Sunday, December 30, 2007

Funny Negotiation Story

So, as I posted a few days ago, I've been shopping for a new car.

Coincidentally, a few weeks ago, my wife and I were looking at property values for a nearby neighborhood with million dollar houses. We found that two of the most valuable houses were owned by the owners of a couple of the local car dealers.

There's lots of money in selling cars, I guess!

I was torn between two similar models from Jeep and Hyundai. Well, I decided that if I could get the price I was looking for, I would go with the Jeep.

So I went to the dealer - let's call it Smith's Chrysler Jeep to protect the innocent - to negotiate, backed by all of the Consumer Reports information I gathered.

The sales person went back to his manager and improved upon his most recent quote. Of course, I said that I wanted a lower price.

The sales person said "We're not really making any money on this vehicle at this price point. I mean, it's not like a Dodge Ram that has thousands of dollars of markup. There's no markup left."

I said, "C'mon Jim. You know and I know that there's markup left. I got all of the information from Consumer Reports. True, it might not be enough to pay Mr. Smith's mortgage, but there's still some juice there."

Then I hear a voice from over my shoulder saying: "What's this about Mr. Smith's mortgage?"

I turn to find Mr. Smith - the owner of this rather large dealership. Ha ha!

So Mr. Smith sat down and got more aggressive with the deal, I challenged a few numbers he wrote down, and he further swung the price my way. We reached a price point I was happy with and bought the car.

I always teach my students to negotiate directly with the decision-maker and was planning on asking to speak with the sales manager/finance guy once we got to the appropriate point, but didn't plan on things happening the way they did - in such a funny way.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, December 28, 2007

The Age-Old Problem In Purchasing

Scanning through the results of our recent survey, we are seeing a lot of venting about purchasing departments being "too busy" and not having enough resources. Those same complaints have been part of purchasing at least as long as I've been in the field.

Of course, if your department's workload is growing, you should make an appeal to senior management for a proportionate increase in staff so that you can maintain the quality of your strategic work. But you better be prepared when you do.

You see, senior management usually doesn't provide for staff increases on a whim. Adding headcount is an uncomfortable thing.

Among other things, they want to know:

1. What have you done to improve your productivity?

2. What non-value added things have you stopped doing?

3. What time management tools and techniques have you added?

4. What are the current and historical measurements of output-per-person and precisely how much additional work has been added to your team's plate over time?

Senior management needs to separate chronic complainers from savvy business people who have truly exhausted all alternatives. So demonstrating the alternatives you've already tried (and the measurable improvements you've made) can give you a better shot at having an appropriately staffed purchasing department.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, December 27, 2007

Corporate Purchasing Needs This...

I am in the process of buying a new car. Of course, me being Mr. Analytical, I am looking at every report, article, blog, statistic, etc. that I can to select the make and model that will be best for me and to pay a fair price.

So I subscribed to Consumer Reports' Web site and I am so impressed with the information they have. They have documentation of their own tests, consumer reviews, customer satisfaction survey statistics, pricing and negotiation guides, and so much more.

Their Web site even had a consumer-level introductory article on total cost of ownership.

If only this type of information was available for every category managed by the corporate buyer...

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Wednesday, December 19, 2007

Is Purchasing About To Get Younger?

I was at the local purchasing association meeting last night and was surprised that I was in a quite a number of conversations where the word "retirement" came up.

Now, these weren't 70-somethings. These were sharp-minded 50-somethings that obviously did a good job of financial planning.

Some of their companies have locked on to this trend and have brought in young blood. Others...well, not so much.

So if you're a purchasing department head and you have a team comprised of a lot of 50-somethings, you better have a plan in case they retire. How is the work going to be done?

  • Will you simply downsize and allow others on the team absorb the work?
  • Is there work you can automate?
  • Will you hire replacements?
  • Will you outsource the work?
  • Will you utilize some combination of the foregoing?

The important thing is that you're thinking about this situation now. There are a lot of consequences for waiting such as not having incumbents that can train your new hires, having all of the best talent snapped up before you get around to hiring, and dealing with swamped BPO's.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Tuesday, December 18, 2007

If You Need A Drill Sergeant To Motivate Senior Management...

