December 2016 Volume 6, Issue 12

Free Procurement Value Creation Workbook

Certification & Training Spotlight

Purchasing Is NOT The Island Of Misfit Toys

SMART by GEP Achieves Maximum Scores

Supplier Guarantees

Sole Sourcing With Your Standard RFP?

Supplier Discrimination: Are You Guilty?

Price and Commodity Indices

Negotiation Strategies For Getting Cost Breakdowns

9-10
11

Sole Sourcing With Your Standard RFP?

Contact Us:
www.NextLevelPurchasing.com
Email: info@nextlevelpurchasing.com
Phone: 1-412-294-1990
Fax : 1-412-294-1992
Mail your correspondence to Next Level Purchasing, P.O. Box 1360,
Moon Township, PA 15108, USA
Leading-Edge Supply Management is published monthly by Next Level Purchasing Association as a free
benefit to association members. If you've received a copy of this magazine from someone rather than
downloading it directly from the Next Level Purchasing Association, you can sign up for a free association
membership to have access to this and other free benefits.
Just visit http://www.NextLevelPurchasing.com/nlpamag and submit your name and email address to join
the Next Level Purchasing Association. Reproduction of this magazine in whole or in part without written
permission by Next Level Purchasing is strictly prohibited.

Negotiation Strategies 11

All rights reserved. 2016 Next Level Purchasing, Inc.

From The Purchasing Certification Blog

Free Procurement Value Creation Workbook

Get Your Copy

by Megan Nicol, SPSM, SPSM2

Procurement has an incredible capability for creating value and can do so

in many ways. Unfortunately, many senior executives and, admittedly,
even some procurement professionals do not understand all of the ways
that procurement can create value.
In this workbook, youll learn 10 ways that procurement can create value
and be challenged to formulate your own ideas on how you can create
procurement value for your organization.
To get your free copy of the Procurement Value Creation Workbook,
simply complete our annual procurement survey at:
https://www.surveymonkey.com/r/2017ProcurementSurvey
The information gathered in our annual procurement survey is used to
provide members like you with valuable procurement reports on trends, salaries, and much more.
When you complete this survey, you will also get:

A voucher good for Buy One, Get One Half-Off on all full-length procurement courses (A savings of over
$114!)
An entry into the drawing for a $50 Amazon.com Gift Card

The absolute last date to participate in the survey is December 16, 2016! Again the link to participate is:
https://www.surveymonkey.com/r/2017ProcurementSurvey
Thank you in advance for your participation in our annual procurement survey!

Page 2 Volume 6, Issue 12

Certification and
Training Spotlight
November 2016 Recipients of the SPSM Certification
Angela C., Maintenance Planner/Supervisor, Iowa, United States

