Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Industry buzz words require usable definitions.  Strategic Sourcing is procurement that focuses on the core competencies of a business supply chain.  For hospitals, a core may be surgery, oncology, obstetrics, and the like.  Core competencies in the pharmaceutical industry include Active Pharmaceutical Ingredients (API), and in the transportation business, energy.

Strategic Sourcing concentrates on major spend categories Buyers move from general to specific categories such as oncology, API, energy, etc, some times called “commodities” in which buyers become experts. 

Why Strategic Sourcing?

For one major reason, purchasing makes a major contribution to profitability.  Procurement is the most efficient generator of profits in business as every dollar saved fattens the bottom line compared to only a fraction of that for every dollar. 

The Total Cost of Ownership (TCO) philosophy states that Best Value equals the lowest TCO, not necessarily the lowest price.  In health care and pharmaceuticals, to name two, Price is almost never the most important cost.  For obvious reasons, Quality tends to be the dominant cost concern and one for which we will pay a higher Price. 

Since Quality, Service and Delivery considerations trump the Price, the end-users, often called Purchasing’s internal customers, have vital input in the procurement decision.  In Strategic Sourcing, instead of Purchasing being the choke point between the internal end-users and external suppliers, buyers and internal customer become allies in cost reduction, reading from the same TCO page and focus on lowest cost suppliers.

Tactical Purchasing

The tactical purchasing model has the end-users requisitioning the purchasing department for needed items.  This tedious and time consuming task is repeated ad infinitum, wasting an un-totaled fortune in transaction costs alone to say little of waste cost savings that could be achieved if Purchasing were otherwise pursuing core competencies, qualifying major suppliers and negotiating Best Value contracts with themProfessional buyers prefer strategic Sourcing because it removes the burden of repetitive tasks and deploys their skills to more productive pursuits. 

online training in purchasing, negotiation, and sales

How does a business start a Strategic Sourcing Initiative? 

• Analyze your annual spend for the past three years.  Identify
  • Major categories (surgical, facilities, professional, etc)
  • Major suppliers in each category
• Designate specific purchasing professionals to specialize in these major categories
• Train end users in the concept of TCO
• Specify roles of buyers and end users
  • End-uses generate technical requirements and specs 
  • Buyers source qualified suppliers, evaluate proposals, negotiate appropriate contracts
  • End-users order from negotiated contracts, by-passing tactical and expensive purchasing functions
  • Buyers and end-uses collaborate in evaluating supplier performance over life time of contract
    • Monitor cost reduction targets
    • Improve or reward performance as justified