Purchasing and Negotiation Training

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

The Air Conditioning Contractors of America (ACCA) interviewed Steve Coscia about courageous service management and how service managers can become better leaders.

Are you a “courageous” service manager?

ACCA: Steve, what exactly do you mean by courageous management?

Steve: The importance of being a strong courageous manager is vital because in the absence of the strength and the courage, the front-line service employees will gravitate towards behavior that is easier for them, but not as good for the company. And a manager has to be courageous to keep front-line people adhering to the expectations of the company, and the customer.

ACCA: One of the things you mentionrd is how people act one way and expect their employees to act another way. It’s that old, “Do as I say, not as I do.” And it never really worked for our parents. So do you find that people think that this approach will be successful at work, or are they just not really even thinking about it at all?

Steve: Sometimes managers don’t think about the leadership aspect of their role and that’s a problem. They’re managers, but they’re also leaders. When a manager sits with an employee to establish expectations for the way we’re supposed to answer the phone, or the way we’re supposed to qualify a problem, and then a front-line person hears a manager answering a phone with a greeting outside those parameters, now the front-line service employee starts saying to himself, “How come I have to do it but he doesn’t?” And that creates a problem in the service environment. Now the employee is saying, He doesn’t have to do it. I do. “Why should I bother doing it when he’s not around?” And that’s what happens relevant to behavior in a service department when managers don’t follow the same expectations they create for their employees.

ACCA: We’ve all been on the receiving end of less-than-stellar customer relations. Is approaching things from the customer’s perspective always a good idea?

Steve: Yes, it is. One of the tenets for world-class service delivery is an ongoing measurement of customer satisfaction and customer expectation. So the customer has an expectation before they call and if what they experience is incongruent to that expectation, now we have a problem. And that problem in the customer’s mind makes the customer a little more difficult to deal with because the customer is wondering if the person on the other end really has the customer’s best interest at heart. So this whole concept of congruency relevant to customer expectations is a powerful force in business. What service companies should enforce is a balance, so that what customer’s expect is what the company actually delivers.

ACCA: Makes sense. Of course a lot of stuff like this, when we think about it, we say, “Oh yeah, makes sense.” But it’s not necessarily something that comes to mind when you’re actually out in the field. So what is one of the first things that a new service manager can do to start off properly maybe someone who’s never been in a leadership position before, but they’ve been promoted to one. What is the first thing that they can do to start off right?

Steve: Well, someone that has been recently promoted to service has some different aspects here. Now, if it’s someone from within the organization who used to be on the front-line, and now they got to be the manager, now they’re managing their old counterparts. So that, in itself, may have a cultural issue, and that person who gets promoted from the front-line ought to have established their sense of authority, not only in “knowing their stuff” but in their integrity. They should be a person who behaves in a way that’s true to themselves, and they have already had the respect of their previous colleagues. That should be in place first. If that is in place, the next thing I would suggest for a new manager is to re-establish the expectations of the front-line. What are the ten, fifteen or twenty things we need to be doing day in and day out to enforce the fact that we are a world-class service provider? And those things may be real simple, like the way we answer the phone, or they could be a little more complex, about how we ask questions to gather the facts we need to get the job done right the first time. But all those expectations, once they’re in place, they enable a manager to manage things on an even keel to get things done. The other thing I would suggest for a new manager, if they haven’t yet read a book called The One Minute Manager by Ken Blanchard. It’s a short book in a large 14-point font. It takes about 45 minutes to read. But it will establish the best foundation for managing people.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this interview was conducted by Rental Management magazine (RM) in March 2003 with Robert Menard (Menard) on the subject of Partnering with customers.

RM: What is meant by the buzz word “Partnering”?

Menard: Partnering is a long-term committed business relationship between customer and supplier that reduces the costs of doing business to improve the mutual profitability of the Partners.  

RM: How does that differ from traditional sales strategies?

Menard: It differs in its collaborative rather than adversarial approach.  The traditional view of Partnering is a corral to protect territory from poachers.  It loosely defines added value and encourages an “us-versus-them” contest that is almost always argues over low price.  This ultimately disserves both customer and supplier alike. 

RM: How does low price disserve the customer?

Menard: Because low price often comes at a higher cost.  A steal on price always costs more when quality is poor, delivery is late, and service is incompetent.  It is shortsighted for Partners to fixate on price.  When the Total Cost of Ownership (TCO) is high, Partnering fails.  The customer fights to lower the cost by cutting the price.  The supplier fights back with high prices to counter the pressure from the customer.  

RM: What are some of the TCO distinctions of the Partnering strategy?