My friend Michael Lamoureux over at the Sourcing Innovation Blog sent me a link yesterday that I just had to comment on.

In the above linked article from CPO Agenda, the author describes running a "procurement boot camp." In this boot camp, 40 senior management employees from two companies for eight days were sequestered in an undisclosed location, given late-night assignments, and had communication devices taken from them.

The approach revolved around putting pressure on the group as they performed various activities, as the article says "You need a tough leader who will provide suitable pressure and drive the cadets through the process...A loud voice doesn’t hurt either!" In fact, the participating organizations had a psychologist on call in case any of the participants suffered from "excess stress" but the article goes on to say that "a doctor would have been more useful as the 'desk jockeys' suffered bodily injuries during the teambuilding events."

Hmmm...somehow this doesn't sound like a good idea to me considering the alternatives that are out there for skill development. Here are some thoughts:

  1. If you need a drill sergeant to motivate senior management, you need new senior managers and a better way to recruit them!
  2. The author was from South Africa. Maybe South Africa has a less litigious society than we do here in the USA because if an employee suffers bodily injury here during a training event, a lawsuit and/or a huge financial settlement won't be far behind!
  3. Who can afford to have all of their critical people out of the office for eight days with no means of communicating with them? Hello? Anyone hear of online training? When everyone can participate at the time of their choosing, there is a lot less disruption to operations. Your internal customers care about having someone there to support them, ya know?
  4. Transforming a procurement department successfully requires influencing people to believe in your vision and to voluntarily get on board. I don't see having them endure a boot camp-style experience as exactly the way to endear a team. You see, some of the long-timers don't like change. Training to them is perceived as "hard." There are ways to make it seem easy to them so they get on board. Sending them to "boot camp" is not one of them. Such a small percentage of the population wants to join the military. So you would think that everyone would get the clue that the words "boot camp" do not inspire high fiving in the hallways.
  5. The boot camp thing is so trite. Google "sales boot camp," "marketing boot camp," "IT boot camp," etc. and you'll see what I mean.
  6. The article listed no tangible, measurable workplace results from the boot camp. Only that they generated "ideas" and "opportunities for collective go-to-market strategies." So where is the ROI? Seems like a lot of sacrifice for no real results.

So do you want results? Do you want transformation? Do you want your team to get on board without resorting to drill sergeant tactics?

Maybe you should check out some of our SPSM Certification Success Story videos to see how others have gotten those things out of their training initiatives.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Monday, December 17, 2007

With GPO's, Don't Let Logic Replace Analysis

The logic of using a Group Purchasing Organization is simple: by pooling the spend of several small companies, each of those companies can get the more heavily discounted pricing that a large company gets.

It sounds good in principle. So good, in fact, that many companies may not even challenge that logic by doing analysis.

My advice: always do the analysis!

While a GPO may claim that you will save more by engaging with them than you would on your own (and that may be true), test the waters. Yes, I know, one of the reasons to go with a GPO is that your organization doesn't have the time to source on its own. But at least do SOME checking!

I was reminded of this principle in the last few months when sourcing health and dental benefits for the Next Level Purchasing team. We're a member of the Pittsburgh Airport Area Chamber of Commerce (PAACC) and the PAACC has a relationship with ChamberChoice - which is almost like a GPO for small organizations that source such benefits.

According to ChamberChoice's Web site, "ChamberChoice health plans allowed each chamber to offer its members buying power rivaling the largest companies." Furthermore, their brochure touted "The power of 50,000 businesses negotiating member services, benefits and health care."

A GPO-like claim, for sure. In other words, I should be able to get better pricing through ChamberChoice than I can get by sourcing benefits myself for just my organization.

Well, the analysis proved differently.

I was able to get better rates on health benefits through another provider (ARMS Insurance Group). And, while ChamberChoice offered a slightly lower monthly premium on the dental insurance than ARMS, ChamberChoice threw in an administrative fee and a billing fee on top of the monthly premium, which resulted in ChamberChoice being significantly more expensive than the provider I worked with on my own.

