Purchasing and Negotiation Training

Editor’s note:  Maureen Sullivan, President of NECI based in Victoria, BC, is a guest contributor to this blog.  She may be reached at www.neci-legaledge.com.  This post is used with permission of www.mtrovaancouver.org and first appeared in The Legal Edge Issue 99, July – September 2012.

Metro Vancouver is responsible for delivering essential utility services such as drinking water, sewage treatment, recycling and garbage disposal for 22 municipalities, one electoral area, and one treaty First Nation in the Regional District. Not surprisingly, approximately 60 percent of Metro Vancouver’s annual spend is on construction contracts.

At a recent conference presentation, Tracey Husoy, Purchasing and Risk Manager, gave an interesting overview of what Metro Vancouver is doing to further the goals of sustainability and green procurement. Its Sustainable Procurement initiative, adopted in 2007, addresses who they buy from, and the Green Procurement initiative, adopted in 2009, dictates what they buy.

 For every RFP issued 5 percent of the weighted criteria is allocated to environmental impact, and 5 percent to social impact. To ensure accurate evaluation, these two components are evaluated only by the Purchasing Department.

 While it has never happened and therefore the language in untested, the subsequent Contract B document contains express language allowing Metro Vancouver to terminate the contract if it turns out they were misled on a material issue.

Green Purchasing and Sustainability

 Sustainable Procurement

As a starting place, respondents to every competitive bid opportunity must declare any convictions within the past three years related to environmental, human rights, employment and workplace safety laws and regulations.

 In response to the 5 percent social-impact criteria, many interesting sustainable initiatives have been proposed, including:

• Participate in the (Vancouver-area) Fast Track to Employment Program and Engineers Without Borders Canada.
• Establish, contribute and manage trust funds that provide financial support to schools and Third World countries.
• Subsidize transit passes and rideshare programs for employees.
• Allow time off with pay for employees to donate time to charity.
• Convert/move to a LEED building.
• Green teams and results, greenhouse gas inventories and results.

According to Husoy, the Sustainable Procurement initiative works with or without Green Procurement. It capitalizes on transparency of public procurement, works well in an organization with centralized procurement, and requires top-down support.

 Green Procurement

More familiar to most of us, and perhaps easier to define and implement, Green Procurement focuses on the environmental attributes of products and services.

 Metro Vancouver regularly forms small working groups of experts to develop green specifications for a variety of goods and services, and once developed, these specifications are applied to all purchases for those goods/services. For example, in addition to specifications for the low-hanging fruit such as paper and cleaning products, Metro Vancouver has leveraged its internal expertise to develop air quality specifications for diesel equipment, and deconstruction specifications for solid waste.

 Lessons Learned

“Provide clear examples to bidders of what you are/are not looking for regarding extraordinary impacts,” Husoy advises. “Don’t deviate from or negotiate your stated process. Keep it simple, where possible, by relying on third-party certification, such as EcoLogo or FSC.” And, she adds, “Remember, it’s never ‘done’ – position your practices to be responsive to the marketplace. Above all, act now – don’t wait until you have something that is all-encompassing.”

 If you need help getting started or would like more information, Metro Vancouver has prepared a complete package for other public-sector organizations, including RFP clauses and suggested contract language. It is all publicly available on their website at . The Sustainable & Green Procurement Information Package is available at this link:

Special thanks to Tracey Husoy for her assistance with this article. She can be reached at (604) 432-6327 or tracey.husoy@metrovancouver.org.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

Cost and Price Analysis, when wielded in the hands of an experienced and knowledgeable purchasing pro are two of the most effective tools that can be applied in supplier negotiation, cost control, and mitigation of risk inherent in the outsourcing process.  

In my first book, You’re the Buyer – You Negotiate It!,  I cite in Chapter Two, Total Cost of Ownership, that the single most important tool in professional purchasing is Cost Analysis.  Cost Analysis and Price Analysis  are not the obverse and reverse of the same business coin.  In fact, the processes involved are rather different.   

With so many clients requesting training in both Cost and Price Analysis, the American Purchasing Society and I decided to create an online course to meet the market demand.  This online course will be available in the fourth quarter of 2012.  To create a course most responsive to the problems and challenges in Cost and Price Analysis, we need your help. 

Please email (RobertMenard@RobertMenard.com) to me about problems and challenges with Cost and Price Analysis.  In return for your email help, you’ll get a free e-book .

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

The growth of online courses as an education and training alternative to live instructor led seminars continues to be a viable resource for many working professionals.  Printed books have held their position as a learning tool when the subject is a practical workplace skill like negotiation.