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Menard: Let’s take the customer, then the supplier.  A buyer’s definition of ‘Best Value’ is the lowest TCO.  TCO is the sum of the four elements of Cost: Quality, Service, Delivery and Price (QSDP).  The cost of Quality, Service, and Delivery, can and often do outweigh the initial Price.  It makes economic sense to pay a higher price when it buys a lower TCO.

As a Partner supplier, the product or service is higher profit earned by reducing costs.  The supplier quantifies and measures the cost reduction for its customer. 

RM: Could Partnering apply to any or all customers?

Menard: Partners are a select group.  The 80/20 rule proves that a small percentage of customers generate the large majority of the sales.  Partnering should concentrate on reducing the costs and improving profits to share with these best customers.  

RM: What costs can a rental firm reduce other than price?

Menard: The transaction costs!  These are considerable for the customer and carry a high fixed cost per order.  Take the case of a construction customer.  Its rentals are made up of relatively frequent orders for low dollar amounts, compared to its subcontract, material and labor purchases.  These frequent low dollar transactions of high fixed costs present cost savings opportunities.  

RM: How do frequent low dollar transactions carry high fixed costs?

Menard: Purchasing studies peg the average cost per P.O. at about $150.  This sum accounts for the processes of requisitioning, shopping, ordering, receiving, accounts payable, handling, storage, etc.  Sales organizations report comparable transaction costs, bringing the cost of a single purchase and sales transaction to about$300.  This means that a $1,000 per month rental costs carries a combined transaction cost of $300, or 30% of one month’s rental. 

In a Partnering scenario, these repetitive transaction costs disappear as the parties negotiate one agreement that applies to all their dealings.  It eliminates the processes that add unnecessary transaction costs.  Prices, availability, service levels and the like are specified under the Partnering agreement and not by each individual purchase order.  

RM:How would a rental firm establish a Partnering program?

Menard: First, retrain staff and customer in the TCO philosophy.  Translate benefits such as convenience to quantifiable dollars and numbers.  This will reorient the Partners toward costs.

Obtain a committed volume of sales as part of the Partnering program.  Resist the urge to use blanket contracts that do little more than establish prices.  Secure customer buy-in by selling the Partnering Strategy to senior management, as staff buyers might feel threatened. 

RM: Why the committed book of business? 

Menard: A committed sales volume is crucial.  With the wasted repetitive processes eliminated, the supplier concentrates on customer service, having the proper equipment available when needed, and other cost reduction measures. 

An important customer motivation is that a larger book of business generates lower costs, therefore lower prices.   

RM: Please elaborate on that last point. 

Menard: The seller has a certain volume that it must meet to stay profitable.  Call that volume the “basket”.  If we fill that basket with 5 Partner customers instead of 95 adversarial customers, we eliminate needless duplicate administrative, sales, marketing, and advertising expenses.  These savings are quantifiable and measurable benefits of Partnering.  Moreover, once the basket is filled, we can then cherry pick the market, perhaps selling at higher margins to the non-partners.

 RM: What other benefits can Partners expect as the program proceeds? 

Menard: It benefits the supplier to search the marketplace and bring higher productivity, lower cost products to the customer.  Up sell becomes an investment in further cost reduction.  

RM: Does a rental firm need to be large or small, local or national to practice Partnering?

Menard: Any firm improves its viability by reducing costs.  The critical ingredient is the belief in a TCO philosophy by both customer and supplier.  The size and geographical coverage of the supplier and customer are tactical matters.  That is, a large rental firm’s regional operations may offer more convenience to large regional customers, but less to small local customers.  The small local customer cares only about the local market, irrespective of the size and coverage of the rental supplier.  

RM: What about downsides?  What can potential partners anticipate and thereby eliminate as problems. 

Menard: Among the most prominent are complacency and rebates.  Partners must constantly measure costs and periodically evaluate cost performance as a unit and as individuals. 

Rebate programs are a List down, not a Cost up vehicle that underscore a Price based philosophy.  Cost oriented customers will prefer Pre-bates with cost reductions cranked into the deal. 

RM: What is the potential for Partnering in the rental industry?

Menard: One of the facts of business life is that sluggish economies encourage leaders to look at alternative strategies.  Partnering certainly qualifies as a novel and promising alternative.  The moral of the story is that willing Partners can derive considerable cost savings.  And who do you know who has saved too much money?

Steve Hague, author, speaker, and Certified Purchasing Manager

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

Most auto dealerships, like the cars and trucks they sell are finely tuned machines of commerce.  Their goal is to earn a profit by meeting a need of selling automobiles to the public.   

 Besides the actual sale to the consumer, the other five ways that car dealers make money are:

1. service or repair
2. extras and fees
3. extended warranties
4. financing
5. trade-in’s. 

Let’s examine each individually so we know how to do mutually beneficial business in the most beneficial fashion. 

