Effectiveness of non purchasing groups in negotiating total cost

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How Effective are Non Purchasing Groups at Negotiation Based on Total Cost for Their Needs? IT and Operations tend to get the best total cost when negotiating on their own for content specific to them.

Engineering groups leave most value on the table when negotiating on their own during product development stage.

HR and Finance groups have the lowest level of result regarding established items.
All groups benefit collaborative support of a professional Purchasing group.

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Effectiveness of non purchasing groups in negotiating total cost

  1. 1. How Effective are Non Purchasing Groups atNegotiation Based on Total Cost for Their Needs?William KohnenRoundtable Discussion Proposal forGlobal Purchasing Symposium for CPOsEffectiveness of Non PurchasingGroups
  2. 2. What was considered? Survey and benchmark data consideringeffectiveness of various corporate departments innegotiation based on total cost:IT Operations SalesQuality Engineering HRFinance Impact of negotiation out of area of expertisegenerally results in worse outcome
  3. 3. Summary of Findings IT and Operations tend to get the best total costwhen negotiating on their own for content specificto them. Engineering groups leave most value on the tablewhen negotiating on their own during productdevelopment stage. HR and Finance groups have the lowest level ofresult regarding established items.All groups benefit when engaging with a Professional Purchasing Staff forAssistance
  4. 4. Group Cost ServiceLevelQualityDeliveryScheduleSupplierManagementTotalGradePerformance Relative to PurchasingIT B A B B B+ About Equal but need help on detailedbusiness terms and PaymentsOperations C B B B B- Purchasing can add value to exceedoperations goals via benchmarking withother options but operations generallyrisk averseSales B B C C C+ A unique domain but if Purchasing isaccepted they can contribute. If Salesdoes not really want help then they willdo better on their own.Quality C C C B C+ A real opportunity area.Engineering D B C C C Working together upfront on newprojects Engineering and Purchasingcan drive out lots of costs. Onceproduct or service establish leaving toEngineering will result in sub optimumtotal cost.HR C C D C C- Another unique domain wherePurchasing can contribute if allowed.Otherwise suppliers in this domain dovery well.Finance C D C D D+ Managing internal Finances does nottranslate well to negotiation withsuppliers for cost or performance.Salespeople love to make a deal with a
  5. 5. Cost Increase when Group NegotiatesAloneGroup Increased Total Cost By HavingDepartment Negotiate with and ManageSupplier without helpIT 5% to 15%Operations 10% to 20%Sales 20% to 30%Quality 20% to 30%Engineering 40% with new Product Development20% once establishedHR 20% to 30% as some of spend is regulated.Finance 20% to 35%Equally Important: Purchasing Groups Negotiating withoutcollaboration of key stakeholders will not optimize results either!!!
  6. 6. Conclusions Leaving negotiations to individual departmentswill lead to increased total costs Benchmark data shows that various departmentstend to do better than others when negotiatingcontent for their use. Results get much worse when departments moveoutside of their expertise Each company must evaluate its spend profile vs.how each department generally does
  7. 7. Specific Items for Consideration Provide assistance to Engineering and R & Dteams early in the development process. For companies with high direct operations costfocus on support to Operations by Purchasing isa core area Other areas such as IT, QA, Sales and HR offervarying degree of opportunity and impact Generally having Finance involved directly withexternal discussion regarding suppliers leads tothe worst total cost.

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