 Indeed, negotiation is the number one requested training topic amongst professional buyers.  Suppose an online negotiation course was offered with the only book ever written on negotiation by a buyer for buyers, You’re the Buyer – You Negotiate It!  To make it better, suppose that book was free? 

I am pleased to announce that the American Purchasing Society, the profession’s leading education, advancement, and training association is doing exactly that.  While the supply of books lasts, the American Purchasing Online Store  will include one free book to every customer of The Science of Negotiation, Part 1, and The Art of Negotiation, Part 2. 

This is what the Society has to say about the details of its Special Offer Course 20145. 

“Negotiation is the core competency of the purchasing profession. Until now, there has never been a negotiation program written by purchasing pros exclusively for purchasing pros. The American Purchasing Society and Robert Menard created this defining work on purchasing negotiation and make it available in convenient online format. Completion of this program will enhance your negotiation success while you earn credit toward APS certification. This is the first of a two part program. Either part can be purchased separately, but a discount is obtained when purchasing together. To obtain the combined discount, you must click on the combined listing of the two programs, not separately.”

 “Each program part takes from two to three hours. Part 1, The Science of Negotiation includes instruction on the total cost of ownership, negotiation planning, concession behavior, win-win and other strategies, and tools and techniques used by the best negotiators. Part 2, The Art of Negotiation includes speaking and listening communication skills, communication techniques, personality issues, and tactics and counter tactics.” 

“Anyone who registers for this course will also receive You’re the Buyer – You Negotiate It  free. This is for a limited time or until supplies run out. This book is authored by Robert Menard, CPP, CPPC,  and is an incisive, humorous, and universally applicable negotiation gem. This book weaves a seamless fabric of negotiation principles over a framework of proven procurement concepts. Ample real life examples illustrate, punctuate, and reinforce the book’s messages of success. Menard combines his experiences with a knack for simple and effective expression. This seminal work synthesizes the business experience and innate skill of a consummate professional with a clear, concise set of rules, principles and guidelines that allow a buyer on any level to immediately implement a change in tactics.”

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

That is a good question for which there is not a precise answer.  A Google search does not offer much help because there is no accepted definition of what is really a buzz word.  You’ll find equivalent expressions such as “World Class” and references to cost savings, cost avoidance, and the like.  As is always the case in this profession, cost management is at the core.

 Demands foisted upon business from all quarters are increasing – Sustainability, Corporate Social Responsibility, ISO registration in the quality and environmental worlds, compliance with government financial regulations, Lean, Agile, Six Sigma, etc are some of the most well known. 

 It is not surprising that the purchasing function has become the focus of many of these initiatives because of costs.  It is obvious that if an organization nets 2% on its revenue, the other 98% of the sales dollar was spent of some fashion.  Spend takes the familiar form of material and labor but also accounts for equipment, services, rent, utilities, energy, capital construction, IT, health care, insurance, marketing and advertising, travel, etc.  The amounts of individual category spend vary by company and industry but all businesses experience these purchases. 

 This fact has been recognized by leading organizations for a long time.  These savvy businesses know full well that mining the supply chain for cost savings makes purchasing the most efficient generator of profitability in all of business. 

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 In the consulting sector of my business, over the past 18 months as the business cycle scraped bottom, calls for evaluation of supply chain operations and assistance with becoming a “Best in Class” organization or to become more engaged with “Best Practices” have grown in frequency.  In all cases, there are savings to harvest as the client sheds obsolete practices that add no value.

 Customers are driving this train.  They are demanding that their suppliers become more sustainable, or more agile, or even to reduce prices by taking extraneous costs out of the system.  Given the current economy, we can expect the pressure to keep building. 

 In general, the purchasing function lags the rest of the business operation in terms of sophistication.  It follows, therefore, that there is always a bounty of low hanging fruit.  While most clients are mostly aware of this problem, they continue to do things as usual.  That road never leads to Best in Class unless that class is mediocrity.   

 If your company or organization bumps up against the need to be “Best in Class” or to adopt “Best Practices”, send me an email to RobertMenard@RobertMenard.com or call me at 214.513.8484.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

In its February 6, 2012 edition, Fortune Magazine  entitled The Food-Fuel Dilemma written by Scott Cendrowski, the author contends that the demand for corn ethanol is raising food prices.  He claims that a policy change is needed, echoing a claim made in my 2010 book Green Purchasing and Sustainability.  In objective fashion, the story cites the Congressional elimination of the $6 billion annual subsidy for corn ethanol given largely to agribusiness and refiners in December 2011. 

