Purchasing and Negotiation Training

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

During the 1990s, I enjoyed the good fortune to write and deliver more than a thousand public seminars on purchasing and negotiation.  As a road warrior, I traveled five days a week for an average of 40 weeks per year.  At least once a week, someone would ask a question about how to buy a car.  Often, we would hold an on the spot exercise because others in the room wanted to hear the same thing.  Considering that the seminar crowd was made up largely of professional buyers, how urgent must the need be for the ordinary vehicle buyer?

Just in casual conversation, the matter of how to buy cars arises frequently.  The common refrain is that “I wish I knew how to buy a car.  The sellers do it every day and I do it every few years.”  In researching the market, I found that there were millions of online resources, mostly in the form of dealerships and other assorted sellers.  There were also very many good resources with great advice on how to price and buy both new and used cars.  One can find spread sheet templates, loan calculators, tips, and other helpful information.  However, there was no one place that assembled useful information resources and a step by step how-to guide for the car buying public.  The new online course, How to Buy a New or Used Car, will address this demand in the market.

My qualifications in this field include being a Certified Purchasing Professional (CPP) , Certified Professional Purchasing Consultant (CPPC) , and Certified Green Purchasing Professional (CGPP).  Field credentials include having bought and leased scores of cars and trucks for employers and clients.  Add the experience of buying many new and used vehicles for family members and having served auto dealers in consultant capacities earlier in my career and you may well ask, “What took you so long?” 

The wait comes to an end in May of this year.  The online course will be available on the American Purchasing Society. Here is what you will learn from this course. 

Although this online course was written by a Certified Purchasing Professional, it is not aimed at the purchasing pro.  Ironically, purchasing pros would benefit by this course since they are not routinely engaged in this personal pursuit.  In a larger sense, this online course solves the request from the general public for a knowledgeable and workable solution to perhaps the most predominant purchasing problem in America – that of how to buy a car!  We will explore, discuss, and solve the most problems involved with buying a new or used car such as

• What kind of vehicle should I buy
• Is new or used best for me
• How much should I pay for a new or used car
• What is the “true cost” of a new or used vehicle
• Should I buy or lease
• How do I manage the car salesman
• How do I manage the car dealer
• Where can I obtain the best financing
• How do I know if my trade-in price is realistic
• What is negotiable when buying a car
• Should I use a dealer, private party, or internet sources to buy a new or used car
• How do I finance the purchase
• What role does my credit profile play in the financing
• What information resources are best to consult
• What kind of things do I not know to avoid drastic mistakes

You will find practical advice along with personal anecdotes that punctuate the buying experience, and scores of pointers on what to do, what not to do, what to expect, and what you need to understand about the car buying world.

As a practicing purchasing practitioner for decades, I recognize that the answer to one important question should be obvious – of course you should join a professional organization.  Membership is a sign of devotion and dedication to your profession, a way to stay current and to connect with other pros, and a vehicle to pursue personal enrichment and advancement via certification designations, training and education.  

That said, the question of which organization to join presents a quandary for many folks.  All the chatter from organizations, their push and pull marketing, and print and pixel media can be confusing.  Joining because you have seen the organization’s aggressive advertising campaign or because others in the company are members are probably not your best choices.  Further, there are only a few suitable organizations from which to choose.  

I have belonged to virtually all these organizations over the years and been hired by most of them in various capacities such as training and consulting.  May I volunteer to help as a sort of travel guide who knows the landscape well?  Allow me to simplify the tour by recommending that by far the best choice for the buying professionals is the American Purchasing Society.

For purchasing personnel, the choice of which to join is basically a buying decision.  These questions must be answered.

1. Which returns the biggest bang for my buck? 
2. What does the organization bring to the table in terms of quality? 
3. What is their record customer service, especially compared to competitors?
4. How valuable are their certification and education programs
5. What benefits will I derive?

 Here is why the American Purchasing Society has been most successful in advancing the interests of the purchasing profession.  The Society was built and is actively managed solely by purchasing professionals.  Those involved in writing online courses, delivering instructor led training, as well as telephone and online consulting, expert witness, and all other services of the purchasing profession are provided by accomplished purchasing experts with wide ranging practices and earned designations indicating excellence in the industry. 

The Society has two guiding principles that distinguish it from others in the market place, quality and customer service.  Quality is reflected in top notch personnel recruited buy the Society to serve the interests of members and non-members alike.  Its renowned designation, the Certified Purchasing Professional (CPP), its online education and training resources, and individualized consulting and training services are focused narrowly on the purchasing profession.  Supplemental resources related to the profession (such as accounting, inventory, foreign trade, even sales) supply dedicated professionals with the best information resources they need.  

