Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is an update of the Sustainability and Green Procurement online course soon to be available. In concert with the American Purchasing Society, I am developing a green purchasing course that will have far more extensive material available in online, print, and portable digital media.  We will update quarterly so companies can build on successes.  We will offer discounts to those who sign up early so send me an email stating your interest and I’ll respond with particulars.   

But there is more to this story as cited by Scot Horst, Senior VP of the green-building rating system Leadership in Energy and Environmental Design or LEED,  a unit of the US Green Building Council, “If fly ash is a hazardous waste and it becomes part of a concrete wall, is the wall a hazardous material?” 

Click here for online or CD/print media versions of "Green Purchasing" course

Is fly ash hazardous?

 Use of fly ash preserves raw material and reduces GHG.  Even more worrisome, the EPA has also designated CO₂ as an environmental pollutant, a scientific view that is patently absurd.  The waste product of CO₂ exhaled by the animal kingdom (fauna) is the life breath of the plant kingdom (flora) which consumes it by photosynthesis to give off its oxygen waste product, the life breath of the fauna.  Such ill considered pronouncements by the EPA add fuel to the fires raging between good vs. junk science. 

The EPA was silent on the matter of what would be done with the fly ash were it not consumed in concrete.  Would it be sent to landfills, treated at great expense, or other solutions found?  Sometimes these decisions are not thoroughly deliberated. 

Some major players weigh in 

The American Concrete Institute (ACI) contends that the use of fly ash in concrete is environmentally responsible because it typically replaces 15% to 25% of the cement content in concrete.  Substitution of fly ash reduces the GHG generated in cement production. ACI states that in 2007, there was a 15-million-ton reduction of CO₂production attributable to the substitution of fly ash for Portland cement. 

According to a story in Engineering News Record (ENR), a publication of McGraw-Hill ,  the proposed rule would complicate production and disposal of concrete.  The story asks, “Would a hazardous-waste designation for fly ash would make it the “new asbestos” or “new lead paint”.  Other questions arise sch as the handling practices of fly ash and fly ash laden concrete “during production and casting as well as during the demolition and disposal of concrete structures.” 

The American Coal Ash Association (ACAA) points out that  In 2008 in the US alone, almost 16 million tons of fly ash were used in cement and concrete production. The use of fly ash instead of energy intensive Portland cement avoided 12 million tons of GHG emissions.  Further, some experts contend that the fly ash is contained and encased by the concrete making the matter moot.

More to come 

A predictable result of politically concocted decisions is that they defeat the very purpose they intend to achieve.  That is, another argument is added to the confusion of what practices are Sustainable and why.  Since the demand for concrete increases as the population grows, does it not make obvious sense to choose fly ash as the Sustainable solution.  The matter of Sustainability of fly ash remains an open question.

To see previous posts on the topic of Sustainable Purchasing see

What is Green Procurement and is it Valuable to the Purchasing Profession

Green Purchasing Savings in Electricity

The 3Rs of Green Procurement – Reduce/Reuse/Recycle

Steve Hague, author, speaker, and Certified Purchasing Manager

Editor’s note: Steve Hague is a frequent contributor to this blog. 

First thing’s first. The dealer will never give you fair market value for your trade-in without your demand.  If you want to get the most money for your trade-in, don’t trade it in. Sell it yourself instead.  Sure it takes more time and can be an inconvenience, that’s part of the reason the trade-in process is much easier.  You’re paying for the convenience when trading your car in to a dealer. 

Trade-in Tips 

1. If you owe money on a car, don’t trade-in. Don’t roll a small debt into a larger debt in the way of a more expensive vehicle. 

2. Make the trade-in a separate transaction from the purchase of the car you are buying.  Remember, dealers make profits in a lot of ways including the price of the new or used car and what they give you for the trade-in.  Tell them you’re undecided about whether you’ll trade-in or not and negotiate the price of the new car first.

 3. Think twice about donating to a charity for tax purposes.  You used to be able to use the “blue book” value of the car when using the donation as a tax write-off. That meant that you could push or pull your wreck into the charitable organization and estimate the value of a similar car in good condition for a tax deduction.  The law changed a few years ago so now it’s only the actual value of the wreck/car that matters. 