It is a fact that the world’s growing demand for food is driving up prices for edible crops.  Diverting portions of food stocks for fuels has questionable morality at best.  Nevertheless, loss of the subsidy will not stop this diversion because US law mandates oil refiners to include corn ethanol at the rate of 12.5 billion gallons in 2012 and at least 15 billion gallons by 2015, more than 10% of all the gasoline produced in the US each year.

 The effect of these government mandates has forced the US to surpass Brazil as the world’s leading ethanol producer.  In Brazil however, ethanol is produced from sugar cane and residual cane waste (bagasse).  I commend you to this blog post which compares the sustainability, societal and financial costs of ethanol from corn and sugar cane.

Green Purchasing and Sustainability

 The story also cites Jeremy Grantham, an investment firm manager who characterizes the US mandates as “diabolical”.  He refers to a study from Princeton University that casts doubt, as in my book two years earlier, that ethanol does little to reduce green house gasses and may be more carbon intensive than gasoline.  Further, my research of other studies shows that production of ethanol per Btu derived exceeds that of gasoline.  Some studies now show that use of ethanol does harm to gasoline burning engines.

 Grantham suggests in the story that diverting corn for energy raises the global price of corn by 20%.  Not surprisingly, the ethanol lobby has a different view. 

 The story closes on an optimistic note.  The next generation of ethanol uses nonfood stocks such as switch gas and wood chips.  Sustainability, in its ultimate accounting, must favor the human race.  It follows that co-opting any portion of the food chain to energy production based upon artificial interference in the market place created by self interested parties is unethical, immoral and down right stupid.  Non food solutions to increasing energy supplies in an energy and food hungry world is the only sensible solution

 Ethanol, an idea whose time has come – and gone.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

Sophisticated purchasing organizations continuously engage in Cost Analysis.  Cost Analysis provides the raw material for Cost Drivers.  Let’s explore how these concepts are related because they are at the heart of our profession.  

In its basic form, Cost Analysis involves breaking down the components costs of goods and services.  For example, consider this table of cost breakdown for a telecommunication cable bought for $2.00/lf. 

 It is obvious at a glance that the raw mat is the most cost intensive of the three rows in this simplified model.  Further, of the raw mat, copper is by far the most significant.  Therefore, in this example of telecommunication cable, copper is the greatest Cost Driver for this purchase.  In order for us to manage costs, therefore, we must become more expert in the copper market. 

A threshold question to answer about copper is how is it priced?  More information is available on Price Analysis here.   Staying with Cost Analysis, we must understand that the price is copper is established daily on exchanges around the world.  The two most famous are the London Metals Exchange (LME) and the New York Mercantile Commodities Exchange .  

We can use information from the exchanges, publications, or internet sources to plot the price patterns of any commodity like meat, orange juice, cocoa, coal, oil, and dozens of other raw materials.  Buyers can use the trends to make informed decisions about projections into the future.   This type of aggressive cost management, in some cases, leads buyers to purchase insurance such as the buying or selling of futures contracts.  The giants of the transportation industry offer a clear illustration.  Virtually all the major airlines, railroads, and package couriers offset the risk posed by higher or lower motor fuel costs by hedging with futures contracts  for diesel, gasoline, natural gas, and jet A. 

For folks new to Cost Analysis, the above copper example is straight forward.  A more challenging issue is posed when the cost driver is not apparent or unknown.  To illustrate this situation, let’s take the example of the food or pharmaceutical industries.  For clarity, we shall stay with the metals commodity so as not to introduce too many variables at one time. 

TheUnitd States  Food and Drug Administration  standards require 300 series stainless steel (austenitic) because of cleanliness, and hygienic superior characteristics of the material.   A prized alloy for its general applicability in the 300 series is 316L (L for low carbon).  Before we can understand the cost drivers of 316L, we must understand the chemistry of this alloy.  No doubt, we all remember the Mendeleev periodic chart  from high school chemistry (semi-smile).  Seriously, the skilled purchasing pro must be conversant with the natural sciences such as mathematics and chemistry.  In the case of stainless steel 316L grade, examine this specification.  The chemical elements and allowable tolerances are stated in the below TABLE I.

Green Purchasing and Sustainability

 TABLE I

While this specification tells us the exact chemical composition of the alloy, it does little to identify the Cost Drivers.  TABLE II begins to clarify the picture somewhat as we see “theoretical” prices per pound for each elemental constituent.  Is there now sufficient information to identify the Cost Drivers?  For instance, Chromium is the greatest elemental constituent by percentage.  The Answer to the Cost Driver questions is yet unknown. 

