the day, male employees would often say things to female employees in the workplace that are simply unthinkable today.  Organizations have done a good job at clarifying the definition of sexual harrassment, codifying it, and training and communicating to their employees in a manner that certain behaviors don't happen nearly as often as they once did.


Why organizations don't do the same with procurement ethics is beyond me.  It's not like there aren't resources, expertise and procurement ethics training out there.

How many more of these Cheswick situations are going to happen in the USA before something changes?

Organizations could stop most of these Cheswicks from happening if they simply took away that most common, stupid, and avoidable excuse used by Harvanek and the countless others that made the same bad decisions.

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com


Tuesday, March 25, 2014

Negotiating The Non-Disclosure Agreement (NDA)

I hope that you have enjoyed the article, "When A Supplier Should Sign Your NDA."

The NDA, short for non-disclosure agreement and also called a confidentiality agreement, is usually one of the easiest contracts for a procurement professional to negotiate.  The problem with NDA's is not usually in the negotiation of them, but knowing when you should be using one.

Unfortunately, there are many sensitive situations where they should be used and they're not due to the buying organization's ignorance.  Hopefully, the above-linked article will serve to eradicate some of that ignorance from the world.

There is one negotiation thing to look out for when negotiating an NDA.  If your organization's standard template is one-sided - in other words, protects your confidential information but not the suppliers - suppliers will often ask for it to be made mutual.  Ideally, your legal department should have a mutual NDA template at the ready.  If not, then ask about using the one that they draft as a template in the event that you find yourself in a similar situation in the future.

Other than that, NDA negotiation is pretty straightforward.  Now, if only other types of procurement negotiation would be so easy...

To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer - Next Level Purchasing Association
Author - The Procurement Game Plan
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM® Certification Online At
www.NextLevelPurchasing.com


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