Purchasing and Negotiation Training

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

Editor’s note:  Stu Schlackman is a frequent contributor to this blog.  In this Part I of a two part series, he discusses the affect of power on the sales process.   In Part II, he relates power in the sales process to personalities.

Politics is a game of influence. Politicians make a TV commercial and hope you will be influenced to remember and think favorably of them. They hold a rally; they seem to be good folks.  They shake your hand and its personal, you’ve touched them and it would be a shame if they did not win.  In each circumstance the politician is a salesperson selling herself, party, or agenda.  But with each experience, you share a greater intimacy with the candidate.  Your relationship grows and becomes personal.  The stronger the relationship established between you and the candidate, the more likely you will close in their favor at the polling station.

The same is true in sales

We want to convince our customers to purchase from us and sooner rather than later. Our level of influence on the customer’s decision ‘on when to buy’ is directly proportional to the relationship established during the sales cycle.  In most interactions, the customer controls the urgency as to when they buy. How can you both win that customer and shift their sense of urgency to commit? How do you keep them committed to coming back for more and gain recommendation of you and your products to others?  

Build the Relationship

Relationships are built on three critical factors: face time, follow through, and motive. Let’s address how each of these works to move a customer to making a decision in your favor.

Face Time

Sales success is directly related to face. The number of opportunities customers allows us to meet indicates their level of interest. In other words, they see value in meeting us. How often have you only met the customer two or three times and you knew your chances were a long shot? Customers accept a meeting when there is a clear purpose and value in getting together. We earn the right to meet with the customer when our message is clear and concise as to the tangible value for the customer in our products and services. For example, if we have a proven track record of how we have helped others, customers are interested. If our agenda is entirely focused on customers’ needs and issues, they know it! It’s a very positive sign when the customer is the one to initiate the next meeting.

Follow through

This is a huge indicator of character and credibility that strongly influence customer’s evaluation of you as a person with whom they want to build a relationship and engage in ongoing business. Follow through is about putting the customer’s priorities ahead of everything else, and making this obvious to them. Follow through shows the customer what they can expect when they commit to your products and services. It sets an expectation of how the relationship will evolve as it moves forward. When you start delivering results beyond the customer’s expectations you strongly capture their attention. Follow through is about being proactive on the customer’s behalf by doing what you have learned is important to them – without even asking permission. The result is customer delight and enthusiasm.

Communicate your motive

The last critical factor in building strong customer relationships is the implied communication of your motive. What is it that motivates you to close this business? Do you focus on the commission or the commitment to giving the customer what is in their best interest? If you are committed to solving the customer’s issues, first and foremost, the commission will follow. Customers are good at reading a sales person’s motives. They can see the facial expression and read your body language. How do you respond to a delay in the sales cycle or a new customer objection that needs to be addressed? The customer can tell if you are putting your own concerns before their interests. Clearly communicate that the heart of your interest is in continuing to address the customer’s needs. The result is customer commitment to you and your services.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this is Part II of a two part series.  Both Part I and Part II deal with practical negotiation advice for buyers and sellers.

Q)   How does HID train the buyer to treat us?

A)   HID influences concession behavior and gives us negotiating room.  The higher price sets an expectation of higher quality, better service, or some other benefit worth the price differential.  The buyer assumes that concessions will be difficult to extract without affecting the overall picture. 

A business adage says, “You get what you pay for”.  We train the buyer in the truth of that conventional wisdom by consistent use of HID in negotiation.  This raises the buyer’s settlement bar as it moves line with expectations. 

Q)   Is there any impact on the personal side of buyer/seller relations?

A)   Yes, we can satisfy the buyer’s need to win without damaging the trust relationship.  This is especially true of dominant personality types. The emotional imperative works like this.  You build in a price concession of 15% before meeting a new buyer.  He demands a 10% price reduction, thus revealing his HID first.  He might well settle for a 5% cut, or 1/3 of your ultimate position.  Nevertheless, he has ‘won’ the battle, you made a profitable sale, and he has now been conditioned for the next encounter.

Q)   Will setting the HID too high infuriate my customer?