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 TABLE II

 This next TABLE III contains all the necessary information.  We see clearly now in the Cost/lb column that the Nickel (Ni) at $1.28//lb in our example is the greatest Cost Driver and this is despite the fact that Ni is about half the per pound price of the highest priced constituent element, Molybdenum (Mo), affectionately called Molly.  In fact, Molly is the third most important Cost Driver behind Chromium (Cr) despite the fact that Cr is about one quarter of the per pound price of Mo.

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 TABLE III

NOTE: It is important to bear in mind that this Cost Driver example is very price dependent.  The unit prices of these metals are subject to drastic price swings so Cost Analysis and Cost Driver management is a continuous process, not one and done.

 This area of professional practice is so crucial to many business organizations that they employ highly skilled and expert Commodity or Category specialists to manage Cost Drivers.  For instance, assume that energy spend accounts for a large part of a firm’s purchases as in the transportation example above.  Success of these individuals has a huge impact on a company’s profitability.  The same reasoning applies whether the strategic spend is raw material, professional services, or any other strategic spend category.  

Finally, as an editorial observation, one of the unique, vibrant, and refreshing qualities of the purchasing profession is that there is always so much to learn and do.  In just this short blog post, we have related the seemingly disparate skills of mathematics, chemistry, accounting, and business management – all of which are required to be the best in class in our profession.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

The cover story in Money magazine’s April 2012 edition attracted my attention.  I commend it to you for many reasons.  Coming as it did on the heels of the newly completed How to Buy a New or Used Car online course , this terrific story honed in on ways to save money and build wealth throughout one’s earnings career. 

Allow me to stress one point from that story about buying cars that applies to the baby boom generation.  The authors stress that having paid your dues, and accomplished many significant goals in your careers, the reward of a luxury vehicle is in the sights of many boomers, especially those who have saved and met obligations to their parents and children, amongst other economic challenges. 

I fully agree with the authors’ viewpoints and applaud their wisdom.  They are very specific in one illustration.  They choose an example of empty nesters who are considering the purchase of a Mercedes E class sedan. 

online training in purchasing, negotiation, and sales

The pull quote is. “Starting at age 50, buy used, not new, every five years and invest your savings.”  Citing Phil Reed, senior advice editor at Edmunds “Go for a three year old model… the steepest depreciation happens in years one and two.”   

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

Editor’s note: Creditworthiness is crucial to obtaining a loan.  When buying a car recently for my 20 year old daughter, she learned some valuable lessons that we’d like to pass onto others.

 Shopping for credit is almost as critical as making the right purchase for the majority of buyers. Our bank, with which we had a 15 year long established personal and corporate relationship proved to be a poor choice for auto financing.  When banks do not want the business (and used cars can be one example), they raise the rates and makes the terms outrageous.  Alternatively, a local credit union, with which we had no relationship, was willing to offer us a better rate, less restrictive terms, and far less hassle than the big bank.  

Since my daughter had not yet established credit, we negotiated a deal in which the title and loan were in her name but I deposited cash in the amount of the loan and had payments for a two year loan automatically deducted from the balance on deposit in her “loan account”.  This is known as a “cash collateral declining balance” loan. 

 To insure that the bank was never upside down, I made a 40% down payment using a credit card.  The total interest cost for the two year loan was nominal and more importantly, this avenue helped to establish and build her credit.    

online training in purchasing, negotiation, and sales

Even if you have a strong banking relationship and excellent credit, your bank could make the experience so difficult that they drive you to alternative sources.  The bank’s reasoning likely has nothing to do with you.  They may just not want car loans. One banker admitted as much when I told him his rate quote was more than twice a competitor’s.  He then wryly recommended the name of a credit union that we had already seen.

Disappointingly, our regular bank however proved to be a complete farce at customer service.  The application in my daughter’s name was denied by some martinet in a data center for lack of income even though we had gone though all the details with the local “personal” banker.  When I told this bureaucrat over the phone to rewrite the application with new collateralized loan criteria, he said he could not do that. 

I met with the Branch Manager at our bank who assured us he would handle the matter. He could not.  He offered a rate 50% higher than the credit union for the same terms.  Upon our refusal, he offered to match the credit union rate if I wife cosigned.  

