Negotiation Strategies for *BREAKTHROUGH* TCO

Transcription

1 THE Godfather of Negotiation Planning ~ Intel Corp Omid Ghamami PURCHASING AND NEGOTIATIONS EXPERT Negotiation Strategies for *BREAKTHROUGH* TCO Omid Ghamami President & Chief Purchasing Officer, Purchasing Advantage 1

2 MBA, University of California System About Your Instructor 18 Years at Intel Corp Ran $2.2B Corporate Purchasing Operations Organization President & Chief Purchasing Officer, Purchasing Advantage Globally recognized author, speaker, trainer, consultant Thousands of hours speaking experience in 15 countries 2 purchasing books & multitude of industry purchasing articles 50+ hours TV appearances as purchasing industry expert Architect, Founder, & Adjunct Professor of Purchasing for the only such curriculum in the State of California

3 Series Overview, Modules I - IV Module I: Negotiation Intelligence Gathering Module II: Pre-Negotiation Cost Opportunities Module III: Total Cost Analysis for TCO Module IV: Planning, Holding & Closing Negotiations

4 Training Objectives You Will Learn: Why negotiations are won and lost before they ever start and what steps to take for next level TCO outcomes and satisfied suppliers. How and when to use benchmarking, should cost, total cost, and must cost models How to harness supplier knowledge to streamline and eliminate unnecessary costs The secrets to motivating suppliers to be actively involved in driving TCO reduction How to make compromises and concessions that suppliers value but don t impact your cost savings objectives How to call a supplier s bluff when they say they want to walk How to select, manage, and carry your negotiating team to the negotiation table A toolbox of powerful behavioral negotiation strategies that crack cases How to establish TRUE win-win, whereby you meet and exceed your TCO objectives while having the supplier feel great about the deal 4

5 Module I Negotiation Intelligence Gathering

6 Pre-Negotiation Phase Importance Expected Results Negotiations are Won and Lost Before they Ever Start! Effort spent preparing for negotiations 6

7 Give me six hours to chop down a tree and I will spend the first four sharpening the axe. - Abraham Lincoln 7

8 Important Notice! Negotiation philosophies that focus on: Getting the upper hand Getting an unfair advantage Forcing the other party to agree to your terms based on aggression, deceit, mind games, psychological leverage, coercion, time pressures, etc. ALL HAVE NO PLACE IN OUR PROFESSION

9 Influence vs. Position Power Influence achievement of objectives because the other party wanted to Position Power achievement of objectives because the other party had to Influence results in motivated followers Position Power results in disgruntled followers The ability to influence is THE most important factor in your career success 9

10 Key Message Properly Evaluating the Interests of the Other Side is THE Key to Successful Negotiations This necessitates a PRE- NEGOTIATION session with suppliers for major negotiations

11 Counter Intelligence Suppliers will know when you haven t prepared for negotiations, and you will lose bargaining power Larger suppliers have a keener sense for this, because they put greater emphasis on information gathering Your #1 way of accomplishing this is through developing your listening skills

12 Practicing LISTENING in Negotiations Before you tell the supplier what you want. Ask them what THEY want from this deal to be successful. Perception counts! Act interested, take notes, and play back what you heard. Now is NOT the time to express disagreement Your job at this moment is to show you CARE. You are gathering counter-intelligence 12

13 The Power of Listening People are more apt to support a solution when they feel they had input into it Breaks down barriers right away Establishes good will Increases supplier s willingness to compromise Gives you the data you need to build a Concession Worksheet. 13

14 The Win/Win Myth I know, look, listen, you're unhappy. I'm unhappy, too. That's what a good compromise is all about. A good compromise is when both parties are dissatisfied, and I think that's what we have here." Larry David, Curb Your Enthusiasm

