advanced public purchasing excellence series
DESCRIPTION
Advanced-Public-Purchasing-Excellence-SeriesTRANSCRIPT
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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
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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
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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!
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Issues in public sector purchasing
Public sector is extremely risk averse
Lack of incentive to save money
Pursuit of governmental policy objectives
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Key Changes Affecting Purchasing
Need for
Agility
Workforce
Demo-
graphics
Global-
ization
Environ-
mental
ProblemsITChanging
Economy
Need for Purchasing
to Adapt
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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
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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
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PUBLIC
PROCUREMENT
PROFESSIONALS
ARE THE ANSWER!
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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
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Module 1
Ensure Spec & TCO Design for TCO
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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
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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
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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
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Your New Job.
Become a Specification and SOW Analyst
Most savings
opportunities can be
found BEFORE
negotiations ever
commence!
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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
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Simplification & Standardization for TCO
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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
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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
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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
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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
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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
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21Harness Supplier Knowledge!
Break the Mold!
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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
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Process Mapping
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Costs incurred at each step
need to be
understood!
Which can be modified or
eliminated?
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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!
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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)
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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?
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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
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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
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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
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Lets answer your questions!
Q&
A