And we are talking the same benefits: United Concordia's Access Program. Same exact benefits - significantly different cost depending on the "reseller" you choose.

Of course, ChamberChoice's additional fees weren't exactly obvious in their quote. The heading for the monthly premium column had a superscript that referenced a footnote. That footnote referenced a whole other electronic file that made the buyer do a calculation to figure out the additional fees. So they made the comparison a little tricky.

The bottom line is this: GPO's may or may not be able to get better prices for you when compared to what you can get on your own. So always do a little checking.

As I alluded to in this post from last week, sometimes just a few seconds or minutes of checking can make a big difference. Don't be lazy.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, December 14, 2007

Apologies

This week, the email account that receives your inquiries through our Web site was hit with 12,000 spam emails per day on two separate occasions. While we have taken corrective action as well as preventative action for the future, this has delayed our responses to your questions.

Please rest assured that we are catching up and will get back to you as soon as possible. I anticipate that we'll be 100% caught up by close of business Monday.

We pride ourselves on fast, professional responses, so I apologize that we have taken so long to get back to some of you.

If you're thinking about enrolling with us and have any questions that you'd like us to answer today, please call us at 412-294-1990.

Thank you for your patience and understanding.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, December 13, 2007

Purchasing Is NOT The Island Of Misfit Toys

Watch this video first and then I'll share some commentary on how it connects to purchasing (as odd as that may seem)...



So what does a video clip from Rudolph The Red-Nosed Reindeer have to do with purchasing?

You knew I'd tell you, didn't you?

You see, many purchasing departments have been staffed in the same manner as the Island of Misfit Toys - when an employee didn't cut it elsewhere in the organization and the management didn't have the heart to fire him or her, that employee was sent to work in the purchasing department.

So purchasing departments became a home for the organization's "misfits." This practice was bred from the thinking that the role of purchasing is unimportant and that not much can be messed up in Purchasing.

Well, thankfully, times have changed and purchasing has become recognized as a true profession. Now, Purchasing is a place for people who want careers, not just jobs.

But, unfortunately, some misfits do remain in purchasing departments. These are the people who don't approach their work as strategic, don't produce measurable results, and often have bad attitudes.

So leaders of purchasing departments who want to transform purchasing in their organziations need a strategy to deal with the misfits. In my mind, there are two options for the existing misfits.

The first option is to give the misfits the benefit of the doubt and give them the opportunity to come on board with the strategic direction of the purchasing department. This can be done through external purchasing training accompanied by mentoring by the leader or one of the more talented members of the team.

This first option is the best one. If you can make leaps forward in Purchasing without having to change people, that's great. You look like a great leader, employees are happy that they get to keep their jobs and perform well, and there's no risk of legal action.

If you find misfit resistance or they still don't meet the goals expected of the non-misfits, then I believe that you have to resort to the second option - cutting them from the team. Headcount is so precious and limited. For the sake of the profitability of the organization and Purchasing's reputation within it, you cannot afford to have one seat in a purchasing department filled by a misfit.

You also need a strategy for dealing with management trying to dump misfits into Purchasing (yes, it still happens to this day in some places). Quite simply, just say "No." Purchasing is NOT the Island of Misfit Toys.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Tuesday, December 11, 2007

Holiday Gifts From Suppliers

Are some holiday gifts from suppliers appropriate? If so, what types of gifts are appropriate? Why might some be inappropriate or even offensive?

I've tackled some of these issues in this latest vlog. I'd love to hear what you have to say, so I encourage you to comment.



To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.nextlevelpurchasing.com/

Monday, December 10, 2007

Business With New, Small Suppliers

I hope that you have enjoyed the article "Doing Better Business With Small Suppliers."

Here, where I have a little more space, I'd like to further encourage you to utilize the free services offered by the Better Business Bureau. Specifically, if you have a problem with a supplier that negotiation alone cannot resolve, file a complaint with the BBB.