As for customer service, it is always best to let customers say it in their own words.  See what they have to say at the Society’s Testimonials  page. 

The Society will offer a rare opportunity to prospective members in April 2012. One time discounts on membership and certification are part of the offer.  Make the Society your choice of professional organization. 

Do I have a dog in this hunt?  Indeed I do.  The Society has asked me to serve in many capacities over the years and I am proud to be considered part of this elite team.  Having joined, worked for, and experienced virtually every professional organization, I am in a unique position to make this judgetment.  Here is the link to the society’s membership page.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Freight, transportation, ownership, and risk of loss are not very well understood concepts in the purchasing community. Indeed, many buyers confuse receipt with delivery.  Let’s examine the most commonly used freight terms for delivery of good within the bounds of US trade and associated risk of loss.

 First, understand that, delivery according to the UCC, is an intangible concept.  Delivery occurs when and where the seller voluntarily transfers effective ownership of goods to the buyer.  Once delivered, the rights of ownership and risk of loss rests with the buyer.  This is different from receipt which occurs when buyer takes physical possession of the goods.  

 For those engaged in foreign trade, see INCOterms

Linda Byars Swindling, negotiation authority, former employment attorney, and author

Editor’s note:  Linda Swindling is a regular guest contributor to this blog.

Persuading others takes effort and thought. Preparing to influence and understand the limits and strategies of others in negotiation starts by asking yourself these questions:

1. What do I want?
2. Why do I want it?
3. Do I want to invest my time and effort to get it?

 Be clear

Knowing what you want to achieve is the first step in achieving it. You need to know what constitutes a “win” or a stopping place for you. Unfortunately, many people don’t do the simple act of writing out their desired outcome. Without clarity you can flounder and not realize whether you should quit or continue. If you don’t know what your goal is in a negotiation, how do you know if you’re getting close to reaching it?

 Know your desired result and the reasons supporting it

If asked what you are trying to achieve, you should be able to list not only the desired end result but reasons supporting why you want that goal. You’ll be surprised how many people are willing to help you reach your goals if you tell them your rationale for wanting them. For instance, a boss that is aware of your desire to make more presentations and train others could help scout out opportunities or shift those responsibilities from a co-worker who doesn’t like that performance aspect. If you are a good employee, it is in the boss’s best interest to keep you happy, productive and doing work for which you are best suited.

 Determine if what you want is available

Some people just don’t know what they want when they begin. These people may not understand the elements of a deal or risk being vulnerable to one who knows what is at stake. As a practicing mediator and a recovering attorney, it still amazes me how many people can be in a lawsuit for years and not know “what” result they really want. Many times the result they desire cannot even be addressed by the court system. Here they waste hours, weeks, even months of time pursuing a process that doesn’t get them what they want. It is hard to evaluate how near you are coming to achieving an outcome if you haven’t defined what constitutes a “win.”  If you aren’t aware of what you want, you won’t know if something is inappropriate or even when to stop. Define where you are heading first.

 Don’t waste your time

Also, be clear that where you are spending your time and effort is a good investment. Most of us don’t have the time to chase down paths that are not fruitful. We don’t have the time to waste on solutions that don’t produce the required results.

Getting Over the Fear of Negotiating

Most of us fear not being in control or having advantage of us. One of the biggest problems is getting some people to understand that negotiation is not trying to cheat others, but trying to get the best deal for both sides. 

CD set by Robert Menard

A common problem occurs when a party takes a different stance than expected. Also, people are afraid of tricks and tactics. Very few tactics are effective. Most are amateurish and are structured to throw an opposing party emotionally.  There may be flinching, sighing and yelling but if you stand your ground and know your position, you are going to be in much better shape than trying a counterattack.

 The secret to good negotiation is to remain cool, calm and in control.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Ask any twelve buyers to define ‘Best Value’ and you will likely hear a dozen muddy descriptions.  In today’s performance metrics, numbers driven environment, we need to speak the buyer’s language.  The successful seller specifies ‘Best Value’ by expressing it in quantifiable terms favorable to its sales strategy. 

The purchasing definition of Best Value’ is the lowest Total Cost of Ownership (TCO).  Simply stated, TCO is the sum of its four elements of Cost: Quality, Service, Delivery and Price (QSDP).  Isolating and measuring each element of Cost gives the seller a whole new slate of options, and, helps the buyer to attain what it wants.