Our negotiation position was that we did not need the bank and that they risked losing a customer for such poor performance.  Do not be afraid to tango with the big banks.  When they are loaning, they are selling and you are the customer.  The bank may need a reminder from time to time that you cannot be intimidated.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

My youngest daughter, an almost 20 year old college sophomore recently presented me with some observations and a conclusion.  She had turned a corner on maturity, was becoming a serious student whose achievement was catching up with her aptitude, and she wanted the ability to seek part time employment.  Her conclusion is that she needed and had earned getting a car.  

I had to agree so we began what proved to be a very educational experience for her and an inspiration for me.  From an experience perspective, I have bought and leased far more vehicles for corporate business use for employers and clients than for personal use.  Even though we average a personal vehicle purchase every 4-5 years for family members, and because the market changes so quickly, especially in the area of internet information and sales resources, I chose to invest in live field research and actually buy a used vehicle.  It drew my daughter and I closer together and inspired me to write my latest online course, How to Buy a New or Used Car. 

The whole process from start to finish took about two months.  For the first two weeks she did research, online and in person.  She devoted two hours per day twice a week and sent the results, amply documented, to me for follow up.  I chased down her leads for a few hours for another two weeks, made calls, corresponded via internet, etc.  This work helped to clarify the questions of what kind of car she liked and filtered out cars we did not want or were clearly inapposite like high end BMWs, trucks, and imported sports coupes. (Yes, she looked at those too).  

Using this research, we hit the road during her spring break to visit and test drive cars at half dozen dealers.  We took notes, got the necessary documents, and entered all the data into a spread sheet for the cars that made the cut.  We developed a cost per mile depreciation factor for mileage to adjust for the different odometer readings. 

 We had the first choice independently checked out at a reliable local auto shop and then negotiated with the dealer.  We established a budget but ended up buying a car for 30% over budget due to mileage, age, and other considerations that made financial sense to us.  

The online course thereby inspired is unique in that it is both a how-to guide and a reference resource.  It has three primary goals.

1. Meet and exceed the needs of virtually everyone from time to time in knowing how to acquire an automobile
2. Provide step by step processes, lists, and actions that must be taken and/or avoided
3. Contribute information resources to assist in on delving deeper into any specific content area

 The ample background information included is intended to fill in the gaps, or explain why certain industry practices have evolved so that the car consumer, buyer or lessee, is fully informed of the unwieldy financial dimensions that circumscribe this important transaction.  For example the galaxy of information that swirls around the Ethernet cries out for clarity, definition, and recommendation.  There are many good online sources of information, advice, and unbiased third party counsel that are valuable to those seeking to acquire vehicles.  Many more, however, are blatantly self serving institutions that blur the already faint lines between objective guidance and sales pitch.  

In the online course, you will find numerous web site sources found to be useful for purposes as noted in the text.  These are intended to be supplementary recourses, most of which can be consulted on a casual basis.  The exceptions are mandatory sites such as Edmunds, Kelly Blue Book , and National Automobile Dealers Association , which are strongly recommended for all vehicle acquisition purposes.  

The How to Buy a New or Used Car online course will be available in May on the web site of the American Purchasing Society.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional

In general, the corporate training landscape for purchasing, negotiation, and supply chain management is changing.  While sales training has always been the lead dog in instructor lead corporate training world, purchasing and negotiation, the long neglected runt puppies, are growing in favor as the economic doldrums forces companies to mine the supply chain for profits, where they should have been looking all along.   

Online course alternatives to live instructor led training have become the economic option of choice for much of the workforce.  Moreover, since purchasing is the greatest generator of profitability in all of business, good economical purchasing education and training are in great demand.  

The American Purchasing Society is dedicated to advancing the purchasing profession.  I am pleased to announce  collaboration with the Society indeveloping the first purchasing professional designation in sustainability, the Certified Green Purchasing Professional (CGPP) .  This is another example of leadership in the marketplace and service to the profession that distinguishes the Society from lagging competitors.  

online training in purchasing, negotiation, and sales

 The CGPP designation requires taking an online prep course as well as study of the workbook and manual, Green Purchasing and Sustainability.  

The CGPP Examination will demand that designees pass an “open book” rigorous regimen of objective questions.  The Certified Purchasing Professional  (CPP)  designation is a prerequisite so those with questions about the CPP should contact the Society at this email address.  propurch@propurch.com  

This CGPP certification is intended to apply beyond the purchasing and sustainability professions. In general, there is ample mathematics, physics, chemistry, and other scientific knowledge required by this course and necessary to become a competent green purchasing and sustainability professional in areas that go far beyond corporate social responsibility  

The CGPP online course will be available in April 2012.  Contact me with any questions in the interim at RobertMenard@ProPurch.com