Pain Point # 5 – TRYING TO MEET COST SAVINGS GOALS “THE Godfather of Negotiation Planning” ~ Intel Corp Omid Ghamami PURCHASING AND NEGOTIATIONS EXPERT Pain Point # 5 – TRYING TO MEET COST SAVINGS GOALS

REQS Execution Model 1) Re-architect 2) Educate 3) Quotations 5) Savings REQS Execution Model

REQS Execution Model Re-architect: Completely re-architect everything you do to be focused on things that improve your savings metrics Educate: yourself and supplier on direct, indirect, avoidance savings Quotations: Have all supplier RFX responses come back with savings by category Savings: quarterly supplier cost savings reports model

Step 1: Completely re-architect everything you do to be focused on things that improve your savings metrics Review your schedule for the last month and classify all your meetings Each meeting either improves or does not improve cost savings Re-justify EVERY meeting you participate in that does not contribute to cost savings…. Be ruthless Eliminate recurring meetings, replace with exception based

Completely re-architect everything you do, cont. Change all 1 hour meetings to be 30 minute meetings, and require an agenda for the meeting If no agenda, it must not be important enough! Take your laptop to every meeting Learn how to multi-task like a pro! Have a MINIMUM of 4 hours free on your calendar, every day Root cause your mail flow… why are you getting so many mails?

Completely re-architect everything you do, cont. Address the source of mails that take your time in response… What is the root cause you can address so that the mails stop? Answer voicemails with emails Try to address meeting requests with emails where ever possible Stop asking your manager for frequent approvals, and instead show forward looking plans on an infrequent basis

Completely re-architect everything you do, cont. Turn off your email “beep” that indicates new mails Only do mails during a 1 hour window in the morning and a 1 hour window in the afternoon Have a set of strategic deliverables, and break them down to weekly and then daily deliverables Manage your golf balls and beans for success!!!

Step 2: Educate: yourself and supplier on direct, indirect, avoidance savings Direct cost savings: The quantified value of negotiated price related contract components (i.e. price reductions) Indirect/soft cost savings: The quantified value of negotiated non-price related contract components Cost Avoidance (100% cost savings!): Reduction in demand Elimination of components of what is being purchased All of the above should be based on what would have happened had purchasing not gotten involved

Indirect/Soft Cost Savings – The Big Conundrum! Ask the supplier what they would normally charge any other customer for the negotiated value add in question Increase in warranty Reduction in leadtime Dedicated customer support headcount Alternative is to do a cost model where savings are internal Ex’s: Productivity savings, payment terms savings using WACC* *Weighted Average Cost of Capital – get from finance dept

Step 3: Have all supplier RFX responses come back with savings by category State a requirement that all RFX proposals line item detail savings that the supplier proposes to deliver Supplier must delineate these savings by savings type Direct, Indirect, or Avoidance Define each of these in the RFX Discuss this in supplier RFX briefings that you may hold, let them know how important this is Reducing TCO is key to winning and keeping the business, make that known up front

Have all supplier RFX responses come back with savings by category, cont. Force creativity and innovation of thought in RFX responses Indicate that those suppliers that come back with innovative means to reduce TCO will have a competitive advantage Have suppliers question ALL your assumptions You may be asking them to do something that builds or adds costs unnecessarily The supplier is trained not to tell you these things, you need to undo that thinking

Step 4: quarterly supplier cost savings reports model Make your suppliers keep earning your business, every month! Consider inclusion of the following clause in all contracts*: “Supplier shall provide a comprehensive cost savings report to Buyer on a (monthly or quarterly) _________ basis. Such reports shall detail all direct, indirect, and avoidance savings which supplier has achieved on Buyer’s behalf and passed onto Buyer in the form of price and non-price related total cost savings in a template as prescribed by Buyer. Upon request, Supplier shall provide any additional available details for any and all savings line items identified to Buyer in said report.” * This is not legal advice. The viewer of this material must first get management and legal’s approval – if they don’t approve, this clause should not be used!

Quarterly Cost Savings Report Template Savings Description Savings Type Savings Amount Explain How These Savings Were Passed Onto Buyer What is the specific activity or act that generated savings? Direct, Indirect, or Avoidance? (may be more than one) State amount of savings, by savings type Explain how the Buyer is directly benefitting from these savings “

Call to Action Re-architect: Completely re-architect everything you do to be focused on things that improve your savings metrics Educate: yourself and supplier on direct, indirect, avoidance savings Quotations: Have all supplier RFX responses come back with savings by category Savings: quarterly supplier cost savings reports model

“THE Godfather of Negotiation Planning” ~ Intel Corp Omid Ghamami PURCHASING AND NEGOTIATIONS EXPERT Thank you for watching! www.PurchasingAdvantage.com 1-888-TCO-4889 1-888-826-4889