Put values on all the elements of Cost, not just Price

Align your sales negotiation with the elements of costs that the buyer values.  For a few examples, Delivery is more important to the Just-in-Time buyer than is Service, Quality is more important than Price in the medical industry, and Service matters more than Delivery to a high tech customer. 

Buyers reside in a cost-centered world.  Purchasing magazine notes that 69% of purchasing departments have a system (formal or informal) for rating supplier performance, and Price is rated highest by only 12%!  Even the most unsophisticated buyer has seen the illusion of low price explode into disaster.  So, how do we bring buyer and seller into TCO harmony?

Express your sales presentation in terms of Costs

Do not confuse Price with Cost.  Each of Quality, Service and Delivery have a far more significant impact on the TCO than do Price.  By the numbers, a $500 unit that lasts one year costs more than a $750 alternative that lasts for two years.  The $1000 price for two years (2 @ $500) of inferior quality costs a premium 33% over the higher priced ($750 for 2 years) unit!

Sell your (Cost) strengths

Rank the Buyer’s Cost concerns by asking strategic questions designed to expose the underlying cost motivations.  Do not ask, for instance, “Of Quality, Service, Delivery, and Price, which is most important to you?”  The buyer will roar back, “They are all equally important.”  Instead, approach this from a consultative viewpoint by asking qualitative and quantitative and questions such as these:

Quality            “What sort of quality measurements is acceptable?”  If the buyer answers, “We are a zero defects company”, then we know to stress quality.  If the reply is “What is the discount for off-spec goods” then we know that Price matters more.

Service            “Is the incumbent’s service acceptable?”  If she answers, “With our workforce, we do not need or want to pay for service”, then we know that Service is a lower priority than Price. 

TCO is an ally in the opposing camp because it relieves the natural pressure on price and stresses the impact of other elements of cost.  Will price sometimes be the most important factor?  Of course but far less often than you might think.

"Shorten your sales cycle & increase your win rate through competitive excellence"

Editors note: Stu Schlackman is a regular guest contributor to this blog.

Robert Menard’s book “You’re the Buyer-You Negotiate It” does an excellent job assessing the characteristics of the four personalities as it relates to their negotiating style. Robert uses a model which expresses their styles in terms of Analytical, Amiable, Practical and Extravert which nicely correlates to our model of Green, Blue, Gold and Orange.

The Model

The model  shows a chart with four axes that categorizes their style in regards to whether they lean towards Reserved (Ask) or Assertive (Tell) on the horizontal axis and Logical (Withhold) or Emotional (Display) on the vertical axis. We’ll call the vertical axis the Reason/Emotion line. This correlates to the top left brain quadrant that favors thoughts over feelings and the bottom right brain quadrant favoring feelings over thoughts. The horizontal axis is known as the Assertiveness line. Those that are reserved prefer asking and those that are assertive prefer telling.

In our model this all translates to:

• Analytical       Greens
• Amiable           Blues
• Practical          Golds
• Extravert       Oranges

Applying the Model

The Green style for negotiations is high reason and low assertiveness. They think carefully and methodically and ask the tough questions. They will read up in advance and have all the information prepared when getting ready for the negotiation. They hold their cards close to the vest and battle with logic.

The Blue style is high emotion and low assertiveness. They follow the rules and value the Win-Win result in order to build a long term relationship with the client. Blues are more likely to acquiesce to satisfy the needs of the client.

The Gold style is high assertiveness and high reason. Golds will go point for point and can get aggressive when negotiating. Deadlines and timeframes are critical to their needs. Golds also tend to fall into the profession of finance, law and many times purchasing and procurement.

The Orange personality is high assertiveness and high emotion. Oranges look at the negotiation as a game. They need to score points and feel like they have won. It’s important for the other side to win, but the Orange must have their needs met. Oranges also lack patience if a negotiation takes a long period of time.

Business and Personal Applications

Negotiating is a common practice in the business world both between buyers and sellers and also internally throughout the various organizations within a company. There are two aspects to a negotiation. There is a business component as well as a personal one. Both are equally important but if you can determine the other side’s personality style you will be able to discern which might actually be more important. Your right brained negotiators are Orange and Blue and tend to focus on the personal aspects of the negotiation, the subjective criteria and the intangibles. Your left brained negotiators will lean towards the business aspects and focus on the objective points and the tangibles.

To negotiate successfully, keep the following in mind:

• What are the critical points of contention that are keeping you from gaining agreement?
• Can you weigh the importance of those points from your perspective versus the other side?
• What can you give up that is important to the other side that is not hurting your financial position?

Sometimes intangible points are just as important as the tangibles. It all depends on how they are valued by the other side. Knowing their personality style can gain you that extra edge it takes to make the deal happen!