4. You become the salesperson.  Use the following phrases when discussing the value of your trade-in with the dealer:

a)      “I could sell it myself for $200 (or another reasonable amount) more than you’re offering”. You’re letting him know that you realize he’s not giving you a fair deal.  

b)      “I can’t take that much of a loss on this car.”  Again, using the word “loss” paints a picture of discontent and reminds him that he’s making too much of a profit.

c)      “You’ll have to do better if you want to make a deal on the new car.” Yes it’s supposed to be a separate transaction, but using this tactic now is quite beneficial to you.  The most important thing the salesperson wants is to get the money agreed upon for the new or used car you’ve negotiated.

d)      “I have already been offered more for my car from another dealer.” Somewhat risky because on the new car you’re most likely not comparing the same exact vehicle with the exact same options from two different dealerships, especially true if you’re buying used. 

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5. Research the estimated market value.

  Use newspaper ads., internet sites, Kelley Blue Book and other periodicals. Take this information with you to the dealership and use it when negotiating.

 If you don’t have the time or the patience for selling your current vehicle yourself when buying a replacement, you’ll most likely trade it in to the dealership.  Use these tips when visiting the dealership and get the most value you can for your trade.

Editor’s note:  Steve writes, speaks, and consults on customer service.

I have long held the opinion that most of the great rock and roll guitar work since the 1970s is the result of a single recording session which occurred on March 29, 1967 in New York City. I suspect that the musician of note on that fateful day had little or no idea that his four minutes of playing time would have such a dramatic affect on the world of music. The song performed during the session is titled “Red House.” The guitar player was Jimi Hendrix. His fluid, visceral guitar licks during that recording session inspired an entire generation of musicians. The “Red House” guitar solo, with its searing tone and ethereal reverb, has been copied and embellished by subsequent musicians – famous and otherwise – who, whether they knew it or not, owe a portion of their success to Jimi Hendrix. The honest lyrical quality of Jimi’s guitar playing differentiated him from other guitarists.

In customer service, perhaps the oldest and most profound idea is that of the Golden Rule: Treat others the way you wish to be treated. This adage has its origins in philosophical writings dating from antiquity. The Golden Rule has been spun into a myriad of maxims as it pervasively extends its influence throughout the world of business. The positive results are evident when applied within an organization that sets its focus on what is important: Customers.

Steve’s World Class Value Pack

The Golden Rule is often not practiced and applied to internal customers within an organization. This is evident in the fact that I often observe managers treating subordinates in a manner contrary to the Golden Rule. This type of behavior is unacceptable, but it becomes even more offensive when, due to the bad example set by management, these same subordinates express similar behavior to external customers. A company’s culture can easily be defined as being either good or bad depending on whether the Golden Rule is practiced among its internal customers.

The Golden Rule also applies to following up with customers. I am convinced that those companies who master the art of prompt and thorough follow up will flourish in the same way Jimi’s career took off after 1967. It’s all about being true to yourself. Follow up information, whether it is positive or negative, must be shared. In the end, what differentiates one company from another is integrity, honesty and the professional quality of their follow up message. Rock on!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note:This story was first published in the National Precast Concrete Association’s magazine, Solutions, in 2006. 

Precast concrete has gained market share in the growth sectors of buildings and transportation because the marketing and selling strategy has moved off price-fixation and onto the Total Cost of Ownership (TCO).  Price is not the determining factor.  Would you pay a higher price if it bought a lower cost?  The Lasik surgeon who advertises “Bring in one eye at full price and get the other one done for a penny” is still waiting for takers.

Price does not equal cost 

In fact, price is just one element of cost and only an initial one.  To an owner, consumer, or investor, TCO is the sum of the costs of Quality + Service + Delivery + Price.  Construction is a long term capital investment in which ongoing costs can easily dwarf the initial price.  The moral of the Three Little Pigs was that the brick house, while pricier, sure provided the lowest cost. Just imagine if there had been a precast alternative at the time!

Marketing and sales

When I ask precast pros what they sell, usual responses include, “Manholes, hollow core, grease traps, wall panels, vaults, ornamentals, etc.”  While accurate, these answers relegate precast to the commodity world of lowest price.  The reality is that precast may come at a higher price but it always brings a lower TCO.