A)   As a buyer, I sometimes act shocked as a negotiation tactic.  I ask the seller to justify its position.  If the seller is flustered, tentative or brazen, I know in a jiffy that she is not interested in trust.  On the other hand, if I detect a willingness to explore mutual benefit, I gain a new perspective that holds promise. 

Q)   What is a non-price example of how HID is used?

A)   In preparing for a negotiation, use visual aides to help you see what you mean.  Here, we examine delivery as a negotiable item.  The chart below compares delivery lead-time from the buyer and seller viewpoints.

The Buyer’s HID is 2 week delivery, which no one on the planet can do.  Our HID is 5 weeks, or two more than our final offer position of 3 weeks.  Conceding one week on the Seller’s HID, to 4 weeks, brings us into the Buyer’s settlement range.  If the buyer insists on 3 weeks, our NO position, we can agree then.  Alternatively, we have the option of conceding earlier delivery on the condition that we get a price relief in return.

When buyers ask for the “best deal up front”, they betray their misunderstanding of the negotiation process in general.  The HID factors inherent to the bargaining process protect both buyer and seller.  The relationship must first take root in trust.  After trust has been long established, then the time is right to discuss getting down to the best deal right off the bat.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: this is Part I of a two part series.  Both Part I and Part II deal with practical negotiation advice for buyers and sellers.

How would you answer this question that a buyer might pose: “Why not just eliminate all the negotiation nonsense and just get right down to the best deal?” 

Well, you can, but only about as often as you get married.  Skipping negotiation means trashing the communication and investigation process by which buyer and seller build a relationship.  Without a time tested courtship history, we almost guarantee a poor outcome.  Trust, like credit, must be earned.  Trust is merely a form of credit.

Self-protection is required until trust is established.  We protect ourselves by always asking for more than we want.  We propose High Initial Demands (HID).  HID is the device that preserves the relationship until trust makes it unnecessary.  Here are some of the FAQ on HID.

Q)   Isn’t asking for more than I want with HID being dishonest?

A)   No, on the contrary, it is cautious.  Asking for more than we want, whether price, delivery time, quality level, etc, allows us to build in concessions.  HID trains the other side in how to treat us, as well as sets expectation.  HID is mandatory in negotiations.

Q)   Since the buyer or seller already knows this, are we just wasting time and effort?

A)   This fault of logic is what lawyers call “assuming facts not in evidence”.  Therefore, all assumptions must be proven before accepted.  Who says the buyer knows about HID?  Who says he is not using his own form of HID?  If the buyer does indeed know, then he or she deserves our respect and admiration as a cautious business professional.

Q)   What is meant by setting expectations?

A)   In the canned vegetable aisle of the grocery store, find 15oz cans of peas.  The national name brand prices out at 89¢ and the store brand at 69¢.  Does this mean the price difference is quality?  Horse feathers!  While some incremental marketing and advertising costs raise the price by a few pennies, HID probably accounts for the balance of the price premium. 

Buyers make the subconscious assumption that the store has its own brand of low cost peas.  Isn’t it much more likely that this private brand merchandise is the very same product with a different label? 

Q) How does HID relate to our final offer?

A)   They are opposite ends of the concession scale.  Visualize your settlement range as a line with upper and lower limits.  The HID is the highest we could get, and the final offer is the lowest we will accept.  Between these extremes is a settlement range.

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

Editor’s note:  Stu Schlackman is a frequent contributor to this blog.  In this Part II of a two part series, he specifies the analogous prosesses of physics to sales, analogies that might appeal to the average scientic inclined buyer.  In Part I, he relates the sales process to some concepts of physics.  