Debra M., Sourcing Specialist & AVP, Louisiana, United States

Deborah E., VP Materials & Service, Michigan, United States

Brian M., Contract Manager, Oregon, United States

Sandra G., Purchasing/Inventory Manager, Georgia, United States

Haja M., Sr. Buyer, Ras Laffan, Qatar

Monica G., Buyer, Oregon, United States

Babajan M., Buyer, Ras Laffan, Qatar

Martin H., Head of Tactical Purchasing & Order Mgt., Wien, Austria

Greg N., Buyer, Kentucky, United States

Matus K., BI Specialist, Wien, Austria

Angela S., Senior Supply Chain Manager, California, United States

Shannon K., Buyer, Arizona, United States

Denise S., Purchasing Administrator, Kentucky, United States

Carl L., Procurement Professional, Ontario, Canada

Jeffrey V., Procurement Analyst, New York, United States

Brian M., Procurement Specialist II, Texas, United States

December 2016 Page 3

Purchasing Is NOT The Island Of Misfit Toys

by Charles Dominick, SPSM, SPSM2, SPSM3
Click on the image to the left to watch this video first, and then
Ill share some commentary on how it connects to purchasing
(as odd as that may seem)
So what does a video clip from Rudolph The Red-Nosed
Reindeer have to do with purchasing? You knew Id tell you,
didnt you?
You see, many purchasing departments have been staffed in
the same manner as the Island of Misfit Toys when an
employee didnt cut it elsewhere in the organization and the
management didnt have the heart to fire him or her, that
employee was sent to work in the purchasing department.
So purchasing departments became a home for the organizations misfits. This practice was bred from the thinking that the
role of purchasing is unimportant and that not much can be messed up in Purchasing.
Well, thankfully, times have changed and purchasing has become recognized as a true profession. Now, Purchasing is a place
for people who want careers, not just jobs.
But, unfortunately, some misfits do remain in purchasing departments. These are the people who dont approach their work as
strategic, dont produce measurable results, and often have bad attitudes.
So leaders of purchasing departments who want to transform purchasing in their organziations need a strategy to deal with the
misfits. In my mind, there are two options for the existing misfits.
The first option is to give the misfits the benefit of the doubt and give them the opportunity to come on board with the strategic
direction of the purchasing department. This can be done through external purchasing training accompanied by mentoring by
the leader or one of the more talented members of the team.
This first option is the best one. If you can make leaps forward in Purchasing without having to change people, thats great. You
look like a great leader, employees are happy that they get to keep their jobs and perform well, and theres no risk of legal
action.
If you find misfit resistance or they still dont meet the goals expected of the non-misfits, then I believe that you have to resort
to the second option cutting them from the team. Headcount is so precious and limited. For the sake of the profitability of
the organization and Purchasings reputation within it, you cannot afford to have one seat in a purchasing department filled by
a misfit.
You also need a strategy for dealing with management trying to dump misfits into Purchasing (yes, it still happens to this day in
some places). Quite simply, just say No. Purchasing is NOT the Island of Misfit Toys.

Page 4 Volume 6, Issue 12

SMART by GEP Achieves Maximum Scores for Key Procure-To-Pay

(P2P) Functionalities In New PayStream Navigator Report
Clark, NJ November 29, 2016 GEP, a leading provider of procurement software and procurement services to
Fortune 500 and Global 2000 enterprises worldwide, announced today that the 2016 Procure-to-Pay Navigator
Report, published by PayStream, gives top scores to SMART by GEP, the cloud-native source-to-pay
procurement software platform, for critical functions in the procure-to-pay operation.
The report gives the maximum score to SMART by GEP for Supplier Information and Performance Management
and Goods Receipt and Reconciliation. SMART by GEP also performed well across the full gamut of functionalities
and was ranked in the top three for overall solution functionality and innovation.
Commenting on the findings, Dhananjay Nagalkar, vice president of technology at GEP, said: For us and for many
of our customers, procure-to-pay is about far more than the purchase order to invoice cycle. It is in fact part of a
larger, end-to-end process. This understanding has helped us deliver industry-leading P2P functionality and
performance within a seamlessly unified, very powerful S2P platform.
SMART by GEPs unified source-to-pay procurement software platform is native to cloud, touch and mobile
technologies. Offered as a SaaS/PaaS solution, SMART by GEP leverages cloud economics to deliver a solution
that easily handles the heaviest throughput and processing requirements of GEPs Fortune 500 and Global 2000
clients, while eliminating burdensome infrastructure and support costs.
SMART by GEP is easy to set up, deploy and use, with no extensive training required. All GEP products are
platform-agnostic (they work with SAP, Oracle or any other major ERP or F&A system). And with superb support
and service, GEP is an industry leader in customer satisfaction.
SMART by GEP provides complete source-to-pay functionality in one user-friendly, cloud-native platform, inclusive
of spend analysis, sourcing, contract management, supplier management, procure-to-pay, savings project
management and savings tracking, invoicing and other related functionalities. The award-winning, SaaS-based
S2P platform is native to touch and mobile technologies, enabling users to work anywhere, any time on any
device.
About GEP
GEP is a diverse, creative team of people passionate about procurement. We invest ourselves entirely in our
client's success, creating strong collaborative relationships that deliver extraordinary value year after year. We
deliver practical, effective procurement services and procurement technology that enable procurement leaders to
maximize their impact on business operations, strategy and financial performance.
Honored as Best Supplier at the EPIC Procurement Excellence Awards, GEP regularly wins accolades as both a
provider of innovative procurement technology and a broad range of procurement services. Among its recent
distinctions, GEP has been named Leader and Star Performer in Everest Group's Peak Matrix of Procurement
Services Providers, Leader in NelsonHalls NEAT Matrix of Global Procurement BPO Service Providers, Winner in
the HfS Blueprint Report on Procurement Outsourcing Providers, as well as one of Spend Matters 50 Companies
to Know and to the Supply & Demand Chain Executive 100.