You see, as I explained in the accompanying podcast, when consumers have a bad experience with a business, they have many outlets for sharing that information with other consumers. Whether it be ranting to their friends about a bad experience, writing a review on a Web site like Planet Feedback, or blogging, their are few barriers to a consumer sharing his or her views and other consumers benefitting from hearing about those experiences.

Of course, in the B2B world, it's a little different.

Purchasing professionals generally don't talk about their bad suppliers with buyers in other companies the same way that consumers do. Purchasing professionals don't blog about their bad supplier experiences for fear of embarrassing their companies.

So there isn't a perfect way of learning about real-world supplier performance issues.

However, the BBB offers a way to engage in a type of online, social information sharing. You can look up a prospective supplier on the BBB's site, see whether they have a history of complaints, and whether they respond to those complaints. Just one unresolved complaint gets that supplier an unsatisfactory rating with the BBB.

But you won't have that information available unless purchasing professionals participate. You benefit when others share their experiences, so you need to "pay it forward" and share yours through filing a complaint when necessary.

As an example, if you go here, you can see that this supplier had a number of complaints filed against it and responded to none of them. Would you do business with that supplier?

So anytime you have to do business with a new supplier, I recommend taking 5 to 10 seconds to check out their rating on the BBB's site. It can introduce a red flag that saves you from a painful experience.

As I mentioned in the article, I am shocked when purchasing professionals place orders - regardless of the value - with new suppliers without taking just a few seconds to search for historical information about that supplier's performance.

Remember this: small orders can cause big problems.

Don't pretend that you're too busy to take the steps necessary to avoid the problems that are lurking. Believe me - if those problems occur, you'll be spending much more time solving them.

Oh, and filing a complaint isn't just for making information available.

It essentially gives you more leverage in resolving that complaint - not many suppliers want to have a publicly known unsatisfactory rating, so there is extra incentive for the supplier to work towards a resolution. The BBB will be a third party on your side to help show that you are serious about resolving your dispute.

And who couldn't use a little more leverage now and then?

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Friday, December 07, 2007

Does ISM Give Bad Sourcing Advice?

A couple of years ago, ISM published an article in its Inside Supply Management publication entitled "Doing Business With Canada" (membership required) that was intended to influence US-based purchasers to outsource more business to suppliers in Canada instead of suppliers in Asia.

Reviewing this article today scares me that purchasers may have taken this advice. It's not that Canada doesn't have a good supply base - they do - but the cost advantages of a US buyer buying from Canada have decreased, not increased, over the past couple of years.

Canada may have seemed like a low-cost alternative for US-based buyers at the time largely because of the exchange rate, which the author cites as being 0.85 US dollars per 1 Canadian dollar.

But exchange rates change. And the author even cited the appreciation of the Canadian dollar but didn't let that become a deterrent to providing a glowing picture of Canada as a hotbed for outsourcing.

It is important to have a longer-term outlook when selecting a country from which to source. Consider this:
  • The average hourly wage rate for a structural steel worker in Toronto, Canada was 37.36 Canadian dollars per hour in 2003 (source: International Cost Engineering Council)
  • The average hourly wage rate for a structural steel worker in the United States of America was 40.32 US dollars per hour in 2003 (source: International Cost Engineering Council)
  • In December 2003, the exchange rate for Canadian dollars to US dollars was 1.30. (source: oanda.com)
  • In December 2007, the exchange rate for Canadian dollars to US dollars was 1.00 (source: oanda.com)
  • Therefore, in 2003, a buyer in the US could buy structural steel labor services in Canada for 28.74 US dollars per hour (37.36 / 1.30 = 28.74) in contrast to buying structural steel labor services in the US for 40.32 per hour – a 29% "savings."
  • But, if wage rates stayed relatively the same or appreciated in both countries at approximately the same pace, the difference in 2007 would be much smaller: 37.36 vs. 40.32 – only 7%.

But not even those statistics tell the whole story.

According to the Organisation for Economic Co-ordination and Development, on average, Canadian workers' productivity is only 80% of that of US workers.