Construction consumers have many choices to solve their problems ranging from traditional cast-in-place and unit masonry, to metals, plastics, and combination systems.  To compete with this slate of choices on the basis of price alone is a losing strategy.  What is worse, we may even reinforce the customer’s belief, planted no doubt by our competitors, that precast is heavy, ugly, gray stuff.  By marketing and selling precast as the lowest TCO solution, we grow the pie, i.e., increase demand.  As we have seen in the oil, steel, and cement markets over many years, increased demand means higher profits. 

Marketing and sales efforts share a unified strategy of lowest TCO.  In the spring 2004 edition of Precast Solutions (Why Precast is the Lowest Cost Choice), we examined the costs of underground precast structure versus cast in place concrete alternatives.  Let’s turn our attention to two growth sectors of the precast industry, wall panels and transportation. 

Wall Panels and trades

Wall panels

Why should the customer pay a higher price for precast wall panel when they can buy a site-built steel stud and brick veneer curtain wall for a lower price?  Precast’s Delivery advantage is the greatest cost savings and rationale for it choice.  The precast wall panels for a six story building can be ready before the job site can accept them.  These panels can then enclose the entire structure in about three weeks.  To enclose the same building with steel studs and sheathing, then scaffold the structure to lay tens of thousands of brick by hand, one by one, will take about three months – four times as long.  This time savings creates a tremendous cost reduction advantage for the investors.  From the moment they decide to proceed with design, the single minded objective is opening the doors and collecting revenue to recover the investment.

Transportation

Railroads are upgrading and building to garner some of the highway freight and passenger customers.

Precast is the material of choice for retaining walls, beams & girders, pavement slabs, and drainage structures for airports, railroads, naval ports, and especially highways because of its great time savings. In major urban centers around the US, DOT’s are upgrading the interstate, state, and local highways to relieve the traffic choked congestion. 

Take the example of a new on-ramp for an urban highway with four existing lanes in each direction.  To build the ramp, bridges, pavement, drainage structures, and retaining walls in cast in place concrete might require a crew of 25 carpenters, 20 laborers, 5 rod busters and a few months of false work.  Then add a fleet of concrete trucks, pumps, cement masons, and traffic control details to get the ramp completed. 

Contrast this high cost scenario to having all concrete components cast off site in certified plants.  Instead of tying up the highways for months and exposing commuters and workers to unnecessary risks, trailers of precast and a small crew with heavy lift cranes accomplishes the work in a fraction of the time, generating huge dollar savings to the local economy and lopping off hundreds of thousands of unproductive hours for commuters.  And, we have not yet accounted for the Quality and Service cost advantages.

Quality

While the Delivery issue is perhaps the cost advantage closest to the investors’ wallets, Quality and Service are close behind.  The inherent Quality of precast over competitive systems is exemplified by its superior thermal, moisture, sound, and fire resistant characteristics.  Although shared to a greater extent by cast in place, and a lesser extent by masonry, precast alone is manufactured under repeatable quality controlled factory conditions with consistent and well trained crews.  On the job site, nearly all other competitive systems suffer from understaffed and/or ill trained personnel, subjected to the vagaries of weather, Water/Cement ratio, and field conditions.  For most customers, Quality and Delivery are the tandem cost advantage driving the choice of precast.

Precast tanks are a hybrid and specialized market for precast

 ServiceThe short and long term Service costs savings round out our lowest TCO advantage.  In the long term, precast cost less than wood, metal and glass curtain walls, or the bane of all buildings, plastic veneer systems.  The permanence of high quality precast concrete minimizes expensive and ongoing maintenance costs.

Precast distinguishes itself in the short term.  The comparatively simple erection of precast wall panels exposes built in place systems as outdated and needlessly complex, with its time consuming and complicated logistics of multiple trades and equipment choreographed over protracted time periods.  Precast simply deploys a small crew and a crane and the work is done at a stunning pace, despite the weather.

Literally and figuratively, do the math for your customers and prospects.  Show them how the TCO of precast is by far the best value they can obtain.  The truth is, It Ain’t the Price; It’s the Cost, Stupid!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this is the third in a series of quizzes for purchasing and sales professionals.  For the other two, Click for the Purchasing Law Quiz and Commercial Finance Quiz for Buying and Selling Pros

For this Quiz on Legal Conduct, Ethical Behavior, and Contract or No Contract, each correct answer is worth 5 points.  If you don’t know whether your answer is correct, it probably isn’t.  If you do indeed have them all correct, send me your answers and I’ll send you a free copy of my book. 

