Pain Point # 5 – TRYING TO MEET COST SAVINGS GOALS

1. “THE Godfather of Negotiation Planning” ~ Intel Corp Omid Ghamami PURCHASING AND NEGOTIATIONS EXPERT Pain Point # 5 – TRYING TO MEET COST SAVINGS GOALS

2. REQSExecution Model

3. REQS Execution Model • Re-architect: Completely re-architect everything you do to be focused on things that improve your savings metrics • Educate: yourself and supplier on direct, indirect, avoidance savings • Quotations: Have all supplier RFX responses come back with savings by category • Savings: quarterly supplier cost savings reports model

4. Step 1: Completely re-architect everything you do to be focused on things that improve your savings metrics • Review your schedule for the last month and classify all your meetings • Each meeting either improves or does not improve cost savings • Re-justify EVERY meeting you participate in that does not contribute to cost savings…. Be ruthless • Eliminate recurring meetings, replace with exception based

5. Completely re-architect everything you do, cont. • Change all 1 hour meetings to be 30 minute meetings, and require an agenda for the meeting • If no agenda, it must not be important enough! • Take your laptop to every meeting • Learn how to multi-task like a pro! • Have a MINIMUM of 4 hours free on your calendar, every day • Root cause your mail flow… why are you getting so many mails?

6. Completely re-architect everything you do, cont. • Address the source of mails that take your time in response… • What is the root cause you can address so that the mails stop? • Answer voicemails with emails • Try to address meeting requests with emails where ever possible • Stop asking your manager for frequent approvals, and instead show forward looking plans on an infrequent basis

7. Completely re-architect everything you do, cont. • Turn off your email “beep” that indicates new mails • Only do mails during a 1 hour window in the morning and a 1 hour window in the afternoon • Have a set of strategic deliverables, and break them down to weekly and then daily deliverables • Manage your golf balls and beans for success!!!

8. Step 2: Educate: yourself and supplier on direct, indirect, avoidance savings • Direct cost savings: • The quantified value of negotiated price related contract components (i.e. price reductions) • Indirect/soft cost savings: • The quantified value of negotiated non-price related contract components • Cost Avoidance (100% cost savings!): • Reduction in demand • Elimination of components of what is being purchased • All of the above should be based on what would have happened had purchasing not gotten involved

9. Indirect/Soft Cost Savings – The Big Conundrum! • Ask the supplier what they would normally charge any other customer for the negotiated value add in question • Increase in warranty • Reduction in leadtime • Dedicated customer support headcount • Alternative is to do a cost model where savings are internal • Ex’s: Productivity savings, payment terms savings using WACC* *Weighted Average Cost of Capital – get from finance dept

10. Step 3: Have all supplier RFX responses come back with savings by category • State a requirement that all RFX proposals line item detail savings that the supplier proposes to deliver • Supplier must delineate these savings by savings type • Direct, Indirect, or Avoidance • Define each of these in the RFX • Discuss this in supplier RFX briefings that you may hold, let them know how important this is • Reducing TCO is key to winning and keeping the business, make that known up front

11. Have all supplier RFX responses come back with savings by category, cont. • Force creativity and innovation of thought in RFX responses • Indicate that those suppliers that come back with innovative means to reduce TCO will have a competitive advantage • Have suppliers question ALL your assumptions • You may be asking them to do something that builds or adds costs unnecessarily • The supplier is trained not to tell you these things, you need to undo that thinking

12. Step 4: quarterly supplier cost savings reports model • Make your suppliers keep earning your business, every month! • Consider inclusion of the following clause in all contracts*: “Supplier shall provide a comprehensive cost savings report to Buyer on a (monthly or quarterly) _________ basis. Such reports shall detail all direct, indirect, and avoidance savings which supplier has achieved on Buyer’s behalf and passed onto Buyer in the form of price and non-price related total cost savings in a template as prescribed by Buyer. Upon request, Supplier shall provide any additional available details for any and all savings line items identified to Buyer in said report.” * This is not legal advice. The viewer of this material must first get management and legal’s approval – if they don’t approve, this clause should not be used!

13. Quarterly Cost Savings Report Template

14. Call to Action • Re-architect: Completely re-architect everything you do to be focused on things that improve your savings metrics • Educate: yourself and supplier on direct, indirect, avoidance savings • Quotations: Have all supplier RFX responses come back with savings by category • Savings: quarterly supplier cost savings reports model

15. “THE Godfather of Negotiation Planning” ~ Intel Corp Omid Ghamami PURCHASING AND NEGOTIATIONS EXPERT Thank you for watching!www.PurchasingAdvantage.com1-888-TCO-4889 1-888-826-4889