Transcript Purchasing Manager’s Toolkit

20 Questions for Senior
Purchasing Managers
www.neilfuller.com
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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 unwise
to 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 was
incapable of doing what you bought it to do.
The common law of business balance prohibits a
little getting a lot. It cannot be done. So, if you deal
with 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"
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20 Questions for Purchasing
Managers
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Do you know exactly how much your
organisation is spending externally each year?
Do you know how much is spent on each
category of spend and with which supplier? (a
category is a range of purchases – e.g.. energy,
raw materials. IT)
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Inventory
Investment
Pareto Distribution
100%
90%
75%
A
B
10%
C
25%
100%
Inventory Range
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Supplier Perception Matrix
High
Core
Develop
ATTRACTIVENESS
OF BUSINESS
Nuisance
Exploit
Low
VALUE
High
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20 Questions for Purchasing
Managers
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Do you know the total cost of the purchases
you make, rather than just their price? i.e. the
total acquisition cost (TAC) and the life cycle
cost of capital purchases?
Do you know how much value your suppliers
provide and create for your organisation’s
success and reputation?
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The supply chain assumes a flow of value to the customer and
pricing pressure to the supplier. Reality is more complex.
Delivery of a superior value proposition
Quality, Innovation & value flow to the customer
Supplier’s
Supplier
Supplier
Buyer
Customer
Demands for everyday low pricing
Customer/supplier integration across a responsive supply chain
Value acquisition from
Suppliers
Value added in
production
Value delivery to
customers
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Procurement Contribution
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Appropriate relationships with long term supplier
relationships or partnership where appropriate
Supply chain optimisation
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Reducing waste and all non-value adding activities
Increasing customer service responsibilities e.g. reducing lead
times
Improved supply chain communications particularly
forecasting
Reduced time for new product development and involving
suppliers in NPD.
Coordination of all the component links in the supply chain
Maximising the potential of IT
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From 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
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20 Questions for Purchasing
Managers
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Do you know who your key suppliers are?
Do you have pro-active, close relationships
with your key suppliers?
Do you understand the risks inherent in the
purchases you make and are you managing risk
effectively?
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The Kraljic Matrix (Kraljic, P)
H
Leverage Product
Strategic Product
“Competitive Bidding”
“Partnership”
Impact on
Profitability
Bottleneck Products
Routine Products
“Systems Contracting”
“Secure continuity of
supply”
L
L
Supply Risk
H
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20 Questions for Purchasing
Managers
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Do you know what you should outsource and
what you should not outsource?
Are you outsourcing services successfully?
Are you managing suppliers of outsourced
services successfully?
Do you know what your purchasing strategies
are and are they aligned to your business
strategies?
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The Matrix
L
Outsource
Develop
Buy-in
Contracting
C
O
R
E
Collaboration
H
H
In-house
Competence of Contractors
L
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The implication of make or buy for
supply management expertise
High level of purchasing skill,
strategic supply management
Lean enterprise
Make or do
everything
internally
Buy all non-core
activities
Chaos
Low level of purchasing skill,
clerical supply management
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Maintaining Performance
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Adequate Terms and Conditions are essential
The management of the contract requires:
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Key Performance Indicators (KPI’s)
Service Level Agreement (SLA’s)
Liquidated Damages for poor performance
Termination (Escape) clauses
Clear communicated specifications
Feedback and review on a regular basis
A key issue has been the placing of contracts by non
procurement specialists (HRM, Catering)
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20 Questions for Purchasing
Managers
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Do you have appropriately skilled people
developing and managing your purchasing
strategies?
CIPS
 CPD
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What proportion of your external spend is
managed by your purchasing professionals?
If the answer to the last question is not 100 per
cent, why not? What are you doing about it?
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20 Questions for Purchasing
Managers
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How do you support your purchasing people to
ensure they achieve appropriate business
benefits?
Do you direct your purchasing people to limit
their focus to reducing prices by x per cent each
year or do you direct them to achieve costeffective, risk-controlled added value?
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20 Questions for Purchasing
Managers
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Do you maximise the use of IT and ensure that
you receive the maximum benefits from its
application?
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Reduce transactions costs
Integrate databases
Stimulate competition in market (e-auctions)
Reduce the burden of low-value work
Low value ordering systems
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20 Questions for Purchasing
Managers
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Do you plan effectively for major negotiations?
Do you assess the outcome of your negotiations?
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How effective have you been?
Do you try to improve your own skills and techniques?
Do you ensure that all your people receive adequate
training in negotiation skills?
Do you encourage team negotiation where appropriate?
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Negotiation
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Always prepare and remember your BATNA
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It makes you stronger
Always prepare you MIL’s
Must
 Intend
 Like
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Prepare the team
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The best negotiators
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Seeking information
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Spend 20% of the time asking questions
Average negotiators spend 10%
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Gives control
An alternative to disagreement
Reduces the other parties thinking time
Testing understanding and summarising
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Ensures clarity
They spend twice as long as average negotiators
Consequently the implementation is more successful
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The best negotiators
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Behaviour labelling
E.g., “I am going to ask you a question on your
quality”
 Applies social pressure and slows things down
 The best negotiators are five time more likely to do
this
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Things the best negotiators avoid
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Irritatators
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Five times less likely to use them
This is a very fair offer
 To be perfectly honest/quite frank
 You wont get a better deal anywhere else
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Defend attack spirals
Argument dilution
Inappropriate questions
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We cannot accept your application for
a 10% price increase because we
know that raw material costs costs
have only increase by 5%
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We cannot accept your application for a price increase.
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Successful negotiators –
personality traits
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Strong ego and self confidence
Intelligent and seek information
Conceptualise
Set targets which they relentlessly pursue
Try to understand others and build relationships
Are high on trust and integrity
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The right questions
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Good negotiators use the right sort of questions
What criterion are you using?
 What are your priorities?
 How did you calculate those numbers?
 How do you feel about these issues?
 Can you explain that to me?
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The wrong questions
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Good negotiators avoid the wrong sort of
questions
Are you listening
 Do you think I am stupid
 Is that your final offer
 Is that the best price you can do?
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Tough negotiators
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Not intimidated
Stick to their goals
Trade few, small concessions
Concessions tend to become smaller
Don’t fear deadlock
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Good night
And
Good purchasing
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CIPS Student Event
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JAGUAR CARS – HALEWOOD, LIVERPOOL:
Wednesday 9th March, 9:30am - 12.00
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This event offers a guided tour around Jaguar’s Body & Assembly
Facility, followed by a talk from Jaguar’s Supply Chain Manager.
This is organised by Liverpool John Moores University who are
offering limited places to CIPS students in Merseyside. Places are
limited and on a strictly first come, first served basis.
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To book your place, please contact:
Jo Meehan, Senior Lecturer in Supply Chain Management,
 Liverpool John Moores University,
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[email protected]
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