So a job that would take a Canadian worker 10 hours and take a US worker 8 hours in 2007 would make keeping the work in the USA the lower-cost decision for the US buyer, without even mentioning the cost advantages of offshoring to Asia.

Again, this is not a knock against Canada. Canada has great companies and brilliant people.

But, from a US perspective, with a weakening dollar, you really need to look at where things are going economically if you need to achieve long term cost savings through a sourcing strategy.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Thursday, December 06, 2007

Presenting Cost Savings To Senior Management

With some markets getting tight and the prices of certain categories on the rise, convincing senior management that you've achieved cost savings is as challenging as it ever has been.

That's why I created a new report entitled "Cost Savings AND Rising Expenses? Communication Purchasing's Value In Challenging Times." This document provides a cost savings formula, gives tips for presenting cost savings to senior management, introduces six ways to categorize Purchasing's impact on expenses, and much more.

There's only one way to get this report: take our survey and it is yours for FREE!

When you complete this survey, you will also get:

* An $8 (US) discount voucher towards enrollment in the online mini-course 'Negotiation No-No's '

PLUS

* A chance to be the one randomly selected winner of a $30 gift certificate to Amazon.com!

Your chance to participate in the survey expires on December 12, so take the survey now!

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

Monday, December 03, 2007

Before You Blame The Supplier...

Some of the things I've learned in my purchasing career - and some of what I now teach in our online purchasing classes - I've learned because I've made mistakes early on. I'll dedicate this blog post to one of those mistakes and, in the process, will hopefully help you new buyers out there avoid this common mistake.

When something goes wrong, sometimes it seems like everyone wants to blame the supplier and yell and scream at them. Often, this yelling and screaming occurs before the problem is thoroughly investigated. And, of course, many times the problem is not the supplier's fault but rather the fault of your own organization.

So, the lesson is clear: don't blame the supplier until you've thoroughly investigated the problem and are absolutely sure that the problem was the fault of the supplier.

Though I've made a habit of thorough investigation in the many years since I was a new buyer, this principle came to mind this past week in a non-corporate-purchasing situation.

You see, I have a quite a few trees in my yard which is rather large. In the fall, cleaning up leaves is one of my least favorite things to do.

A few years ago, my lovely wife suggested simply mowing the leaves with our mulching mower to save time. And the idea worked well - we've been doing it ever since.

However, when I went to mow leaves recently, the belt on the self-propelled mechanism of my mower was broken. And, the blade was not screwed on properly, so I couldn't even access the area to replace the belt.

So, I took the mower out to Sears for repair. Doing so wasn't easy - I have a small car with a small trunk, so I had to partially disassemble the lawn mower. Lifting the mower into the trunk and squeezing it into the trunk is quite a challenge.

But I managed. Sears fixed my mower and I picked it up, having again to partially disassemble it and struggle to get it in the trunk for the transport back home.

When I tried to use the mower, it wouldn't start. It was cold outside that day, so I wasn't in the best of moods.

Immediately, I became angry at Sears. How dare they make me go through all the hassle of getting my mower there and back and then breaking something when I had them repair something else!!!

I was going to call them then and give them a piece of my mind!

Then, the old purchasing principle of blame came to mind. I decided to calm down and investigate the problem another day.

That other day was yesterday. And you know what I found?

The bracket that clamps the operator presence cable to the handle had broken, which made the engine "think" that no one was holding on to the handle and, therefore, lock the engine. This was most likely caused by the rough insertion and removal of the mower from my itty-bitty trunk.

My fault, not the supplier's.

It has been so long since I've made the mistake of prematurely blaming the supplier that I can't think of an example where I've done it in a corporate environment, but I know that I have. But I'm glad that I've learned from that experience.

I would have embarrassed myself with Sears.

To Your Career,
Charles Dominick, SPSM
President and Chief Procurement Officer
Next Level Purchasing, Inc.
Struggling To Have A Rewarding Purchasing Career?
Earn Your SPSM Certification Online At
http://www.NextLevelPurchasing.com

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