For a list of the answers, email RobertMenard@RobertMenard.com.

For questions 1 through 8, the two questions to answer are, is it:      a. legal?      b. ethical?

1. Supplier ships product to Customer and includes inventory tax on the invoice.  Customer asks Supplier to re-bill from Supplier’s out-of-state headquarters and thereby dodge the inventory tax.  Is Customer’s action

      2.   After bids have been received, Supplier advises a private sector Customer that it overbid and sends a revised quotation with prices lower than any competitor.  Is acceptance by the Customer 

     3.    A company manufactures in bond at a Mexican plant south of the border.  To bypass duty, the company imports raw material into the port of Houston, ships to Mexico, and then re-ships the product back, with no value added, to its sister plant in Texas.  Is this action  

    4.   A Supplier with consistently better quality, service, and delivery offers to match the lowest price.  Is this action  

    5.   The Customer in 4 above demands a lower price than the incumbent Supplier.  Is this action 

    6.   Many foreign countries have no legal prohibition against bribery.  Payment of bribes is an accepted part of the transaction.  If an American company completes the transaction are overseas, is this action

   7.  Supplier provides gifts of value to Customer in anticipation of receiving orders.  Is this action

   8.  Supplier provides gifts of value to Customer after receiving orders.  Is this action  

For questions 9 through 11 the two questions to answer are:      a. Does a contract exist, yes or no?      b. Why or why not?

    9.   A Buyer receives a “one time” offer from a broker to sell 100 units of goods for $100 each.  Seeing a 10% discount below the usual price, the Buyer mails a letter and PO to the Supplier.  Later that day, the Buyer receives another offer for the same units from the manufacturer for only $75 each.  The Buyer calls to cancel the order with the broker before it is received in the mail.  

  10.  The Buyer’s PO calls for an “implied warranty of merchantability.”  The Seller’s acknowledgement limits the warranty to 90 days (down from perhaps four years under the UCC). 

  11.  Consistently, Customer has ordered product from Supplier who ships and invoices.  Customer pays shortly after receipt of orders.  

Most buyers and sellers are surprised, if not shocked, to learn that the law in the US requires honesty, good faith, and fair dealings in commercial transactions.  If ethical behavior is a cut above legal behavior; then legal behavior can be viewed as the lowest form of ethics.  Indeed, observing ethical behavior helps keep buyers and sellers from stepping beyond that legal limit line.

Editor’s note: Stu Schlackman is a frequent contributor to this blog.

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

Sales is a competitive sport.  In 2010, the successful sales pro must view the economy as an opportunity.  It doesn’t matter if we are or were in a recession and it doesn’t matter if the forecast is iffy or bleak. Successful sales people always find a way to win despite a very competitive market where customers have many options to consider. Today, customers are more aware of solutions than ever before, thanks in part to the Internet. In today’s economy companies want immediate results and response to their needs. The definition of P & L has now become “profit or leave.” The terms customer service or satisfaction have been thrown around like a commodity, yet if we don’t take care of customers to their satisfaction they’re gone in a nanosecond.

Whether we are looking to win new business with new companies or build our existing customer base there are three musts for sales success in the future.

1—–The mindset of building long term business relationships must come first. To develop a customer for the future, your strategy must concentrate on the customer’s long term needs and not our interest in the immediate sale. The first sale should be the start to gaining credibility, trust and respect as we move forward and prove ourselves over time. Proving ourselves starts with the customer’s needs, not ours. We must understand that even though a customer is asking for a specific solution it is based on two needs, business and personal. When more than two decision makers are involved we must understand that their individual personal needs can be quite different. So how do we find them out?

Stu's Four People You Should Know

 2—–Learning all the needs of the decision makers is the second must which means asking critical questions.  Presenting a solution in the beginning of a sales cycle is sales suicide. You don’t know what they need until you get all the information. You must ask strategic questions and expose the customer’s interests. Your plan must show the customer that we are more concerned in understanding their needs than selling our products and services. If you want better answers from the customer, then ask better questions!

