Procurement Is More Than Just Buying

Negotiations or digital buying tools? Ups and downs of linking achieved savings to salary size. Importance of different experiences and learning. Similarity to other functions.Those were the questions I shortly (I promise, I tried!) answered to Procurement Network (interview).

“Procurement Network interviewed Vaida Maksims, a qualified member of CIPS (MCIPS) and PMI (Project Management Professional). Vaida holds a bachelor’s degree in International business management and EMBA qualification in Applied Organizational Psychology. Vaida held many different roles in procurement (from buyer to Chief Procurement Officer), in project and in supply chain management. She had the opportunity to lead teams and businesses in different countries and now enjoys the opportunity to share her knowledge and experience speaking in conferences, teaching CIPS evening classes and writing her blog (www.futureproofitable.com).

These are Vaida’s thoughts about procurement’s role: “The best buyer is the one that does not like buying for the sake of buying – like me. I am known for being able to first question everything on demand side: types of spend, quantities, processes and buy only what is really needed. And once you buy it – it has to serve the purpose and meet all current and potential future business purposes. Procurement is not only about buying. Proper buying means you need to know your customer, sales and marketing, technical capabilities to manufacture and definitely logistics – the whole supply chain. That is how procurement can bring benefits to the business: by giving insights of proper buying.”

 In our digital era, how important are negotiation skills in procurement?

I think these two things are not alternatives – as in, you cannot have one or the other. No matter how many pencils, canvases, frames or types of colors the artist has – they are only tools. The most important things for the artist are brain, imagination, emotions, and creativeness – everything that constitutes the art itself.

In procurement you will have a lot of different strategies, which can be implemented using many different tools. Digital tools and digital information are a part of procurement’s toolset. Do not get me wrong – a very big and important tool, but still – only a tool.

When it comes to comparing negotiations as a tool and digital tools, I consider the question in a wider perspective. Negotiation skills is something people can apply every day in every aspect of their life – personal as well as professional. Negotiation skills is a part of communication skills (a big one!). I am a strong believer that good communication is 80% of your success – whatever it is that you do. After all, you will need negotiation skills to agree on what kind of tools and how to use them!

How would you react to the idea of linking savings to actual salaries of procurement experts?

 Depends – that is the shortest answer that I could come up with. Just like everything in life and business – it is relative. Depending on the arrangement, it can have positive and negative sides. Positive:

·        Better reward (% of savings) would motive procurement specialists better;

·        Better rewards would attract better specialists to the field;

·        Clear cost structure would motivate business to use the specialists and implement their proposals better;

·        Good TCO and business needs understanding would help making better business decisions.

However, if the reward system design is poor, you might get the opposite:

·        Buying only “like for like” – to get comparable “price savings”;

·        Short term savings which might affect long term business results negatively;

·        Reduced quality and service levels;

·        If a company does not embrace change and does not support procurement specialists, they run into the risk of “underachieving”. Then all the motivation system will start working against them (and against the company).

 

The best short word I can think of to describe how it should be done – balance. Proper balance in setting goals, rewarding achievements, supporting actions would be the best outcome for everyone.

How important is it to have procurement experience in different industries and/or countries?

 It is important (I would even say crucial) to have different experience. Full stop. The more different it is, the better. 

Firstly – to be able to analyse anything, you need to understand background (benchmark). Various philosophers and anthropologists call it relativism, and there are various forms of it. There is no such thing as completely only “good” or “bad”. It is more about perceptions and what is suitable for the situation (business, including) at the moment in time and space you are in. How do you know if administration costs of £300 per PO is good or bad? How do you know, if route-to-market of 12 months in food manufacturing is competitive? How do you know, if £50/hour for data entry is a reasonable amount? The answer is – only by comparing it. Comparing with something: other companies, other industries, other countries.

Another aspect to the question is learning. Procurement is not a rocket science. I know, it might sound cheap, but it is the truth. It is pure classic in management and most of the models, tools, templates or processes have been invented. You always have a choice to try creating something by yourself – but most likely, it will be highly time consuming and costly, unreliable at the beginning. While if you find a working model, you just need to adapt it to your needs.