15 Splitting the pie down the middle = Lose/Lose 15

16 Defining Win/Win Win/Win = meeting your high value objectives and having the vendor feel good about the deal. Bitter vendors can and will find ways to increase revenue Allowing the vendor to win while still meeting your objectives is an art form A good deal is a state of mind. Lee Iacocca, Former CEO of Chrysler 16

17 Differentiating win/win from win/lose Win/Win Both parties achieve high value objectives The supplier is eager to see your continued success Supplier will be your trusted partner in resolving future issues and needs Build lasting relationships based on trust, ethics, honesty and transparency Win/Lose Only you achieve your high value objectives The supplier is resentful and will do the minimum required by contract For a fee, supplier will help you resolve future issues and needs 17

18 Bargaining Power Influencers Contributions to manufacturing quality Buyer s profitability Motivation of Buyer in purchasing Buyer s negotiation philosophy (win-lose vs win/win) Switching costs for Buyer to switch to another supplier Technological leadership position by Seller Product differentiation by Buyer, resulting in few Sellers that can support Seller s slack in production capacity Seller s desire to gain marketplace traction in marketing & manufacturing Existence of substitute suppliers Purchase volume offered by Buyer Ability for Buyer to engage in backward/forward integration Supplier s desire for rapid growth

19 Pre-negotiation Meeting with the Supplier Pay now or pay later process! Key objectives: Get to know players Get to know decision makers Align on requirements Align on negotiation expectations Align on timelines Give the supplier homework! 19

20 Get to Know Decision Makers Authorized to say No vs Yes YOU own: Who comes to the negotiation Where the negotiation is held How long it is held for When they start and stop Why they start and stop What is discussed What your team members say at negotiations How decisions are made How the output of meetings are captured 20

21 Calling a Supplier s Bluff 6 Key Questions* 1. What percentage of your business will be coming from our firm with this proposed contract value? 2. Relative to your other customers, what is our organization's expenditure ranking with this proposed contract value? 3. Are you currently operating at full capacity? 4. Are you doing business in any capacity with other divisions of our organization? 5. If an agreement was reached, are there any target dates for placing the first order? 6. Are there any industry segments or new markets for which you would like us to use this contract as a gateway? *Source: Ghamami, Omid, Calling the Supplier s Bluff - 6 questions to determine how much they need (or don't need) your business, ISM eside Supply Management, Vol. 1, No. 5, Sept/Oct 2008 issue. 21

22 Giving the Supplier Homework! *Other Key Supplier Questions* List of Top 5 competitors NAICS Code (or regional code if you are Spending from last year & forecast for next year Proposal developed that addresses the exact areas on your negotiating plan. Now is the time to give them your contract! 22

23 Building a Concession Worksheet - Negotiation skills and Value Creation Resources Don t assume you know why the supplier wants your business This is the value of Asking questions Listening Having a pre-negotiation session You need to ask the supplier what success means for them 23

24 Supplier s Desire Example Concession Matrix Perceived Value with Supplier (1 5 scale, 5 = high) Total Cost Impact to Purchasing/ Customer (1 5 scale, 5 = high) Concession Value (in rank order of impact) Using customer and firm name as a reference in advertising Payment terms of Net Initial payment received by end of quarter, ahead of product delivery Weekly forecast updates provided to supplier to optimize inventory requirements Limitation of liability capped to contract value for direct damages Ownership of new IP Developments Source: Ghamami, Omid Win/Win Negotiation Strategies, ISM eside Supply Management, January/February 2010, Vol. 3, No

25 Module I Summary Negotiations are won and lost before they ever start preparation is key! Counter intelligence gathering is your best strategy for exceeding your TCO goals while ensuring a win-win If you don t determine the supplier s interests, you WILL end up fighting over one pie only most likely price. Understand bargaining power of both sides at ALL times including whether the supplier can really walk from the deal or not is critical! Use a concession worksheet to have an advance strategy of how you will achieve your high TCO objectives through the use of low TCO concessions Have a conscious strategy and desire to make the supplier successful *without* impacting your TCO objectives