3—–Differentiate or die!  If we don’t differentiate ourselves from all the options the customer has, we’ll lose every time. If we can differentiate our solutions based on asking the right questions, we can propose a solution that will more closely meet the needs of the customer. Each time we obtain a critical piece of information it can put us a step ahead of our competitors and earn us the right to come back and ask more. Decision makers respect sales professionals that ask the tough questions. Proposing the right solution is directly proportional to better performance thus leading to repeat business.  Products don’t develop relationships, people do. Sales pros make the difference in a world in which customers have many options.

To achieve your personal best, own the mindset of building long term relationships, prepare and ask the critical questions and remember we must differentiate or die!  Sales is an exhilarating profession.  The sales person makes all the difference to the customer. We are the first person the customer always calls when there is a need. What a privilege we have to nurture and help our customers to improve their business environment!

Harry Hough, PhD, founder of the American Purchasing Society

Editor’s note: Dr. Hough is a frequent contributor to this blog.

Purchasing is the single largest generator of profitability in business.  Be certain that executive management knows how much you contribute.  It is good information for the annual review.

In general, buyers and purchasing managers do a very good job keeping cost under control and obtaining products when needed. They probably don’t do as well reporting their activities and successes. Some feel that it should be apparent that they are performing well; others that it would be unseemly to brag about their achievements and still others who wait to be asked to report.

The oft-repeated adage, “the squeaky hinge gets the grease” applies here to the advantages of reporting purchasing activity. By letting management know the problems and your plan to solve them demonstrates your contribution to the organization. It improves your chances for a higher salary or a promotion. It gains support for your activity and counteracts detrimental remarks from other areas of the organization. It improves your chances of getting feedback for improvement so you will learn more about the company’s plans and objectives.

You may ask what you should report, how often you should report, and in what manner. Much depends on your company’s style. Some organizations frown on adding paperwork. So any written reports should be few and far between. Others want much detail often. Daily is too much except to report unusual emergency situations. Weekly can be a time waster and burdensome. Monthly seems the best for most, but quarterly or less often may be acceptable.

Handbook of Purchasing Management by Dr. Hough

There is no doubt that the reports should be written and carefully filed for reference when needed. Lengthy multi-page reports should be summarized so that busy management can get the highlights quickly. If they have greater interest, they can continue to read the details.

Busy managers like oral reports. Giving reports orally without planning what you are going to say and how you are going to say it can do more harm than good. It is a good idea to write out what you intend to give orally. Read over what you have written to see how it sounds and if it is accurate and covers enough detail. It will help force you to think about what you say before you say it and help avoid mistakes. It will help you be aware of necessary research you may need to do to check facts. The worst thing you can do is to give alleged facts and figures that are found to be inaccurate. It will throw doubt on everything you say.

Although busy managers like oral reports, there are those that prefer a written report that they can study and think about. Others want the oral report but want the written report for review later.

Not only do written reports help you plan what you are going to say, they also help avoid oral mistakes. They are important documentation for reference purposes, and for distribution to members of management or others who can’t attend a live meeting. They help those who may need to take action based on your information.

Written reports are documented evidence of what you said. Memory of oral reports may be faulty. The words on a written report cannot be questioned. The facts can, but not the written words. A report sent by e-mail or an e-mail attachment is acceptable, but the same planning is necessary for the same reasons. It is too easy to send electronic mail without carefully checking what you are saying.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is Part IV in a series of eight that will explore Sustainability and green purchasing’s leadership role.  Part I explains how Sustainability is driven by the cost savings of green purchasing, Part II deals with the heart of Sustainability, energy and fuels, and Part III with the 3Rs of Reduce/Reuse/ Recycle.  

In concert with the American Purchasing Society, I am developing a green procurement course that will have far more extensive material available in online, print, and portable digital media.  We will update quarterly so companies can build on successes.  We will offer discounts to those who sign up early so send me an email stating your interest and I’ll respond with particulars.

Construction and facilities are as likely as not to be included under purchasing’s responsibilities.  It is also not uncommon to have purchasing and facilities to be superior, subordinate, or co-equal to each other.  Since the path is not clearly defined, how does green procurement relate to Sustainability in construction and facilities?  This question has particular affection for me, a civil engineeer by undergraduate education, a former facilities manager, and a long time purchasing pro.