1—–Service or Repair       This is the most profitable department of most auto dealers.  If you’ve had your car repaired lately it should be no surprise!  With labor rates in the range of $79 to $89 per hour in some places, it’s easy to see how a simple repair can cost $300 to $400.  On top of the actual labor costs, all of the materials that the service center uses are sold to you at a profit also. 

2—–Extras and Fees         When you finish negotiating to buy that new car and are satisfied that you’ve gotten a great deal, your feeling of satisfaction and relief is rewarded with an invitation to met the Finance Manager. Great, but don’t let your guard down yet! 

The Finance Manager is also a salesperson and in many cases is trying his or her best to talk you into paint or fabric protection, an alarm or stereo, detailing and more.  Resist the urge to buy these extras at this point.  If you decide that you want any of these at a later date, shop around after you’ve driven out of the dealers’ lot so that you don’t feel pressured. 

3—–Extended Warranties      Extended warranties are another source of profit for the dealership.  Most cars today are built so well especially under the hood that extended warranties should only be purchased if you drive well above 15,000 miles per year.  Even then one should think twice weighing the potential for problems versus the costs involved.  Also, make sure that the policy mirrors the one that the manufacturers’ policy would cover.       

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4—–Financing     If you are among the few not paying in full and you’re not financing through your own bank, credit union or other financial institution, that means that you’ve decided to finance through the dealer.  That also means that the dealer thanks you very much for adding more profit to his bottom line.  Yes, they have arrangements with the same financial institutions and when they pass their best rate along to you, they’ve most likely added 1/4 percentage point to the rate for themselves.  Do the work yourself by finding the best rate you can and then asking the dealer if they can beat that rate. 

5—–Trade-In         Did you beat the car salesperson senseless (figuratively speaking of course) in negotiating the price of the new car?  Take a bow!  Just know that if you’re trading a car in, he most likely didn’t give you fair value for it.  In fact, the better you did negotiating the price of the new car, the worse you’ll do on the price of the trade-in. 

So now you know that a car dealership is a multi-profit center business.  Use this knowledge the next time you’re in the market for a car and you’ll keep more money in your own pocket!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

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

The goal of the negotiation is to reach a contractual agreement for the exchange of one thing for another.  Contracts are legal matters and thus our interest.  Our motivations are entirely practical.  Bringing in legal talent for every deal would bog down the process, raise the cost, and needlessly strike an adversarial tone.  Parties react anxiously when attorneys accompany or worse, lead the negotiations.  Negotiators suffer from internal friction when their lawyers feel that they are being tied down with details that competent purchasing pros should be able to handle.  Lawyers have a valid argument that they are legal advisors to other capable professionals.  Finally, deals for illegal subject matter, or between incompetent (a legal term) parties can be challenged on enforceability or good faith bases.  

I am not a lawyer nor do I play one in seminars or blog posts.  This material intended to substitute for sound legal advice.  Rather, it is intended to complement the lawyers’ contributions.  One need not be an attorney to acquire a working knowledge of commercial law.  You must though be equipped with the basics so that you can spot dangers and refer those trouble spots for legal help.  That is the purpose of presenting this material, and is limited to the practice of negotiation.  

There is a gaping ignorance of commercial law amongst buyers and sellers.  I came to the stunning realization that a better knowledge of the law was mandatory in this fashion.  One manufacturing client valued its people in proportion to hours of work per week.    Sixty to seventy hours a week was a good beginning.  The executive crew composed of the president, CEO, and a handful of other key personnel would meet on Sunday mornings for strategy sessions.  Alan, a real life S.O.B. ran these meetings.  (S.O.B. means son of boss).  At this one meeting,  I presented the results of a report that sorted customers against suppliers because showing a substantial overlap.  Moreover, in general, we purchased far more dollar volume from these suppliers than we sold to them. 

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Alan suggested that I corner these suppliers with this ultimatum.  “If you want us to keep buying from you, you’d better double what you buy from us.”  Well by golly, that seemed like a genius of a plan to me.  Purchasing could boost sales and probably raise margins while keeping supplier prices low.  If we got close to losing a supplier, I could always back off on the margin so we would both still win.  

I was eager to try out the new strategy with a particularly difficult saleswoman from the target group of suppliers.  As I rolled out the plan, she took notes and asked questions.  Finally, she offered flatly that, “I don’t think you can do that.”  My male ego was ruffled (me Tarzan, her Jane) as I barked back, “What do you mean I can’t do that.  As the customer, I can do anything I want.” 

She corrected her statement immediately.  “What I should have said,” she continued just as if she assumed I knew what she was talking about and with style that I still admire “is that we cannot legally engage in such an arrangement as it would violate the Reciprocity law.”  I was dumbfounded, without any idea if she was pulling my leg or telling me something in earnest.  