December 2016 Page 5

From The Purchasing Certification Blog

Supplier Guarantees
by Charles Dominick, SPSM, SPSM2, SPSM3
With my job, I am practically thinking about
procurement 247. And, often, procurement
principles manifest themselves in my personal
life. Sometimes, the same principle pops up
multiple times. That was the case in the past
week with the topic of supplier guarantees.
There is definitely a difference between supplier
guarantees in B2B and B2C. B2B supplier
guarantees are more easily enforceable through
the principles taught in Supply Management
Contract Writing. B2C supplier guarantees,
unfortunately, are tougher to enforce.
B2C supplier guarantees sometimes are
irresponsible sales puffery. They are put out
there to give consumers some type of unearned
assurance that their buying experience will be
good.
But once the supplier has your money, those suppliers stop caring about your buying experience. Let me share some
examples.
A few friends of mine are getting ready to record some songs they wrote. So they are touring various local studios to determine
which one would be the best location for their recording project.
At one studio, the general manager said If you record here, I guarantee that youll leave here with a smile on your face.
Now that type of guarantee just wouldnt fly in B2B.
What happens if they arent satisfied? Do they get the opportunity to re-record at no charge? Do they get their money back? Do
they get reimbursed for their time spent? What happens if they are happy but choose not to smile?
See what I mean?
Puffery. Pure puffery just to make a dumb buyer feel better about making a decision without adequate comparison shopping.
Ive also had some questionable experiences with hotel and airline sites that offer a best price guarantee. Lets just say that Ill
still check Priceline and Travelocity before making a decision to book through a hotel or airline Web site. Perhaps Ill share
more about those experiences in a later post.
The bottom line is that suppliers who make guarantees should be prepared to deliver their promises or be ready to provide a
hassle-free remedy if the customer feels they didnt deliver.
So the message for purchasing professionals is to sharply examine all guarantees by suppliers to see how reasonable they
are. Im sure that the lame B2C types of guarantees creep into B2B from time to time.

Page 6 Volume 6, Issue 12

Sole Sourcing With

Your Standard RFP?

How Should You Request Proposals When Sole Sourcing?

NLPA Member Question: If we write an RFP for a product that is provided by only a sole source, how we can get their good
response in terms of price, delivery, etc.?
RFPs are best suited to competitive situations. In sole source situations, it is important for the procurement department to foster
collaborative relationships with suppliers. You cannot treat a supplier like a commodity and expect the supplier to shower you with
partner-like treatment.
In the context of a collaborative relationship, it is often better to discuss and negotiate terms without issuing a formal RFP. Much
of the same information specification/statement of work, terms, quantities, etc. will be provided to the supplier, but it will be in
more of a collaborative conversation rather than an arms-length RFP process.
NLPA Member Question: What is your suggestion for handling bidders that disregard your requirement to use the
proposal/quote form provided by the buyer or that insist on using their own proposal/quote form?
If you have many good supplier options and your quote form is well thought-out, then it might be best to disqualify those
suppliers. However, if you find suppliers routinely balking at your quote form in various situations, I recommend revising your
quote form to be more supplier-friendly so that you can better create competition. If you dont have many good supplier options,
you may have to make your quote form preferred rather than mandatory. And, if youre sole sourcing, then the importance of
having a standard form for easy comparison is diminished.
My last piece of advice is to never assume that you are in a sole source situation. Sole sourcing is seldom fun. Do your homework
and see if you can identify a secondary source you just may surprise yourself!

Sole Sourcing With Your Standard RFP? by Charles Dominick, SPSM, SPSM2, SPSM3 was originally published in Edition 362 of PurchTips.
December 2016 Page 7

Its not uncommon for organizations to have supplier diversity programs. Supplier diversity programs are supposed to
encourage buying from a wide variety of suppliers, including small suppliers and businesses owned by people from
demographic groups that have been historically discriminated against.
Yet, despite the proliferation of supplier diversity programs, many of the same organizations that have them have business
practices that unintentionally, but effectively, discriminate against small suppliers. If your organization has business practices
with the following characteristics, your organization is guilty of making it more and not less difficult for small suppliers to do
business with you:
Your organization mandates the use of payment terms that are net 60 or longer. Even net 45 terms can strain a small
suppliers cash flow. Your organization has standard insurance requirements for all transactions including the most basic
that are beyond the insurance levels typically maintained by small businesses.
Your organization uses complex and extensive terms and conditions for all transactions including the most basic that can
compel small suppliers to seek expensive legal review before they can accept your orders.
In your supplier qualification process, your organization requires audited financial statements without knowing the immense
cost of financial statement auditing or the lower-cost, but often equally acceptable, alternatives of reviewed or compiled
financial statements.
Your organization has no policy or goals for awarding bidding opportunities or orders to small or diverse suppliers. A supplier
diversity program is great to have. But if your organization doesnt supplement the program with small business-friendly
business practices, your supplier diversity program may be undermined and your organization may be guilty of de facto
discrimination against small suppliers.