Knowledge of other industries, other functions, other countries, other roles – everything contributes to a person being (becoming) a better professional. That is a rule and it applies not only for procurement.

What profession is the closest to procurement?

All functions (or professions, if you like) in business are very close. Procurement in one company is not the same as procurement in another, therefore, it is not that straightforward. Also, depending on a company size and industry, you will see different functions existing (or not) within the company.

Procurement can be close to an internal auditing. It can form a part of a finance department. Sometimes, it will be a part of the operations. Some companies have “commercial” departments and procurement sits within them. It is not uncommon, that procurement manages the whole supply chain. In cases of outsourcing, procurement specialists become business managers (consider outsourcing full packing services – part of production, for example).

What would you advise to junior procurement professionals?

 If there would be only one advice I could give, it would be: do not stop learning. Learn from mistakes you make – that means, you have to make them! Learn from colleagues within the company – that will teach you to cooperate and be more than just a procurement specialist. Learn from recognized industry or profession leaders – you will find lessons, which were not in your school books. Learn from politicians… or not – that is the expert judgement lesson that life will teach you. Sometimes in a really tough way. Learn from children – simplicity and unrestricted thinking comes from minds, which are not yet damaged by stereotypes. Learn from fighters – determination, persistence, focus is a very big part of success.

And, if you are still reading these lines – you are on the right path! Congrats!

Thank you!”

Advertisements
Procurement Is More Than Just Buying

Rebates As A Tactics (Tool) In Negotiations

rebates

Before you open the full version of blog – if you are in sales, could I please kindly ask you NOT to read any further? Please? This is only written as a tip for buyers.

I have already posted about rebates. And do not get me wrong – i still do not like them. BUT, listening to my colleagues talking about the subject, I realised, that there is a way how we, buyers, can use them for all the right purposes.

The situation in the market is as it is. A lot of sales people almost expect you to ask for rebates. So why not use this? However, for a successful outcome, there have to be two conditions:

  1. During the negotiations the supplier should not know you will ask for rebates.
  2. The supplier should not be informed what are the rules / policies in your company regarding rebates (if there are any).

And the process is as follows:

  • do your best during commercial negotiations part – and that includes everything from pitching your company, attractiveness of account, RFQ, negotiations. Really – get the best prices.
  • After this process is done, as “one last condition” – ask for rebates. This serves as a very good “security check” and has few outcomes:
    • The supplier was expecting for this request and kept “safety margin”. They will give you the rebate and you will make sure they gave you really the best conditions.
    • The supplier was not expecting this request, but still has some “wiggle room” and will give you the rebate promise.
    • The supplier did not keep any flexibility in margin (whether or not they expected your request for rebate). In this case they will simply say no and you will know that you did your job well from the very start.
  • If you have received the rebate promise – ask the supplier to simply give a discount rather then a rebate. In this case you will get best prices AND best financial conditions (as per details in the post mentioned above).

This worked for me. Want to try? Let me know how it ended!

Rebates As A Tactics (Tool) In Negotiations

Negotiations tip: what is the real bottom line value of a piece of equipment?

This comes from a very recent experience. We all do (fingers crossed) proper homework when buying an expensive piece of equipment. However, sometimes, since it usually is a very ad-hoc unit, finding reference points is difficult.

What I have learnt recently – the supplier himself can be a very good reference point. Very short and simple tip: while negotiating, discuss a “buy-back” price. Ask them: if the product is not successful in the market and we would need to sell the kit, would you be interested in buying it back? For how much? Their answer is your benchmark. Everything else – “expected monetary value” – is a profit that a business could have if they would use the piece of equipment and all other supply chain parts would work well (incoming goods, operations, sales).

Hope you can use this! This definitely goes on my future question list for Capex negotiations.

Negotiations tip: what is the real bottom line value of a piece of equipment?