Author, Speaker, Inventor and Consultant, Max Jaffe, CPA, helps individuals keep more of the money they make

Editors note: Max Jaffe is a regular guest contributor to this blog.

Today, many companies are cutting back on expenses to make earnings estimates and offset downward pressure on stock prices.  Salaries have been frozen and some people have even taken a pay cut.  The subsidy on benefits has been reduced, such as health insurance, so the employee pays more towards the cost, and may have even received a reduction in coverage.  

One of those expenses being cut is the 401(k) company match in which most large public employers participate.  This means when employees contributes to their 401(k) account, the company matches it, up to a point, usually a percentage of the employee’s salary.  For many companies, that matching contribution has been reduced or even eliminated altogether.

401(k)’s are good deals for many reasons.  First, the company match is free money.  If the company is matching, say 5% of the employee’s salary, the employee in effect is receiving a 5% bonus; however, the employee must put in the 5% in order to receive the match.  How cool is that?  Secondly, the employee’s contribution is tax-deferred.  This does NOT mean tax-free.  What it means is that the employee will not pay federal income taxes on their contribution.  So, if the employee makes $40,000 a year and contributes $5,000, their W-2 at the end of the year will reflect wages of only $35,000, thus saving taxes on the $5,000 contribution.  When the employee retires, and withdraws the $5,000, the amount is taxed at that time.  Presumably, at that time, the retired employee will be in a lower tax bracket than when they earned the money.  Last, the amount in the 401(k) grows tax-deferred, so it can grow to a larger amount a lot faster, as Uncle Sam is not reaching in and taking his share of the employee’s growth.

For 2009 an employee can contribute up to $16,500 tax-deferred if they are 49 or younger; $22,000 if they are 50 or over.  (They have to have had their 50^th birthday by December 31^st.)

The tightening of the economy has put a big squeeze on 401(k) savings.  First, if the employer decides to no longer match the contribution, there’s obviously less money going into 401(k) accounts.  Some employees feel that there is no incentive for them to save if it’s not matched.  This simply isn’t true.  They should be saving more because they are no longer receiving any help from their employer and they need to make sure they’re securing their retirement.  Additionally, they still get to defer their income dollar-for-dollar for their contributions.  Furthermore, it still grows tax-deferred.

What other authorities have to say

Here are some figures reported in The Wall Street Journal on March 26, 2009, which were in a report released by Spectrum Group.  The Spectrum Group surveyed 150 plan sponsors in February, 2009 and found that 34% of U.S. employers have reduced or eliminated the company match in the last 12 months; another 29% plan to make changes in the next 12 months.  The margin of error is plus or minus 8%.  Another study by Spectrum polled 400 active plan participants and found that 20% had reduced their contributions and another 5% plan to do the same in the following 12 months.  Interestingly, 14% said they plan to increase their savings.  You rock!!!

If you have to decide between the mortgage payment and saving for retirement, this can be an issue.  If this persists, you will have nothing for that time in your life when you won’t be working.  All the more reason you need to get a grip on your cash flow.  The best way to do that is to track everything you spend your money on.  The Financial Fuel Gauge™ is a great tracking device; I have never missed a payment and have never paid one dime in credit card interest.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

We purchasing pros are fascinated by purchasing law.  We should be; it is part of our daily experience and we need to be masters of it.  The purchase and sale of goods is a matter of contract law and a PO is a contract.  Yet very few of us have any formal education or training in purchasing law.

There is so much to cover about law, that it would take multiple blog posts.  Rather than attempt to do so, let me direct you to an authoritative source where you will find online courses on Essential Law for Buyers and Sellers,  Contract Law, and Types of Contracts.  For those already familiar with this authority question and want a greater challenge, take the Purchasing Law Quiz.

Meanwhile, let’s look at a basic question of buyer and seller authority, a frequent bone of contention.  Most of the facts cited in this blog post come from The Purchasing Manager’s Desk Book of Purchasing Law (Prentice Hall).  It was written by lawyers who specialize in purchasing a must-have reference for any buyer.  The Uniform Commercial Code (UCC), the body of law covering purchases and sales of goods within the US, is almost universally applicable in 49 states, Louisiana being the exception.  The UCC addresses the issue of buyer and seller authority in this fashion.

Purchasing Authority in Agency Law

Note that under the UCC, agent is a term that applies to buyers and sellers in mercantile transactions. 