Construction is almost always a purchased service and out of the ordinary for most organizations.  It poses a daunting impediment to doing business as usual.  Even those companies engaged in a continuing construction programs should be aware of major Sustainability initiatives in which green purchasing practices can apply.  

For instance the United States Green Building Code (USGBC) has established a Sustainability rating system, the Leadership in Energy and Environmental Design (LEED) Green Building Rating System.  LEED is fairly universal, and unlike of most other Sustainability disciplines, has less controversy except for intra-industry squabbling.  Make certain that your design professionals and construction contractors are aware of and complying with LEED standards.  

Some of the Sustainable measures prescribed by LEED include

• Roof top gardens
• Permeable pavement
• Low Impact Development measures such as
  • Storm water run-off containment and management
  • Reuse as irrigation, fire protection, or cooling or further treatment
• Use of alternative technologies like photovoltaic technologies
• Landscaping techniques and materials such as using run-off and waste water for irrigation 

Building materials themselves can be more or less green.  Consider the interesting cases of the world’s #1 most used man-made material, concrete and #1 most consumed material, water.  

Concrete is composed of about 85% sand & gravel 15% cement, and water.  Produced at a rate of about 25 billion tons per year and growing, concrete requires a tremendous amount of energy to produce, transport, and maintain.  The cement is a great source of CO₂ emissions, but how does that work out over its life time?  Concrete is not fully recognized by the any existing standards for its durability.  Put in the language of Sustainability, its Life Cycle Assessment has yet to be fully recognized.  

To make the point consider this one amazing statistic: A typical family car produces 11,760 lbs of CO2 per year.  The concrete driveway it parks on, measuring approximately 24’ X 50’ produced 5,880 lbs of CO₂ the one time its cement was manufactured.  The car produces twice as much CO₂ every year.  And, over a 30 year life span of the driveway, the concrete’s contribution to GHG shrinks to less than 200 pounds per year, an amazing 59 times less that the car every year. 

Click here for online or CD/print media versions of "Green Purchasing" course

The #1 material consumed by humanity is water.  Not so coincidentally, it is also the # 1 material wasted by humanity.  Human life depends upon water so we have the ultimate motivation to conserve and preserve it. 

The average US citizen consumes about 1,200 gallons of water per capita per day but only a fraction of that for personal use.  A typical household of four uses 260 gallons of water each day or 65 gallons each person.  So where does the other 1,135 gallons go?  It is consumed by economic activity.  

Two illustrative examples of economic activity make the point. It takes more than 20 gallons (143.35 pounds) of water to manufacture only a pound of plastic and 100 gallons (835 pounds) to produce one pound of cotton.  

In periods of heavy rains, combined sewer overflow (CSO) is more likely to occur as handling capacity is often exceeded.  Surcharges of storm water, by design in older systems, or via excess of capacity in newer systems, create expensive, wasteful, and environmentally nasty CSO. Both storm run off (storm sewer) and waste products (sanitary sewer) are conducted by separate sewer lines but tend to mix together when there is too much water to handle.  The results of CSO are wasteful and foul; rainwater runoff is treated to the same degree and nearly the same expense as raw sewage and/or storm water becomes contaminated with sanitary waste and pollutes water ways.  

As to facilities management, there are many Sustainability gains green procurement can achieve through principles of energy conservation, 3Rs, and associated cost savings.  We in purchasing are probably already familiar with many of the measures such as buying Energy Star appliances and equipment. 

We may not be familiar with the many practical things that save money such as the “economizer” cycle on HVAC equipment that brings in outside air when it can be used for heating or cooling thereby reducing energy consumption and costs.  

Constant advances in technology are forcing down the price of photovoltaic cells (PV), the heart of active solar energy – it is getting better, more effective, and cheaper.  The Sustainability gains are obvious.  Organizations can use their solar energy for such low level lighting, domestic hot water, isolated gates, warning signs, and to replace purchased electric. 

Many more tips and practices will soon be available in a course under development for green purchasing.  We will cite the successes of well known companies like Home Depot which has saved over one quarter of a billion dollars with green procurement at its facilities.  Kohl’s depatment stores is using roof top solar panels to decrease its electric bills. 