Back to our formula analogy

There are three points that seem to be present with every winning sales team. m times v equals p:

• (m) The first point is all team members must buy into the leader’s vision on where the team is headed. More motion equals more momentum. With the team in motion, there is an attitude of “Playing to win”; everyone does what it takes to close the business. Here the leader leverages the strengths of each team member and doesn’t focus on someone’s weakness. Momentum is apparent to the customer and becomes contagious. The team’s every action expresses: “We will do what it takes for you the customer to be successful.” “Playing to win” puts the customer first, and our commission, second.
• (v) The second point is gaining “confidence”. Velocity is speed aligned along a specific vector, distance traveled along one direction in a unit of time. As each team member closes a piece of business, it boosts the confidence of every team member that is aligned with the goals and philosophy of the team. Just look at any sports team that has “momentum” moving the ball down the field or firing the ball across the plate. They know what’s working for them. Your confidence from knowing who you are and how you can help customers will be conveyed in your behavior when meeting with the customer, be they Gold, Blue Green or Orange personalities.
• (p) The third point comes from exercising points one and two: Performance. “Playing to win” times “having confidence” leads to an increase in “sales activity”. The sales plan is working. Team members are now at the point that things are clicking. They know what works for them and they maximize their performance.  By repeating successful activities and picking up the pace they have gained momentum.  With more successes, the team becomes full of energy.  Since activity levels are increasing, a little rejection does not hurt: they maintain successful inertia. They are busy with multiple opportunities to help customers succeed in their goals and objectives.

Sales is a game of momentum

Everything we just covered holds true for a customer service team or an information technology team. You gather momentum as you exercise social intelligence. Understanding personality styles will add a new dimension to your team’s social intelligence that can bring it to the next level.  Understanding each other’s motivations and leveraging the specific strengths of each member, generates a team impulse to succeed. Great teams play to win, have confidence in themselves and their teammates, and enjoy a flurry of activity throughout the year! In short, they perform.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Professional purchasing’s ability to persuade coworkers and management of the profit power of purchasing is a constant obligation.

The Rodney Dangerfield affect

One constant in business is the under appreciation for purchasing’s profit power.  Were you to ask how purchasing contributes to profitability, the responses might be a blank stare.  Call it the Rodney Dangerfield affect; purchasing just gets no respect. 

The image problem

In the eyes of the typical coworker, purchasing is a support function.  This chart shows the impact on profitability for a company earning 10% on sales of $1,000,000.    

 There are only two paths to increased profitability, raise sales or reduce costs.  When sales are increased by 10%, the costs increase by 10%, and the profit increases proportionally, by 10%. Contrast this to the alternative of decreasing costs by 10%.  The result is a 90% increase in profitability.  This simple demonstration of economics proves that purchasing is truly the most efficient generator of profitability in all of business. 

Click here for Bob's book and CDs

“We know our suppliers better”

In some organizations, each department buys individually; sales, IT, marketing, facilities, operations, etc all have their own suppliers.  The overlap among common purchases like office supplies, travel, and many others, goes unconsolidated, thereby depriving the buying company of consolidation leverage.

Nevertheless, these decentralized, often part time buyers believe that they know their suppliers better than purchasing could.  Since these well intentioned and often dedicated employees are largely ignorant of purchasing best practices, they believe they are doing a great job of buying. 

What can purchasing do?

Purchasing sells its value, expertise, and profit contribution.  Coworkers and management may know little about Total Cost of Ownership. Show how the low price is worthless if the supplier does not provide the quality level we need on the schedule we demand and an acceptable service level.  Sourcing and qualifying suppliers is a foreign concept to those who only required a pulse and a price to do business. 

Help the individual departments in their negotiations.  Explain how professional purchasing helps get the best deal.  Purchasing should negotiate the deal, but the department should execute the daily transactions.  Purchasing can keep the process on track by measuring and reviewing performance along the way.

This advice may seem basic, but selling our worth is a constant, some times up hill battle.  Victories are the best ally.  As the record for obtaining cost reductions and improving supplier performance spreads, coworkers and management will view purchasing more as a profit center and less as a cost center. 

Help doubters through education to understand how professional purchasing achieves better results and profitability.  They may be doubters now, but when they are calling for help because they have heard from others what purchasing can do, that Rodney Dangerfield image will fade away.

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

Editor’s note:  Stu Schlackmen is a frequent contributor to this blog.  In this Part I of a two part series, he relates to sales process to some concepts of physics.  In Part II, he specifies the analogous processes of physics to sales, analogies that might appeal to the average scienticly inclined buyer.

If you took Physics you might remember the classic formula for momentum is p=mv; where p is momentum which equals mass times velocity.

Keep reading! This is not a pop quiz. Physics and sales are, of course, different practices and our business world requires both of these honest trades to function. What we find fascinating is the extent of the crossover.