These four types of purchasing authority have no corresponding application to sellers.  For instance, the Desk Book notes the legal principal that “he who deals with an agent has the responsibility to ascertain the scope of authority that agent possesses.”  It goes on further to say that, “the law has taken the position that the average sales person, or drummer… has very limited authority…In short, the average sales person does not have the authority to enter into a contract with you.”  In that ‘competent parties’ are one of the four essentials of a contract, were a buyer to engage in serious buy/sell negotiations with an unauthorized party, he or she would be setting up the seller to pull the justified ‘higher authority’ tactic so well know in auto sales show rooms.

Moral of the story:  buyers have the authority sellers don’t.  Qualify the seller’s authority before you engage in serious bargaining.  Get it in writing.  And by the way, have your employer express your authority in writing so there are clear guidelines and practices.  Plus, it is just good business.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

That is a good question that occurs more frequently as the economy falters and business looks to where they should have been focusing all along, the supply chain.  Purchasing consulting is merely the outsourcing of specific expertise for stated purposes.  For instance, engaging talent to write a Purchasing Policies & Procedures Manual or conduct supply chain audits for Sarbanes-Oxley, or Merger & Acquisitions due diligence, or to develop a supplier evaluation strategy and techniques, or disaster recovery plan are but a few specific requests.   Others may seek  help in developing supplier qualification standards and evaluation methods or help with choosing software for enhanced data management. (See below for a list of commonly outsourced purchasing consulting services)

The need for consultants grows as organizations trim staff and must look to external sources to plug the talent gap or cannot devote the time and resources of the remaining staff to solve particular problems. 

What are some good sources?

A daunting problem facing companies large and small, indeed, one which affects the decision to outsource, is where to find competent purchasing consultants and how to be certain the right choice is made.  Many large “accounting/consulting” houses are often long on titles, but short on specific procurement expertise.  High level thinking will not solve practical business problems.  Similarly, academics often lack practical experience.  You would not ask your pediatrician to do heart surgery on your parents and you don’t want advice on what to do from a consultant without practical solutions on how to do it!  Put it into few words, favor a Certified Professional Purchasing Consultant over a Master of Business Administration. 

 Services frequently outsourced to an experienced Purchasing Consultant

Click to vist American Purchasing Society

Create/Write

• Purchasing Policies & Procedures Manual
• Purchasing Ethics Policy
• Consulting Reports for a variety of requests
• Terms and Conditions
• Disaster/Recovery Plans
• Supplier Sustainabililty Plans

Conduct audits and studies with recommendations and opinions for

• Due Diligence for Mergers & Acquisitions
• Sarbanes Oxley compliance
• Audit Committees, management, share holders, and debt holders

Establish/Recommend

• Purchasing Department organization such as Centralized, Decentralized, Strategic, etc
• Supplier Qualification (Certification) standards
• Supplier Evaluation systems
• Supplier Base reduction methods

Conduct and/or assist in

• Foreign and domestic supplier negotiations
• Supplier selection
• Supplier plant visits
• Hiring purchasing talent
• ISO and QS registration
• Development of negotiation plan and implementation strategy

• Identify and implement best practices
• Create/expand P-Card, Ghost Card, and P/R Card programs
• Investigate and recommend supply chain operations for efficiency and profitability in areas such as
  • Travel Spend
  • Software selection for purchasing
  • Reduction/elimination of wasteful or duplicate processes

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

The traditional vehicle for proven education and training has been the customized on site seminar.  It, however, has become a casualty of the global economic collapse.  Today’s purchasing organizations and professional buyers are doing more with less even in the face of a growing deficit of purchasing knowledge and skills. 

How to know if the Purchasing E-learning is worthwhile and what to require?

As with live on site training, the source’s credentials are the key. 

• Verify who produced the training material, credentials, and references.  Fortunately, some experts in the live seminar business have established online alternatives.   Expert purchasing trainers are rare so drill down on their records.
• Insist on only responsible, reputable, and recognized sponsoring organization.  For instance, the American Purchasing Society is the oldest and foremost purchasing authority in the US and is recognized internationally for its expertise.  
• Look for a comprehensive set of targeted set of training course, at least twenty purchasing focused programs is the minimum.     

Education and training in the purchasing profession is in constant need.  In research for my book, I discovered a curious fact: “the average sales pro receives as much formal education and training in a single year as the average buyer gets in a career.”  Newer buyers benefit by gaining the confidence of sound grounding in knowledge and skills.  The veteran benefits by confirming or rejecting many lessons learned the hard way and clarifying some nagging questions.  

Convenience is crucial.  Online accessibility on a 24/7 schedule is mandatory for the generation brought up with a computer screen.  Perhaps most importantly, leverage the knowledge and skill thus acquired into professional certification.  You and your employer will be rewarded by your efforts.