Procurement Training, Purchasing Training, Supply Chain Management Training

Introduction

Hello everyone, my name is Omid Gami. My wife is Gausha, by the way. I have a lot of Brazilian friends who all call me Omii, so feel free to call me Omii if you like. Today, I want to share my insights on best practices for contract negotiations.

Background

I spent 18 years at Intel Corporation, where I worked my way through the purchasing department and eventually managed corporate purchasing operations with a scope of about $ 2.2 billion. I was humorously given the title of "Godfather of Negotiation Planning," a title that has stuck with me.

Today, I’ve been asked to discuss best practices in contract negotiations. Before we dive into the specifics, I’d like to know how many of you here have employees who manage or negotiate contracts? And how many are negotiating contracts yourselves?

We're going to explore four key strategies that can drive substantial changes in your organization.

Key Insight

It’s common for purchasing professionals to spend 75% to 90% of their time engaged in reactive, unproductive activities. This situation often stems from an inability to institute effective systems during contract negotiations. Many purchasing professionals step into their roles without prior experience or training, which results in inefficiencies.

The teachings I’ll share today come from years of conducting seminars worldwide and are designed to cut negotiation cycle times, improve supplier management, and enhance overall contract efficiency.

Strategy 1: Taking Costs Out of the Supply Chain

The initial focus should be on taking costs out of the supply chain rather than solely concentrating on supplier profit reduction. While price negotiation is essential, it’s critical to understand that significant cost savings can be achieved by focusing on other areas of the supply chain.

The goal should be to remove costs rather than merely shifting them down the line. Competition in the future will be between supply chains, not individual companies.

Steps to Implement:

Analyze Supply Chain: Identify the various cost components throughout the supply chain.
Engage Suppliers: Implement strategies that encourage suppliers to find ways to cut costs without sacrificing quality or service.
Innovative Solutions: Encourage solutions like developing a FAQ section to reduce call center costs by minimizing repetitive inquiries.

Strategy 2: Writing Contracts to Prevent TCO Excursions

Most purchasing professionals fail to invest enough time upfront on contracts. A well-drafted contract can help prevent and remedy total cost of ownership (TCO) excursions.

Best Practices:

Eliminate Modifications: Limit supplier modifications to your standard contract.
Create Clear Expectations: Define material and minor breaches in the contract to ensure that suppliers understand what is expected.
Think Ahead: Consider potential issues that might arise post-signature and draft accordingly with the customer’s needs in mind.

Strategy 3: Cost Modeling and Benchmarking for Success

Understanding the four types of cost models can greatly influence negotiation success. These include:

Must Cost Model: Used when budget constraints prevent full exploration of options.
Should Cost Model: Applied to understand what the cost should be for custom products or sole-source providers.
Benchmarking: Utilized primarily for undifferentiated products where suppliers can be compared directly.
Total Cost Model: Focused on understanding the difference between acquisition costs and total costs over the lifecycle of the product.

Strategy 4: Win-Win Negotiation Strategies

Win-win negotiation is more than splitting costs; it’s about meeting high-value objectives while ensuring suppliers feel satisfied with the deal.

Tips for Achieving Win-Win:

Prioritize Listening: Engage suppliers by asking what they need to be successful and documenting their responses.
Create a Concession Matrix: Develop a list of high-value, low TCO concessions that can be offered to the supplier without jeopardizing your organization’s needs.
Share Gains Equally: Ensure both you and the supplier benefit from the deal to foster long-term collaboration and trust.

Conclusion & Call to Action

By shifting from reactive strategies to proactive management of the supply chain and effective contract negotiations, purchasing professionals can achieve better results. Stop doing business as usual - instead, establish systems that direct focus onto innovative strategies.

Special Offer

For those interested, I’m providing a free digital copy of my book Purchasing Advantage: Running a World-Class Purchasing Organization. You can download it here within the next 24 hours!

Keywords

Procurement
Purchasing
Supply Chain Management
Contract Negotiation
Total Cost of Ownership
Negotiation Strategies
Cost Modeling
Win-Win Negotiation

FAQ

1. What is the main focus of the procurement training?
The training emphasizes strategies for effective contract negotiations, supplier management, and eliminating costs in the supply chain.

2. Why do purchasing professionals struggle with productivity?
Many inexperienced professionals often find themselves caught up in reactive activities due to insufficient training and systems.

3. What are the four strategies discussed in the training?
The four strategies are: taking costs out of the supply chain, writing contracts effectively, utilizing cost modeling, and implementing win-win negotiation strategies.

4. How does a win-win negotiation differ from traditional negotiation?
Win-win focuses on meeting both party's high-value objectives, rather than simply splitting costs, to ensure mutual satisfaction and collaboration.

5. How can I access the special offer for the book?
You can download a free digital copy of the Purchasing Advantage book by visiting the provided link in the article within the next 24 hours.