I was trying to negotiate an illegal deal while ignorantly congratulating myself for business genius.  Reciprocity is a legal concept involving buying and selling that all professional buyers should know.  She knew it and wasn’t a lawyer either.  

So what are the basics of law that buyers and sellers must know?   

We need to know more about the Uniform Commercial Code , contract law, and some federal laws.  An absolutely essential reference for your professional library is a work of art by two lawyers who were also experienced professional buyers.  The Purchasing Manager’s Desk Book of Purchasing Law is the best authority available.  The authors, Donald B. King and James J. Ritterskamp, Jr., and the publisher, Prentice Hall, have created a master work of reference for purchasing pros that is written with the buyer in mind.  You will find extensive authoritative treatment of legal matters relevant to buyers and sellers and you are urged to obtain and study this reference book. 

For instance, the section on Reciprocity points out that the threat of coercion implied by trading of purchases and sales in fixed ratios is an attempt to monopolize trade.  In the personal case cited above, the risk of consequences was small, but the personal embarrassment was high and my level of professionalism was low.  It prompted me to delve into purchasing law and apply much of that acquired knowledge to the art and science of negotiation.

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

Factual objections must be managed. Facts tend to be more important to those that are left brain, Greens and Golds.  Factual objections are often about ‘the numbers’. “Your price is over our budget.” “The return on investment is short of our expectations.”  “The terms and conditions need to include a three year warranty.”  Factual objections point to where your products or services are missing the mark in a certain area.

Accept that a “factual objection’ is correct from the customer’s point-of-view.  While factual objections need to be addressed head on, do not fight them directly.  Avoid accusatory responses such as “you are wrong.”  The most important question we can ask a customer at the start of a sales call is “when it comes to investing in [the product or service] what is most important to you?” This will offer a good indication of their personality style that you will now use to “redirect” the objection.

An example

If storage space and speed are the most important criteria when buying a computer, then an objection about price needs to be redirected back to the important criteria.  “the price reflects the enhanced storage and performance.” Consistency is important to Greens and Golds.  Remembering their prior answer about relative importance, lead with a question which they must answer in your favor to remain consistent: “Which is more important to you, a lower price or the greater functionality?”

Emotional objectionsEmotional objections are more common from right brain personalities – the Blues and Oranges. Emotional objections are windows into the buyer’s doubts.  For example, “Can I trust you to follow through?  Will it really be three years before I can expect to upgrade the system?” These are emotional objections that require the sales person to either “clarify or prove”. For example, for a Blue, getting a customer reference or testimonial can enhance a feeling of belonging and alleviate their concern.  For an Orange, the reference should imply the solution helped the referrer win something.

The four A’s

Whether factual or emotional, deal with objections when raised.  Use the four A’s: Acknowledge, Address, Acceptance, Alleviate. 

1. With every objection raised, we must acknowledge the customer’s concern. We do that by stating: “we hear what you are saying, I understand, I see.” We are not agreeing with the customer, but simply acknowledging we have heard their concern.
2. Address the objection. If it’s factual, refocus or redirect the customer back to their most important need which should outweigh the objection in terms of importance. If the objection is emotional, clarify or prove that their concern is not valid.
3. Once the objection is addressed, ask for acceptance. “Are you satisfied with our answer to your concern?” If we don’t ask for acceptance the customer likely will return to this later in the sales cycle.
4. If they said yes, the objection is alleviated and cannot be brought up again.

The next time a customer raises an objection, consider their personality style and resolve their concern!

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This case taken from publicly available records is presented as a blind case study.  Names and sensitive information have been redacted since they are not material to the facts.   For additional interesting, educational, entertaining stories on purchasing and sales warranties, read Part I and Part II

The question

If the buyer’s expectation for the purchase of an item is that it will accomplish a certain job, is it a good idea to test samples beforehand?  This is the central issues posed in a dispute between a customer and a supplier. 

The Case

A food company (Customer) that produced canned precooked product wanted to offer a frozen version.  Customer sourced a packaging company (Supplier) to explore options.  Customer advised Supplier that the product had to be packaged while still hot and then frozen. The Supplier sales rep suggested a heat/foil carton and offered to send samples for the Customer to try. 

The Customer’s process was to hand spoon cooked hot product from vats into the sample cartons, which were then quick-frozen. The Customer periodically examined frozen packages and detected no leakage.  Further, when the contents were defrosted and reheated, they came up smelling and tasting like fresh product. 

Based upon the results of experiment with Supplier’s heat/foil cartons, Customer placed an order for 100,000 of the freezable cartons.  The first shipment of 25,000 cartons were mechanically mass packed, sealed, and then consolidated in boxes of twelve and frozen. Soon thereafter, the cartons were leaking. 