As with most all other Sustainability endeavors, construction and facilities are two shining examples that dispel the myth that green purchasing costs money.  The measures cited above are but a few of the scores in the coming course that show that green procurement is just good business.

Editor’s note:  For those who want to test their knowledge of purchasing law, click here to take the Purchasing Law Quiz. 

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Agreement of the parties is a far more important matter to the negotiating parties.  It might seem that which party makes an offer and which accepts is of no great consequence.  That would be a mistake in the case of the purchase and sale of goods.  The Uniform Commercial Code (UCC)  says that the Offeror is the master of the offer.  In general, the terms and conditions of the Offeror are those that govern the transaction.  

A common controversy between buyer and seller is whose terms and conditions apply.  This tug of war is referred to as the ‘Battle of the Forms.  As a practical business matter, you always want to be the Offeror.  This settles the battle.  Many firms go as far as to print on their Request for Quotation (RFQ) forms the words, “This is not an Offer to Buy” so that their RFQ will not be confused with their Purchase Order (PO) forms.  Their PO forms will also contain the words, “This is an Offer to Buy” so that the identity of the Offeror is abundantly clear.  By the way, in the oral contract case above, where the conduct of the parties created the path of contract, the need to establish Offeror and Offeree is ignored, thereby making any dispute messier.  It pays to know and follow the law in negotiations.  In this case, the negotiation technique to apply is to be the party that makes the offer in the negotiation.  A logical consequence is that you should be the party to write the contract as well.  

The UCC has a variety of provisions with which many of us are familiar.  Some familiar concepts are liquidated damages, breaches and remedies, delivery, transportation terms and hundreds of others.  One provision is less familiar and a tad surprising.  It is the legal obligation of good faith and honesty of the merchants (buyer and seller) in all dealings.  Put another stunning way, honesty in the buy/sell relationship is the law!  “Who’da thunk it,” as Yogi Berra was often heard to say?  

Honesty and ethics are a source of many jokes in the business world.   Its reputation for honesty and integrity is in such a state of disrepair that the laws may not be enforced and as a result, frequently ignored.  The moral argument is that we should be doing the right thing whether someone (the law) is watching or not.  We do not need to moralize.  The truth is that honesty in negotiation is just good business.

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The UCC states in Section 1-203 that “Every contract or duty within this Act imposes the duty of good faith in its performance or enforcement.”  The UCC states elsewhere that this obligation for food faith cannot be disclaimed.  Other provisions of the UCC include ‘Honesty in Fact’ and ‘Fair Dealing’.  Thus, two parties cannot agree to lie, cheat and steal because it violates the dictates of the sovereign.  

One of the effects of the Act as a whole is to mitigate the old doctrine of ‘caveat emptor’ or ‘let the buyer beware’.  In its place, it imposes the duty of parties to interact honestly.  It also installs some affirmative duties of the parties.  A buyer, for instance, can not take refuge in the claim of ignorance.  The law assumes that the buyer is an expert at the bargaining table and imposes upon the buyer the duty to use its professional abilities to the fullest extent.  This means that a buyer is presumed to know what any buyer of similar station would know if he made reasonable investigation that any professional buyer would make under the circumstances.  

So far, we have covered the legal requirement for honesty, although we noted that ethical behavior is also required.  Well, what is the difference?  One definition is that honesty is the lowest form of ethics.  Ethics, therefore, is a cut above what is minimally legal and conforms to higher standards of behavior.  It follows logically that one cannot possibly act ethically if one does not know what is legal.  This confusion is due to our pop culture.  When some politician is being led off in cuffs, still mugging for the camera, the standard sound bite is, “I did nothing wrong!”  Well, by ‘wrong’, that politico probably means illegal, which is in some doubt.  Almost certainly, they are not concerned with what is ethical.  We can consider something to be wrong if it falls below our ethical limits, even though it is legal.  Divulging a competitor’s price is an example.  It is probably not illegal to do so, but almost as certainly unethical.  Moreover, what is to be gained that could not be reached by ethical means? 

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Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

No discussion of negotiation is complete without exploring the amorphous concept of Power.  Most authoritaties refer to the three essentials of negotiation as power, time, and information.  Our treatment of the purchase and sale negotiation takes a different approach.  We devote much effort to the preparation stage, involving extensive information gathering and analysis tools.  This business treatment of information largely isolates and minimizes the time factor.   While time and information are quantifiable commodities, power is far more elusive.   

