1. 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

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

3. 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

4. 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

5. 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?

6. 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 voic s with s
Try to address meeting requests with s where ever possible
Stop asking your manager for frequent approvals, and instead show forward looking plans on an infrequent basis

7. Completely re-architect everything you do, cont.
Turn off your “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!!!

8. 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

9. 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

10. 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

11. 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

12. 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!

13. 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 “

14. 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

15. “THE Godfather of Negotiation Planning” ~ Intel Corp
Omid Ghamami
PURCHASING AND NEGOTIATIONS EXPERT
Thank you for watching! TCO