Newtonian momentum (p=mv) vs. sales momentum

We can develop a comparative analogy between Newtonian momentum (p=mv) and sales momentum leading to a similar formula for success with a winning sales team. In physics p=mv, this is the relative measure of the amount of kinetic energy in a moving body.  Sometimes this formula is used to determine the impulse needed to get a resting body moving; other times it is used to examine the inertia of a body. All these italicized words from physics have crossed over into our everyday language in sales.  Why is that?

In many sales’ team meetings and training, a “buzz word” that keeps cropping up is velocity or speed – more “borrowed” words from physics. In physics velocity is measured by distance moved over an interval of time; here in sales, velocity means moving the sales cycle forward and bring a business to closure. We keep hearing these critical questions in our profession:

• From the professional on the front line: “What can we do to move that sale along and close before the end of the quarter?” “How many deals do we have in our pipeline?”
• From the sales vice president:  “How can I help? What resources do we need?”

These questions crop up time and again time at the end of each quarter and again at the end of the year. In the best of all worlds, every week we would experience these successes: 

• The contract will be signed today and they want to start next Monday on the implementation. They plan to pay in advance to get the 3% discount.
• They have two other facilities they decided to include on the initial phase of the project.
• I must send apologies to this customer. We cannot meet this week because our calendar is already full with 3 other prospects that insist on seeing us immediately.

If these three above answsers are your dream, this is your wake up call.  “Sales” is a game of momentum, part of which is definitely psychological for both the sales leader and their team members. Just as in physics, momentum is mass times velocity.  Mass is the entire team. Is this a mass at rest or a mass in motion? Velocity is the speed with which the team executes to win both new and existing business. Everyone is aligned on the same vector. As members of the team win business, it can be contagious for the other members that buy in to the team’s leader and their philosophy for winning business. Inertia is overcome. The team gains momentum.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is Part II of a two part series on the basics of purchasing and sales negotiation.  Part I deals with price and Total Cost of Ownership and Part II deals with  P-Cards, sales pros, and Win-Win

What is a Procurement Card?

 The Pro Card, P Card, or Purchasing Card is essentially a credit card, usually given to line employees, for the purpose of making purchases directly, without the aid or intervention of the purchasing department.  Since the average nationwide cost of processing a P.O. ranges between $75-$125, using the card to make low volume, low dollar buys actually saves money!  What is more, the employee holding the card enjoys the empowerment of being “in charge” of his or her own turf.

Sales  also saves a corresponding amount of transaction costs, making the P-Card an attractive cost reduction solution. 

How do I handle pushy sales people or those slick talkers?

 The sales profession suffers from image problems – much as does purchasing.  The resultant lack of respect, understanding and, even hostility stems from poor communication. Sales people have always been trained to cultivate buying signal.  They master many closing techniques and keep trying them on purchasing until successful.

Purchasing pros must recognize and accept this remnant of our past, untrained behavior.  Sales people must be aggressive, constantly promoting, closing, selling. Would we want a careless, unconcerned, unmotivated slug to be our salesperson?  No, we want the aptitude, which often accompanies an attitude.  Handling sales reps requires recognition of their motivations and redirecting the sales energy toward a win-win solution.

What do you mean by “Win-Win”?  Mustn’t there always be a winner and a loser?

Only in the World Series and Super Bowl.  In fact, in any contest or conflict where both parties want the same thing, a winner and loser can be the only outcome.

In the buy-sell context, both parties never want the same thing.  The buyer may want higher quality at a lower price while the seller may want a market presence and a stable book of business.  This divergence of motivations introduces abundant opportunities for each side to get what they want while delivering what the other side wants.  The win-win approach leads to long-term, mutually beneficial buy-sell relationships when each party satisfies its own needs and helps the other side to satisfy its needs. 

Example: A superior supplier may have good quality and service, but its (Delivery) lead time and price may exceed its competitors.  The buyer may grant a small concession on delivery time (a minor sacrifice) in return for a price cut by the seller (perhaps also a minor concession).  Both parties achieve victory by meeting their goals while simultaneously helping/allowing the other side to do the same.

