THE Godfather of Negotiation Planning ~ Intel Corp

Omid Ghamami, MBA

PURCHASING AND NEGOTIATIONS EXPERT

Omid Ghamami, MBA

President & Chief Purchasing Officer,

Purchasing Advantagewww.PurchasingAdvantage.com

About Your Instructor

Omid Ghamami, MBA 18 Years at Intel Corp Ran $2.2B Corporate

Purchasing Operations Organization

President & Chief Purchasing Officer, Purchasing

Advantage

Globally recognized author, speaker, trainer,

consultant

2,000 + hours training experience in 15 countries

2 best selling purchasing books & multitude of

industry purchasing articles

50+ hours TV appearances as industry expert

Architect, Founder, & Adjunct Professor of

Purchasing, Folsom Lake College

Issues in public sector purchasing

Less money

Increased public scrutiny

New laws and ordinances

Furloughs & shutdowns

25% of discretionary budget now goes to purchasing

No other

government

function is better

equipped to

make a positive

fiscal impact than

purchasing!

Issues in public sector purchasing

Public sector is extremely risk averse

Lack of incentive to save money

Pursuit of governmental policy objectives

Key Changes Affecting Purchasing

Need for

Agility

Workforce

Demo-

graphics

Global-

ization

Environ-

mental

ProblemsITChanging

Economy

Need for Purchasing

to Adapt

Purchasing Function Evolution

Place this order, fast

1950s - 1970s

Lower the price on my goods & services

1980s 1990s

Reduce My Total Cost of Ownership

2000s - Present

7 Deadly Sins of Public Purchasing

1. Ignoring centralized purchasing contract opportunities

2. Allowing Spec/SOW design for customization instead of TCO

3. Selecting suppliers based on low bid instead of low TCO

4. Putting contracts in place for resources instead of performance

results

5. Incentivizing and enabling supplier runaway costs

6. Failure to solicit supplier TCO innovation inputs and ideas

7. Misplaced Customer Service = always doing what the

customer wants instead of what they need

PUBLIC

PROCUREMENT

PROFESSIONALS

ARE THE ANSWER!

4 Key Shifts are Required

Shift #1: Ensure Spec & SOW Design for TCO Shift #2: Structure the Solicitation for

Performance Results

Shift #3: Use Cost Modeling to Select the Lowest TCO Supplier

Shift #4: Develop Supplier Performance Agreements

TCO

Module 1

Ensure Spec & TCO Design for TCO

Getting Lowest TCO is not enough!

If the spec/SOW is not designed for TCO, you will still leave money on the table

Getting the lowest TCO on a poorly designed spec/SOW is still a bad deal

Examples

Custom home vs pre-designed home

Standard PVC pipe vs custom PVC pipe with customers name stamped on it

Well known coffee shop espresso machines

Any request that requires the supplier has to make or do something different for you

12

Public Purchasing Case Study

True Story: 2 Adjacent Texas counties are buying like street infrastructure items, but their engineers had totally different

specifications for these items

The Street Light specs were 2 different in height

The wiring in one county had to have a special coating, but the other county did not require this when used for

same purpose

Large items were designed in one county to come off the side of a truck, while in the other county were designed to

come off the back

Your New Job.

Become a Specification and SOW Analyst

Most savings

opportunities can be

found BEFORE

negotiations ever

commence!

Added value Public Purchasing

Sourcing rather than processing

Vision as well as Mission

Driven by customer requirements

Purchases look at both cost and value

Focused on continuous improvement

Recognizing that proven solutions are better than speculative solutions

Recognizes that the REAL customer is the taxpayer 15

Simplification & Standardization for TCO

16

Simplification

Process mapping Bells & Whistles analysis Substitute

materials/technologies

Lifecycle cost analysis

Standardization

Replacing custom parts/services with standard

Reusing existing Specs/SOW Reusing existing contracts

elsewhere

What are Customized Components?

Any good or service that has been customized to a customer specific application

instead of an available industry or supplier standard offering

This can be at the component or the aggregate level

17

The Good News

Customization allows for innovation

Customization allows for expression

Customization allows for creating the perfect fit

Customization allows for better performance reviews

Customization helps personalize a purchase

Customization solves the but were different perception

18

The Bad News

Suppliers will incur far less costs in delivering standard parts/services and will pass on the savings

Customization robs purchasing departments of savings opportunities

Customization robs customers of their time & budget

Managers are rewarding unnecessary innovation because they think all innovation is good

Suppliers hate customization too, because it introduces uncertainty and slows downs their business model 19

20

Harnessing Supplier Best Practices

Purchasings biggest enemy is thinking they are smarter than the suppliers

Suppliers understand their industry better than purchasing does

Expectation should be set up front: You dont deliver a product or service; your job is to

ensure we are successful

21Harness Supplier Knowledge!

Break the Mold!

What You Need to Do

Start recognizing your suppliers as being a wealth of benchmarking information

Train suppliers to tell you if you tell them something that is not smart

Give suppliers an avenue to provide alternate proposals that offer the same solution at a lower

TCO

22

Process Mapping

23

Costs incurred at each step

need to be

understood!

Which can be modified or

eliminated?

Process Mapping Questions You Can Ask

Are there any custom processes or parts involved in supporting our business?

What inefficiencies can we eliminate or streamline in this SOW or Spec?

Waiting times, approvals, shipping routes, packaging, etc

Use process mapping symbols as your guide!

24

Things to look for in creating process improvement

Redundancies: Two or more tasks that can be reasonably combined into a single task. (filling out a requisition for a requisition)

Bottlenecks: Tasks that consume a significant amount of time, have no alternatives, and cannot be expedited even though other tasks in the process can be expedited. (Requisition sitting on someones desk for approval)

Disconnects: Tasks or decision points cannot be reached due to a process not functioning as intended.

Loops: Decision points that result in the, potentially infinite, repetition of tasks (review and approval of draft specifications)

Value analysis

Use value analysis to help.

What is the function of the good or service thats being acquired?

Are there items being included that do not serve that function? If not, what function does it serve?

Is the cost of that item and is it worth it?

27

Dont be Limited, Look at Total Cost Purchase price Maintenance Change orders Consulting and training Storage & temperature control Quality/reliability Efficiency/output Safety & environmental Taxes, tariffs Shipping Exchange rates Depreciation Insurance Resale/Scrap value

Reward Your Customers for Reuse!

Customers need to be trained that reuse of specs, standards, SOWs, existing contracts elsewhere, etc

can be better than innovation

A color certificate of recognition in customers staff meeting (in front of peers/mgmt) is a huge incentive

Call to Action

Start becoming a SOW/SPEC analyst

Ask the customer AND the supplier the question, can this be done using more standard components?

Harness supplier knowledge for breakthrough results before you ever negotiate!

Process map to identify and streamline inefficiencies

Foster a culture of rewarding customers for standardization & reuse, not for customization & innovation

Recognize that your greatest allegiance should be to taxpayers, not the internal end user 29

Lets answer your questions!

Q&

A