 The intangible notion of power intrigues us.  Our definition for negotiation purposes is the ability to say no and to live with the result.  This is not the same as tact.  Tact is the ability to tell the other guy to go to blazes and to make him look forward to the journey.  Power has many different manifestations but one common quality, perception.  Power resides in the perception of the parties. 

 How would you answer this question? 

“Who has more power in buy/sell settings?”  Virtually always, the immediate response from buyer and seller alike is, “The buyer”.  If so, answer this follow up.  “Well, why then should we bother negotiating with them if we have all this power?”  

Further, power has a migratory effect.  If you think that you have it, you have it.  If you think that they have it, they have it.  Do not assume that the other guy has more power.  

Sacred Writings combined with Power  

Nothing is standard about the “standard contract form,” yet otherwise sophisticated business folks frequently fall for this feint.  So called standard agreements act as biblical papyrus in the eyes of many.  The biggest impediment to modifying a standard contract form is the person in the mirror.  A business can back itself into a corner by thinking that they must have a certain deal or contract.  An analogous feeling of resignation arises in the banking customer.  A borrower may readily cede the perception and thus the reality of that power to the bank in a mortgage relationship.  Banks understand and respect power, so they project that image.  Their preprinted forms are a tactic to reinforce the image.  

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Some years ago, my wife and I restructured our real estate portfolio.  In dealing with the bank, we encountered the customary paperwork delay.  I am certain many financial institutions plan the delay, then work to convince customer of the bank’s willingness to bend over backwards.  In retail banking, many customers feel the crush of over whelming odds so they don’t even question the reams of legal forms set before them at a closing.  

At our closing for a small mortgage, the bank presented a preprinted form requiring advance escrow deposits for taxes and insurance.  The bank’s attorney at the closing insisted the form could not be changed.  This tactic is called nibbling because it is a feeble attempt to bite off a sweeter deal.  My retort was that we eliminate the form since I planned to pay the amounts directly when they fell due, not a year in advance so the bank had my money interest free. 

Upon returning to the closing, the attorney had another preprinted form that bumped the rate up a fractional percentage to compensate for the banks ‘loss’ of value.  I informed the attorney that my patience was exhausted and that I was prepared to forsake the mortgage entirely unless the substitution of terms contrary to those agreed was halted.  The balance of the closing went through quite smoothly, with no further power plays on the banks part. 

 My walk away position was that I did not need the mortgage, although I would have preferred to have the cash for available capital.   The bank makes money when it sells loans.  When called on its obvious attempt to fatten its purse, the bank folded.  Call a foul when you see one. 

Power is perception

If you think that you have it, you have it!  If you think that they have it, they have it.  A buyer negotiating with a large company may feel powerless.  In that case, he is.  But buyer and seller do not want the same thing.  In our capitalist system, each party has power over what it owns.  If the other party wants what we have, the stage for negotiation is set.  A large seller may have a motivation independent of the small volume to be gained in the sale at hand.  Consider power to be audacity, confidence, or just a mastery of the process. 

Another manifestation of power is reluctance.  The aphorism is, “He who wants it most loses” applies.  If you want it bad, expect to get it bad.  Ironically, power flows in the direction of the party that wants the deal least.  This is the basis for the reluctant buyer tactic.  

I discovered this tactic quite by accident.  I had a peculiar client for many years.  We were not personally close, but the work and the billings were rewarding.  He would call at the last minute and make outrageous demands such as traveling overseas with about a week’s notice.  On one important occasion, I had prior binding commitments.  My refusal was not a tactical response, but a candid statement of regret.  I feared riling this fellow because of the relationship and future potential.  He persisted to the extent of sweetening the compensation.  It made sense to me to consider rescheduling the other commitments.  I made a concerted effort, offered concessions to other clients to get the time slots, and learned a valuable lesson about negotiation.

Power, much as tactics, is another tool in the negotiation workshop.  By itself, no tool can compensate for poor skill or inadequate preparation.  Rather, the tools in the heads of skilled negotiators advance the process toward acheivement of the strategy.