20 Questions for Senior Purchasing Managers

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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

• 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
C
10
25
100
Inventory Range
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Supplier Perception Matrix
High
Core
Develop
ATTRACTIVENESS OF BUSINESS
Nuisance
Exploit
Low
High
VALUE
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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 organisations 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
Suppliers 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

• 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

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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

• 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 Competitive Bidding
Strategic Product Partnership
Impact on Profitability
Bottleneck Products Secure continuity of supply
Routine Products Systems Contracting
L
Supply Risk
H
L
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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?
  

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The Matrix
L CORE H
Outsource Buy-in
Develop Contracting
Collaboration
In-house
H 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

• Adequate Terms and Conditions are essential
• The management of the contract requires
• Key Performance Indicators (KPIs)
• Service Level Agreement (SLAs)
• 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

• 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?

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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?

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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

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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?

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Negotiation

• Always prepare and remember your BATNA
• It makes you stronger
• Always prepare you MILs
• Must
• Intend
• Like
• Prepare the team

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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

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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

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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

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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

• 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

• 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

• 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

• Not intimidated
• Stick to their goals
• Trade few, small concessions
• Concessions tend to become smaller
• Dont fear deadlock

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Good night And Good purchasing
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CIPS Student Event

• JAGUAR CARS HALEWOOD, LIVERPOOL  Wednesday
  9th March, 930am - 12.00
• This event offers a guided tour around Jaguars
  Body Assembly Facility, followed by a talk from
  Jaguars 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_at_livjm.ac.uk