Supplier Discrimination: Are You Guilty? by Charles Dominick, SPSM, SPSM2, SPSM3 was originally published in Editions 363 of PurchTips.
Page 8 Volume 6, Issue 12

Price and Commodity Indices

Producers Price Index
The Producers Price Index (PPI) measures the change in the
wholesale selling prices that producers charge for goods and
services. It is typical for producers to offset rising prices by
passing on the higher costs to consumers in the form of
higher retail prices, therefore the PPI is often an early
indicator of inflation. Inflation is a decline in the purchasing
power of a currency, for example the USD, where each dollar
buys fewer goods and services than it could previously.
Interpreting the PPI: When the PPI rises, this signals an
increase in inflationary pressures. When the PPI falls, this
signals a decline of prices and may suggest an economic
slowdown.

Consumer Price Index

The Consumer Price Index (CPI) is used as a measure of
inflation. To calculate the CPI, first a fixed basket of goods
is determined and a baseline of prices is calculated. Then
changes in price are calculated for each item, averaged and
weighted according to the importance of the item.
Interpreting the CPI: A higher CPI indicates that the total price
of the basket has increased and it now costs more to buy
that same basket of goods (inflation). A lower CPI indicates
that the total price has declined and now it costs less to buy
that same basket of goods (deflation).

Each month well include an updated graph of the PPI and

CPI as well as the PPI graph of an individual commodity. This
month we had a request to include Bread & Bakery Product
Manufacturing.
Send your request for which commodities you would like to
see featured in this section in upcoming issues to:
commodityppi@nextlevelpurchasing.com.
To learn more about these and other indices, we recommend
reviewing the Inflation & Prices section of the Bureau of
Labor Statistics (US) website at: www.bls.gov or by
researching indices calculated in your specific country.

December 2016 Page 9

Price and Commodity Indices

(Continued from page 9)

In addition to reporting on the indices published by the United States Bureau of Labor Statistics, Leading-Edge Supply
Management is proud to report on an independent index - the MMI metals price index. The MMI is a set of 10 indices, created
by Metal Miner, that track price changes in global metal markets. This month, well feature the October 2016 Automotive
MMI.
What makes the MMI different than other indices that are already out there? A few things. For one, the MMI takes into
account global price fluctuations, not just domestic ones. For another, the MMI has a few industry-specific indices as Metal
Miner sees differences in how prices fluctuation between industries. For a third, the MMI is accompanied by analysis direct
from the source Metal Miner.
So, without further ado, here are the results for the October 2016 Automotive MMI as well as Metal Miners analysis.

Nickel Prices Hit 16-Month High

The Stainless MMI inched up 2% in October.
However, it was at the beginning of November
when prices surged. Three-month London Metal
Exchange nickel jumped above $11,000/mt,
the highest level since August 2015.
Robust Chinese demand for nickel and other
metals has broadly supported a price rebound
from multiyear lows that were hit earlier this
year. Not only nickel, but the whole metal
complex is hitting new highs. When investors
turn bullish in the metal sector, any bullish
news can make the individual metal increase in
price and, nickel is particularly enjoying a bull
narrative.
Bullish Industry Fundamentals First, Indonesia
recently announced that the country will
almost definitely keep in place a ban on
nickel ore and bauxite exports. Just a few days ago, nickel investors were concerned that Indonesia was considering lifting the
ban. Now that those fear have waned, investors seem willing to chase prices higher.
Second, The Philippines announced that it will prolong the ban on new mines, reviewing all environmental permits previously
granted to nickel producers. The announcement dashes industry hopes that some restrictions may be lifted following the audit
that was finished in August.
The news come after a quarter of the countrys miners have been closed with another 20 of them under the risk of
suspension.
The Stainless MMI collects and weights 14 global stainless steel and raw material price points to provide a unique view into
stainless steel price trends over a 30-day period.

NOTE: Next Level Purchasing is exploring the possibility of making actual metals price points available as an inexpensive service. If you might be interested
in such a service, please contact Kara Uhrlen, Business Development Manager, at kuhrlen@nextlevelpurchasing.com or +1-412-294-1990 to help us
determine the level of interest and how rapidly we should pursue this option.