The Supplier sent a technician to ascertain why the sample cartons did not leak but the mass production cartons did.  The technician found that the packaging and freezing of the product did not replicate the same process as had the samples.  More precisely, the samples of product had been spooned into the carton. The mass packed product was poured out of a spigot.  The samples were frozen individually; the mass packed frozen in boxes of twelve.  Because of increased thermal inertia and decreased heat transfer surfaces involved, the freezing process took much longer. 

The Supplier suggested a carton with heavier insulation and further offered to buy the heavier carton if the Customer gave credit for the 25,000 cartons already shipped.  The Customer refused and sued.  At trial, the Customer claimed: that the Supplier “knew we needed a carton to package hot” product and alleged that the Supplier’s final product delivered failed to do the job. That’s a breach of warranty, and why should we have to pay for something that’s completely useless to us?” 

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The Supplier countered that Customer took over a month to test and examine the performance of sample cartons. Customer issued an order based on this information, and Supplier delivered. There was no warranty of fitness.  Plus, Customer then used the cartons in a significantly different way which was the reason the product performed differently.”

 The Decision:

The Customer must pay for the initial shipment of cartons, ruled the St. Louis, Missouri Court of Appeals. The Customer got what it ordered. “The food company did not rely on the skill or judgment of the packaging company  to select a carton to fit its needs. The food company tested the carton, then gave its written order. Under the facts, there can be no warranty of fitness.” (334 S.W. 2d 408)

Comment:

When a customer buys by sample, the supplier’s obligation is to deliver goods that match the sample.  The supplier would be obligated for the warranty of fitness for an ordinary purpose, i.e., a container.  In this case, the customer liked the sample and ordered on this basis.   

If a customer tells its supplier it wants a product to do a particular job and the supplier is the one who selects the item for the customer, it is then the supplier’s responsibility if the product fails to perform adequately.  The supplier would be obligated for a warranty of fitness for a particular purpose. 

This case poses an interesting juxtaposition of science and law.  Two underlying problems sank the Customer’s case, the law and science.  The law was properly applied as to warranties.  The Customer brought the warranty problem on itself due to its ignorance of its own process.  Frozen product was a new line yet Customer was not sufficiently skilled in the requisite thermal science.  Packing the cartons together created a larger mass to cool with a smaller surface area.  While this fact might be understandable to many, the Customer owns the obligation for fully vetting its process.

The Ugly Baby Rule

So what is the Ugly Bay Rule of Warranties?  If the customer tells the supplier what to make, how to make it, and when to make it, and the result is an ugly baby, the buyer owns that ugly baby – the supplier is only the baby-sitter.  

 Moral of the Ugly Baby Rule

If the customer wants a supplier to be on the hook for the fitness for a particular purpose warranty, it should expressly state so on the purchase order.

Editor’s note: this is the Part III in a series of eight that will explore Sustainability and how green purchasing can and should take a leadership role. Part II deals with energy management  and Part I is an overview. 

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.

There is probably no Sustainability concept more familiar and understood by more people than the 3Rs of Reduce/Reuse/Recycle.  The 3Rs are primarily driven by the profit motive of cost reduction but the concurrent bonus benefit of Sustainability successes falls right into green purchasing’s wheelhouse. 

 Every business, no matter the industry, can benefit by participation in the 3Rs defined as follows: 

Reduce         to decrease waste and/or eliminate needless or inefficient use of resources.  If the need for a resource is reduced or eliminated, as in the related concepts of energy reduction and conservation, resources are preserved and financial gains almost accompany the effort. 

Reuse            to find similar or identical, new, and sometimes novel ways to use the same resource instead of disposing of it.  Eliminated new or replacement resources conserve and preserve and almost always come with accompanying financial gains. 

Recycle         to find other uses for waste materials including re-manufacturing into other products. Recycling materials like cans, glass, paper and cardboard recovers the valuable resources that would otherwise be waste to make new products. For example, glass bottles and jars collected by a recycling service will be cleaned, crushed and recycled into new bottles and jars.  

The cost savings of green procurement include waste minimization, elimination of collection, cartage, landfill usage, disposal, and the requisite energy otherwise needed to accomplish these gains.  Let’ demonstrate how this works. 

Common applications of 3Rs are packaging, paper, printing, pallets, scrap, and water.  Disposable packaging is rapidly being replaced by durable, reusable containers. Packaging of bottled water in corrugated boxes is being replaced by shrink wrap.  Even the bottles are thinner to increase net payload and reduce transportation costs.  Better yet, eliminating these plastic bottles entirely by using plumbed drinking fountains or large glass container drinking stations are all greener measures and are creditable towards a Sustainability profile.  

