20 Questions for Senior Purchasing Managers

1. 20 Questions for Senior Purchasing Managers www.neilfuller.com

2. 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"

3. 20 Questions for Purchasing Managers • 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)

4. Inventory Investment Pareto Distribution 100% 90% 75% A B C 10% 25% 100% Inventory Range

5. Supplier Perception Matrix High Core Develop ATTRACTIVENESS OF BUSINESS Nuisance Exploit Low High VALUE

6. 20 Questions for Purchasing Managers • 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?

7. 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

8. Procurement Contribution • Appropriate relationships with long term supplier relationships or partnership where appropriate • Supply chain optimisation • 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

9. 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

10. 20 Questions for Purchasing Managers • 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?

11. The Kraljic Matrix (Kraljic, P) H Leverage Product “Competitive Bidding” Strategic Product “Partnership” Impact on Profitability Bottleneck Products “Secure continuity of supply” Routine Products “Systems Contracting” L Supply Risk H L

12. 20 Questions for Purchasing Managers • 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?

13. The Matrix L CORE H Outsource Buy-in Develop Contracting Collaboration In-house H Competence of Contractors L

14. 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

15. Maintaining Performance • Adequate Terms and Conditions are essential • The management of the contract requires: • 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)

16. 20 Questions for Purchasing Managers • Do you have appropriately skilled people developing and managing your purchasing strategies? • CIPS • CPD • 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?

17. 20 Questions for Purchasing Managers • 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 cost-effective, risk-controlled added value?

18. 20 Questions for Purchasing Managers • Do you maximise the use of IT and ensure that you receive the maximum benefits from its application? • Reduce transactions costs • Integrate databases • Stimulate competition in market (e-auctions) • Reduce the burden of low-value work • Low value ordering systems

20. 20 Questions for Purchasing Managers • Do you plan effectively for major negotiations? • Do you assess the outcome of your negotiations? • 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?

21. Negotiation • Always prepare and remember your BATNA • It makes you stronger • Always prepare you MIL’s • Must • Intend • Like • Prepare the team

22. The best negotiators • Seeking information • Spend 20% of the time asking questions • Average negotiators spend 10% • Gives control • An alternative to disagreement • Reduces the other parties thinking time • Testing understanding and summarising • Ensures clarity • They spend twice as long as average negotiators • Consequently the implementation is more successful

23. The best negotiators • 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

24. Things the best negotiators avoid • Irritatators • 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 • Defend attack spirals • Argument dilution • Inappropriate questions

25. We cannot accept your application for a 10% price increase because we know that raw material costs costs have only increase by 5%

26. We cannot accept your application for a price increase.

27. Successful negotiators –personality traits • 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

28. The right questions • 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?

29. The wrong questions • 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?

30. Tough negotiators • Not intimidated • Stick to their goals • Trade few, small concessions • Concessions tend to become smaller • Don’t fear deadlock

31. Good night And Good purchasing

32. CIPS Student Event • JAGUAR CARS – HALEWOOD, LIVERPOOL: Wednesday 9th March, 9:30am - 12.00 • 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. • To book your place, please contact: • Jo Meehan, Senior Lecturer in Supply Chain Management, • Liverpool John Moores University, • j.meehan@livjm.ac.uk