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

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

 Some deals don’t serve your purposes.

It may be too time intensive or costly to compete effectively. For instance, participating in a structured bid process negotiation may not suit your business needs. When government or large organizations ask for bids, there is usually a lower profit margin, a heightened expectation of service, tighter delivery times, stricter quality issues and required safety systems.

 It isn’t worth it

If the deal you are presently considering has a low return on your time, effort or resource investment or a low likelihood of possibility, you don’t need it. In the scenario above, the benefits of a large contract is the possibility of big quantities over a long term, even years. However, the large investment in effort and time with no guarantee of business might not meet your business model. Choosing to lower your price might set a precedent you don’t want to continue in the future. You should spend your time on things that have a greater return.

 It doesn’t feel right

Remember to trust your gut. If the deal doesn’t feel right or you think it might be unethical, run don’t walk. Your credibility and reputation is what will distinguish you over the long term. Don’t proceed with an opportunity that will hurt you in the long run.

 Use your experience.  Make sure the deal fits your needs.  Feel good about the possible return on your investment of time, effort and resources. Know that where you are headed is in alignment with who you are. There will always be deals. There will always be opportunities. Determine what makes sense for you and your company.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is Part I of a two part series on the basics of purchasing and sales negotiation.  Part I deals with price and Total Cost of Ownership and Part II deals with  P-Cards, sales pros, and Win-Win

 How do I know if I’m getting the best price?

 That depends on how you define “best price.”  Price alone does not tell the whole story.  Quality, Service, and Delivery, along with Price are the four elements of the Total Cost of Ownership.  Driving for a lower price at the expense of the other three elements may generate undesirable results.  The “best price.” is one which actually produces the lowest Total Cost of Ownership.

 What is the Total Cost Of Ownership (TCO) and how is it determined?

 The TCO accounts for the cost impact of Quality, Service, Delivery, and Price. Quality, Service and Delivery each may have several sub categories which affect  the cost of acquiring, holding and processing the product or service before it is consumed by our customer.  For example, a low Priced product may cause production breakdowns(Quality), longer lead times (Delivery). and threaten the relationship with our customer(Service).  The Total Cost Of Ownership is calculable and has a significant impact on the ability of our business to  remain competetiveand viable.

How do I negotiate better prices?

 Pricing is sometimes an inexact science.  Depending upon the sophistication and size of the seller (relative to the buyer), sometimes merely asking will result in a concession.  Pricing strategies may result from market demand,  competitve forces or other influences.  The buyer must seek to learn the seller’s motivations for clues on pricing flexibility.

            Focus on the vendor’s costs, since higher costs will ultimately yield higher prices.  Prices may be tied to costs or they may be arbitrary.  In either case, exploration of the price and cost structures provide negotiation opportunities.

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s Note: This is Part III of a three part installment on how sellers can better identify and serve the buyer’s interests.  Part I explored business from the buyer’s viewpoint, Part II examines specified how to use TCO to sell ‘Best Value’, and Part III provides specific tools for managing TCO.

This worksheet is a simplified version for the sake of clarity.  It is a tool for computing an estimate of the Total Cost of Ownership of a purchase as well as evaluating performance with objective measures. 

Your worksheet should be expanded to reflect the buyer’s specific concerns.  The metrics should be as simple, objective and meaningful as possible.  Avoid messy formulas as they are dismissed as hocus-pocus.  Here are just a few examples of what you can add. 

Our model represents only the impact on Price caused by of shortcomings in Quality, Service and Delivery.  For simplicity, we choose to surcharge the Price as indicated, and then add the surcharges to the Price to determine a TCO.  This technique powerfully demonstrates the affect on Price of the other elements of Cost and neutralizes the buyer’s natural pressure on price. 

This all looks like a lot of work to get to the end of the rainbow.  You can be certain of that!  Is Sales doing the buyers’ work for them?  Maybe, but who ever said that figuring out what the buyer wants would be easy, anyway?  The real issue is to decide whether it is worth the sweat?  In today’s value-added world, you be the judge of that.

TOTAL COST OF OWNERSHIP

Worksheet showing the affect of certain Cost elements on a $10.00 purchase Price