Page 10 Volume 6, Issue 12

Negotiation Strategies
For Getting Cost
Breakdowns

by Charles Dominick, SPSM, SPSM2, SPSM3

In this article, Ill share some paraphrased excerpts of one particular dialogue regarding challenges associated with obtaining
cost breakdowns from incumbent suppliers who may be in a single- or sole-source situation. I have done a lot of negotiating for
cost breakdowns in my career with a lot of success, so I think that youll be able to benefit from my advice.
NLPA Member: Under a Sole Source or Single Source situation, it is difficult to get a breakdown. Do you have suggestions
under these circumstances?
Me: The more certainty the supplier has of having your business, the less interested they will be in giving you a cost
breakdown.
However, it is a huge mistake to fail to ask for a cost breakdown because you think that the supplier will resist. Ask anyway.
If you dont ask, you wont get.
If the supplier resists, which suppliers have done to me in the past, Ive always appealed to them in an emotional-style of
negotiation to get the results Ive wanted, saying things like:
Were spending $x with you each year. Why do you feel that we do not deserve to know what we are paying for?
By withholding this information, I am kind of getting the feeling that your management is trying to hide something. Whats the
big secret?
Weve been doing business with you for a long time and consider you a strategic partner. In a true partnership, there has to
be transparency and openness and Im not feeling that right now. How much of a partner do you consider us?
NLPA Member: We ask for it all the time. We just do not think. Tried your suggestion numerously. We get that is proprietary
December 2016 Page 11

Negotiation Strategies For Getting Cost Breakdowns (Continued from Page 11)
information and we are not allowed to share and other false reasons.
Me: Thats great that you are asking for the cost breakdowns. You would be surprised at how many buyers simply dont ask
because they assume they know that the answer is. I will address this further with two different strategies for securing the
breakdown

Strategy #1
The one quote youve provided is evidence that you are hearing the answer from the wrong person. The we are not allowed to
share response reminds me of the common situation I wrote about in the article Negotiating With Suppliers Over Policies.
Every organization that has a policy has an individual who can waive that policy. You, or someone in your organization, needs
to speak with that person because the supplier rep you are speaking with is too apprehensive to present your case to that
person on your behalf.
This can get challenging because business etiquette in the situation may require that, if the supplier is going to escalate the
request, you should too. That means it may take executive-to-executive communication (i.e., your president talks to their
president). Obviously, you dont want to run up the chain of command unless the potential profit improvement would be
significant (at least several thousand dollars). Your president or VP may even be asked to sign a confidentiality agreement if
s/he is successful at persuading the supplier to share the breakdown.
The bottom line is that the greater the opportunity for savings, the harder you should push, adding executive firepower, if
necessary.

Strategy #2
Psychologically, you have to consider the reason why the supplier is so reluctant to give you the cost breakdown. Basically,
because when it is requested, the supplier is likely to assume that you are going to use the information against the supplier.
If you find fault with their breakdown or conclude that their profit margin is too fat, you are going to push them for better
pricing. Giving you the breakdown will be a strictly losing proposition. From their point of view, they can see no benefit of giving
you the breakdown.
However, if the savings opportunity is significant, you may present your request as an opportunity to pursue a savings sharing
project. By getting the breakdown, your technical team responsible for specifying the technical requirements can review the
breakdown to identify cost drivers and then consider re-specifying the product in terms of material used, standard items that
could be used, etc.
And, if your team finds that they can take cost out, both your organization and the supplier can share equally in the financial
benefits. Lets use an example based on the cost breakdown in yesterdays article assuming that the unit price of the item is
$100.
Wood = 20% ($20)
Aluminum = 7% ($7)
Other materials = 3% ($3)
Labor = 45% ($45)
Overhead = 13% ($13)
Profit = 12% ($12)
Total = 100% ($100)
What if your technical team found that they could eliminate aluminum and replace it with plastic at half the cost ($3.50 per
unit) without sacrificing quality?
Continued on Page 13
Page 12 Volume 6, Issue 12

Negotiation Strategies For Getting Cost Breakdowns (Continued from Page 12)
That would result in a reduction of the total costs of $3.50. Splitting the savings would mean that half of that price reduction
would go to the suppliers profit and half would go to a reduction in your price.
So the new cost breakdown would look like this:
Wood = $20
Plastic = $3.50
Other materials = $3
Labor = $45
Overhead = $13
Profit = $13.75
Total = $98.25
If you buy 100,000 units a year, that would save you $175,000 and give the supplier an extra $175,000 in profit a year a
true win-win.
Now, you have to be realistic about using these more advanced strategies. The payback has to be there if youre going to
involve top management or your technical team. Because each supplier and each sole source situation is different, there are
no guarantees.
But the need for these advanced strategies is a great justification of the last paragraph in yesterdays PurchTips: The key is to
get that cost breakdown when you first obtain pricing from a supplier. Suppliers can be hesitant to share such information at
times, but are usually more willing when they are competing for your business.
December 2016 Page 13