THE Godfather of Negotiation Planning ~ Intel Corp

Omid Ghamami, MBA

PURCHASING AND NEGOTIATIONS EXPERT

Omid Ghamami, MBA

President & Chief Purchasing Officer,
Purchasing Advantage
www.PurchasingAdvantage.com

About Your Instructor

Omid Ghamami, MBA

18 Years at Intel Corp Ran $2.2B Corporate

Purchasing Operations Organization
President & Chief Purchasing Officer, Purchasing
Advantage
Globally recognized author, speaker, trainer,
consultant
2,000 + hours training experience in 15 countries
2 best selling purchasing books & multitude of
industry purchasing articles
50+ hours TV appearances as industry expert
Architect, Founder, & Adjunct Professor of
Purchasing, Folsom Lake College

Issues in public sector purchasing

Less money
Increased public scrutiny
New laws and ordinances
Furloughs & shutdowns
25% of discretionary budget
now goes to purchasing

No other
government
function is better
equipped to
make a positive
fiscal impact than
purchasing!

Issues in public sector purchasing

Public sector is extremely risk averse
Lack of incentive to save money
Pursuit of governmental policy objectives

Key Changes Affecting Purchasing

Changing
Economy

Environmental
Problems

IT

Workforce
Demographics

Need for
Agility

Need for Purchasing

to Adapt

Globalization

Purchasing Function Evolution

Place this
order, fast
1950s - 1970s

Lower the price on

my goods & services
1980s 1990s

Reduce My Total
Cost of Ownership
2000s - Present

7 Deadly Sins of Public Purchasing

1.
2.
3.
4.

Ignoring centralized purchasing contract opportunities

Allowing Spec/SOW design for customization instead of TCO
Selecting suppliers based on low bid instead of low TCO
Putting contracts in place for resources instead of performance
results
5. Incentivizing and enabling supplier runaway costs
6. Failure to solicit supplier TCO innovation inputs and ideas
7. Misplaced Customer Service = always doing what the
customer wants instead of what they need

PUBLIC
PROCUREMENT
PROFESSIONALS
ARE THE ANSWER!

4 Key Shifts are Required

Shift #1: Ensure Spec & SOW
Design for TCO

Shift #2: Structure the Solicitation for

Performance Results

TCO
Shift #3: Use Cost Modeling to
Select the Lowest TCO Supplier

Shift #4: Develop Supplier

Performance Agreements

Module 1
Ensure Spec & TCO Design for TCO

Getting Lowest TCO is not enough!

If the spec/SOW is not designed for TCO, you will
still leave money on the table
Getting the lowest TCO on a poorly designed
spec/SOW is still a bad deal

Examples
Custom home vs pre-designed home
Standard PVC pipe vs custom PVC pipe with
customers name stamped on it
Well known coffee shop espresso machines
Any request that requires the supplier has to make or
do something different for you
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Public Purchasing Case Study

True Story: 2 Adjacent Texas counties are buying like street
infrastructure items, but their engineers had totally different
specifications for these items
The Street Light specs were 2 different in height
The wiring in one county had to have a special coating,
but the other county did not require this when used for
same purpose
Large items were designed in one county to come off the
side of a truck, while in the other county were designed to
come off the back

Your New Job.

Become a Specification and SOW Analyst
Most savings
opportunities can be
found BEFORE
negotiations ever
commence!

Added value Public Purchasing

Sourcing rather than processing

Vision as well as Mission
Driven by customer requirements
Purchases look at both cost and value
Focused on continuous improvement
Recognizing that proven solutions are better than
speculative solutions
Recognizes that the REAL customer is the taxpayer

15

Simplification & Standardization for TCO

Simplification

Standardization

Process mapping
Bells & Whistles analysis
Substitute
materials/technologies
Lifecycle cost analysis

Replacing custom
parts/services with standard
Reusing existing Specs/SOW
Reusing existing contracts
elsewhere

16

What are Customized Components?

Any good or service that has been customized to a
customer specific application
instead of an available industry or supplier standard
offering
This can be at the component or the aggregate level

17

The Good News

Customization allows for innovation

Customization allows for expression
Customization allows for creating the perfect fit
Customization allows for better performance reviews
Customization helps personalize a purchase
Customization solves the but were different
perception
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The Bad News

Suppliers will incur far less costs in delivering standard
parts/services and will pass on the savings
Customization robs purchasing departments of savings
opportunities
Customization robs customers of their time & budget
Managers are rewarding unnecessary innovation
because they think all innovation is good
Suppliers hate customization too, because it introduces
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uncertainty and slows downs their business model

Harnessing Supplier Best Practices

Purchasings biggest enemy is thinking they are
smarter than the suppliers
Suppliers understand their industry better than
purchasing does
Expectation should be set up front:
You dont deliver a product or service; your job is to
ensure we are successful
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Break the Mold!

Harness Supplier Knowledge!

21

What You Need to Do

Start recognizing your suppliers as being a wealth of
benchmarking information
Train suppliers to tell you if you tell them something
that is not smart
Give suppliers an avenue to provide alternate
proposals that offer the same solution at a lower
TCO
22

Process Mapping
Costs incurred
at each step
need to be
understood!
Which can be
modified or
eliminated?
23

Process Mapping Questions You Can Ask

Are there any custom processes or parts involved in
supporting our business?
What inefficiencies can we eliminate or streamline in
this SOW or Spec?
Waiting times, approvals, shipping routes, packaging, etc
Use process mapping symbols as your guide!

24

Things to look for in creating process improvement

Redundancies: Two or more tasks that can be reasonably
combined into a single task. (filling out a requisition for a
requisition)
Bottlenecks: Tasks that consume a significant amount of time,
have no alternatives, and cannot be expedited even though other
tasks in the process can be expedited. (Requisition sitting on
someones desk for approval)
Disconnects: Tasks or decision points cannot be reached due to a
process not functioning as intended.
Loops: Decision points that result in the, potentially infinite,
repetition of tasks (review and approval of draft specifications)

Value analysis
Use value analysis to help.
What is the function of the good or service thats
being acquired?
Are there items being included that do not serve that
function? If not, what function does it serve?
Is the cost of that item and is it worth it?

Dont be Limited, Look at Total Cost

Purchase price
Maintenance
Change orders
Consulting and training
Storage & temperature control
Quality/reliability
Efficiency/output
Safety & environmental
Taxes, tariffs
Shipping
Exchange rates
Depreciation
Insurance
Resale/Scrap value

27

Reward Your Customers for Reuse!

Customers need to be trained that reuse of specs,
standards, SOWs, existing contracts elsewhere, etc
can be better than innovation
A color certificate of recognition in customers staff
meeting (in front of peers/mgmt) is a huge incentive

Call to Action
Start becoming a SOW/SPEC analyst
Ask the customer AND the supplier the question, can this be
done using more standard components?
Harness supplier knowledge for breakthrough results
before you ever negotiate!
Process map to identify and streamline inefficiencies
Foster a culture of rewarding customers for
standardization & reuse, not for customization & innovation
Recognize that your greatest allegiance should be to
taxpayers, not the internal end user
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Lets answer your questions!

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