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Reusing incoming pallets to ship outgoing deliveries is a Sustainable practice that saves money.  So is recycling and refilling printer cartridges.  The same applies to baling and selling back of corrugated waste.  The ways to save money and go green through the 3Rs is limited only by purchasing’s imagination and creativity. 

Any business that uses paper has multiple opportunities to use green purchasing and save money.  If you have a copy machine, you have multiple opportunities to engage in the 3Rs.  Reducing the amount of paper and ink, printing on both sides, and recycling the waste paper all qualify as Sustainable measures. 

Here are a few interesting stats about paper but substitute other materials and similar stats would apply. 

• The U.S. catalog industry annually mails 19.5 billion catalogs, or 71 for every man, woman and child – producing and disposing 3.6 million tons of paper
• Producing recycled paper requires about 60 percent of the energy used to make paper from virgin wood pulp  
• Manufacturing one ton of office paper from recycled stock can save between 3,000 and 4,000 kilowatt-hours more than if the same ton of paper were made with virgin wood products. 
  • For illustration of cost savings and using an arbitrary price $0.10/kWh, the savings per ton is $300 to $400. 
  • Using the 3.6 million tons of catalog paper, the total savings is a staggering $1.08 billion to $1.44 billion just for catalogs
• Recycling one ton of newspaper is equivalent to avoiding 2.5 tons of CO₂ emissions into the air
• Applying this 2.5 tons of CO₂ figure to the 3.6 million tons of catalogs means that about 9 million tons of CO₂ would be saved 

Applying the 3Rs to paper, raw material, packaging, and containers are rather routine, but how about the 3Rs applied to the #1 material consumed on earth, water?  Not surprisingly, it is also the #1 wasted material so great Sustainability and cost savings gains go hand in hand.  

Clearly, green procurement makes an enormous impact on cost savings and Sustainability.  Much larger contributors such as plastics and metals have not even been mentioned thus far but the illustrations above indicate that green procurement is the way to cut costs, raise profitability, and improve Sustainability. 

As we will see in Part IV, there are novel and ingenious ways to Reduce, Reuse, and Recycle water.  Whether used for domestic, process, irrigation, fire protection, or even storm water reclamation purposes, water is the ultimate 3R material.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

An gaping deficiency in commercial law  is among the greatest faults of purchasing pros.  This deficiency affects our negotiation efforts in the areas of  UCC,  federal law, and contract law.  Negotiators schooled in basics of commercial law are an asset to legal consultants and a boost  to the negotiation process.

Ethics and good faith are requirements imposed by law by the UCC.  The law also exacts different standards of buyer and seller conduct.  Moreover, statutes and interpretations of them create a negotiation landscape.  The importance of being the Offeror is that our terms and conditions apply. 

Federal laws affect negotiations.  If we trade overseas, we have probably come across the Foreign Corrupt Trade Practices Act and the Convention for the International Sale of Goods.  Coupled with customs regulations, import and export laws and a plethora of other issues, this is an area in which you want to seek liberal amounts competent legal help.  

Much of the Clayton Act has been amended by the Robinson-Patman Act except for the provision concerning limiting of trade.  For instance, be wary of negotiating a deal with a supplier that limits your or their ability to deal with competitors.  The Sherman Antitrust Act encompasses the reciprocity concerns.  Seek legal assistance with these matters. 

Federal laws forbid inducing or receiving discriminatory prices.  Driving a supplier below costs has its own practical, ethical, and legal considerations.  Instead, we are far better ff to deploy communication skills and negotiation techniques in tandem with Price Analysis and Cost Analysis.

The law of single greatest consequence to buyers and sellers in negotiation is the Robinson-Patman law.  This is the one with which we will have the greatest daily contact and be exposed to most danger.  It concerns discrimination in pricing.  One of its consequences is that it makes it illegal for buyers to knowingly induce or receive discriminatory prices.  Buyers violate the law when the place orders at prices that they know (and is in some cases, should have know) are exceptionally low and/or below the suppliers costs.  Exceptions are made for private label products, loss leaders, meeting competitor’s prices in good faith, and other reasons.  Lawyers who are expert in purchasing matters counsel buyers to obtain cost justification for the prices and proof that other buyers are offered thee prices on proportionally equal terms.  We care most about the cost justification provision as the issue of price comes up in virtually every negotiation.  

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The words we use complement our Win-Win strategy.  The constant deflection of price to cost reinforces the TCO significance to which the supplier may not be fully attuned.  As a professional in procurement, you will never go wrong with costs.  Seize every opportunity to bring the negotiation around to cost matters.  The suppliers will come to realize that your goal of lowest TCO drives the negotiation process, not ego, price, or other hidden agendas that alienate the parties.  

Finally, we return to the reason that it is wise to know when to consult an attorney.  In general the right time is before anything bad happens.  Think of this principle as preventive medicine, except this is prevention of outrageous legal costs after the fact.  Keep your lawyer in the loop early on and save yourself a lot of money later.  

Consider these two examples of how the need to consult a lawyer might not be as easy as it seems.  For the purposes of the law, what are goods?  A trick question you say.  No, a legal question, but the two may be the same thing.  Goods are defined in the UCC as things and differentiated from real property (land and buildings).  Interpretations of the law create precedents and case law which are no matters for pretenders.  One of the interpretations of the UCC is that goods must be moveable at the time of sale.  Minerals that are to be removed from the land are considered goods if they are to be severed from the land by the seller.  The reasoning is that if the minerals were removed by the buyer, any contract involving the minerals would fall be governed by real estate laws and not the UCC.  

In another case involving warranties, a fertile ground for legal disputes, a case involving cardiac surgery came under the auspices of the UCC.  While heart surgery would seem to be a service and not goods, the estate of the decedent sued the medical team, hospital and others under the warranty protections afforded by the UCC.  The decedent’s estate contended that by removing the heart and blood from the body and cooling them down to facilitate the introduction of anti rejection drugs, oxygen, and other pharmaceuticals, the medical team had effectively transformed the blood into ‘goods’.  As goods, they were entitled to the UCC warranty protection of fitness for its particular purpose.

 The moral of the story: resolve any doubts in favor of consulting the attorney.  Even when you feel on solid ground, periodic review of your business processes by competent counsel is always a wise plan.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s Note: This is Part 5 of a 5 part series on negotiation tactics and counter-tactics.  Part I presents an overview. Part 2 explains the first category of Maneuvers. Part 3 deals with Flyers, Part 4 with Gambits, and Part 5 with Ruses. 

The Ruses comprise tactics ranging from wild to tame, but all are to be used judiciously.  If you spot these, regard them with suspicion.  The other negotiator may be adroitly deploying or clumsily utilizing these.  The Ruses include:

• The Head Fake
• The Straws
• Funnie Munnie
• Madman Mania
• The Walk
• Artful Anger
• Self Control  
• Puppy Dog Close

 The Head Fake is the introduction of a phony issue or position for the purpose of concealing the real issue or position.  This tactic pops in frequently in Win-Lose strategies, labor negotiations, and settlement talks between estranged parties.  The head faker has little interest in honesty or much concern with how the other side does in the negotiation.  You can recognize the tactic, or at least be cautious when a point that you did not expect enters the discussion. It could be legitimate, so investigate with open ended questions and request to tell you more about it.  Typically, the drive for the decoy will later incorporate the real issue, which will be associated in some way to make the real issue seem less important.  

The Straws are red herring issues.  They have little value to the other side or us and are placed on the table for their value as concessions later.  The non-negotiables tactic we raised earlier often fall into this category.  A clue to the straw’s presence is the introduction of unanticipated terms and conditions.  Whenever unexpected data appear, be alert to the possibility that the information has marginal value. 

Funnie Munnie is a truly clumsy tactic.  It involves the expression of a price in relative terms that deemphasize cost and try to shame the buyer.  “Can you afford 20 cents per day to protect your family?”  How about, “Make just four easy payments of $29.95?”  These paraphrased TV quotes takes aim at pride and responsibility.  “Why of course I can and afford that, I do care about these things, and here’s the money to prove it,” is the response the ads intends to provoke.   Price quotations for leasing big ticket items provide a notorious example; $1.71 per passenger revenue passenger mile per hour per operating year (assuming an 85% seat occupancy and a ten year life with normal maintenance costs).  What ever does this quotation mean?  It states an incomprehensible set of facts and offers insufficient information upon which to make any calculation.  Get the funnie munnie translated to dollars and cents in a hurry.  

Madman Mania covers a variety of behaviors, usually unsavory, that betray a low skill level in negotiation.  People use them because they are effective.  Bullies have learned that their antisocial rants help them get their way.  They apply that pattern to negotiation as well.  Suppose you are dealing with a foul mouthed, arrogant, abusive ego maniac who has body odor and halitosis – and those are his good points.  He rules by a reign of terror and people fear his reputation.  The question to ask ourselves is, “So what?”  We are not considering a marriage proposal, just a business deal.  Bullies do not favor being challenged, and might react angrily when confronted.  So what?  Stand your ground, rely on your skills, and attend to business.  The bully will develop a new, if grudging sense of respect for you, even if he is not sure why.  

The Walk is one of those tactics that people like to talk about in awe.  I once heard a fellow in Denver refer to his boss in reverent tones.  “You should have seen how he handled it.  The supplier flew down from Chicago with a team of three and my boss set the whole thing up.  Soon into the meeting, he told them that if his price terms weren’t met, they could fly back to Chicago.  And then he walked out, giving them ten minutes to decide.”  Well, it might have just been a high stakes game of chicken, or maybe it was an effective ploy.  In any case, beware of using it in any meaningful way.  Issue had no weight in this setting and the Relationship did not seem to matter much.  These two distinct markings identify the type of negotiator and strategy that he had chosen.  If someone walks out on us, what options has our preparation primed us for?  Do we need this supplier?  Was this supposed to be a Win-Win deal?  What is our fall back position?  Preparation is the only counter to this tactic. 

Artful Anger is a pretty slick trick.  Use it sparingly and it works well.  Over use it and lose it.  Anger is often part of negotiation as frustration boils over.  Personality disputes, risks, and stress can flare up in angry outbursts.  When someone blows hot and hard, it is probably not directed personally but arises from the general stress of the negotiation process.  The tactic appears when the exhibition of anger is art and not science, feigned versus real.  We may not know the difference between the real and fake variety, so the treatment is the same.  Try not to recoil or change your actions because that would be a signal that the tactic has taken effect.  It is not our fault is the other party chooses to lose its mind and act out of anger.  Do not change your position or your attitude, but be firm and resolute.  This advice may sound similar to that prescribed for doping with childish temper tantrums and indeed it is almost the same.  A good application of this tactic is to counter a case of Madman Mania. 

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All of these heavy human influences lead us to the Self Control tactic.  This is an extremely important tactic to master and it is not an easy thing to do.  Recall the godfather’s advice about, “Its just business, nothing personal.”  The same is true in commercial negotiation.  We have no excuse for losing self control.  The justification most often cited is that, “He made me so mad.”  Horse feathers!  No one can make you mad; you have to let him or her do it to you.  This puts the other guy in control.  If someone can drive you to an emotional reaction, he can manipulate you and control you.  Anger clouds judgment.  Why would you ever give that much control to a perfect stranger?

The Puppy Dog Close is a sales closing technique as in the words, “Money back guarantee.”  It puts the product into your hands so that you have no reason to keep looking.  Besides, you really want the product and you have no risk, so why not just take it with you.  Did you ever take children to see new puppies?  The cute fur balls cock their heads in a forlorn pose.  The clerk assures you that you can bring the puppy back if your kids don’t like it.  You correctly estimate two chances of that happening and Slim is in Lubbock indefinitely.

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

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

We sales pros misunderstand customer objections.  Objections indicate that the customer is evaluating every possibility as they consider your solution.  But it also means you have their attention [a critical step] and they are interested in engaging in a dialogue [a critical next step].  Now you can work toward framing the discussion.  Expect and welcome customers objections.  Respond effectively, in a manner tuned to their personality style.

Objections are healthy

In every sales situation there will be objections at some point that cannot be ignored.  They must be handled for the sales cycle to move toward closure.  Handling customer objections properly builds strong momentum. Some sales training programs state that objections can be prevented others cite objections as an opportunity to dialogue with the customer. The negative effects of objections can be minimized by focusing on the needs of the customer – and specifically, not pushing features.  You are selling to a person.   Address the needs of the customer and remember their needs reflect their personality types.  Use this information on style and preferences as you convey the benefits of your products and services. 

Common objections you can expect from each of the personalities 

• Gold    expect factual objections to the financial aspects of the solution. “What is the return on the investment?”  “How will the solution impact our bottom line?”  “How will it improve productivity or decrease expenses?”  Golds will evaluate the numbers in regards to proposals.
• Oranges  place emphasis on the process of buying.  They want to raise objections.  Oranges also want to know the immediate benefits.  While emotional objections are common for the Orange personality, they like to negotiate since they view this as a game. They will question: “Is this the best possible deal.” “How will I look?  How will my relative position change, if I make the decision go with your company?” 
•  Blue   expect more emotional objections relating to how the products or services will impact the people in the organization, employee morale, customer satisfaction. “Will the decision be well received by the rest of the team?” Objections are related to people and relationships.
•  Green          expect factual objections around the capability of the solution, the technical aspects, and the functionality – where the solution might fit in to the overall technology strategy down the road. “What are some of the alternative approaches to the solution?”  “What is your capability as a company to support the solution in the future?”  

Stu's Four People You Should Know

Turn the objection

 

 Your goal is to meet these objections and turn them into reinforcements for customer decisions.  Customers decide based on their personal and business needs.  Objections come in two types – factual objections and emotional objections.  Depending on the personality style of the customer, you can anticipate, and prepare for receiving more factual objections or more emotional objections. Your goal is to provide answers to these objections tailored to the personality styles of the buyers.  Generate emotions in the customer, personal needs, which reinforce the customer’s desire to pick your solution.  Likewise, reinforce your products support of the business need, as weighted in importance by the specific personality type.