Friday, December 3, 2010

Procurement Knowledge

A negotiator of procurement contracts needs to build the knowledge and skills required to perform all the tasks that lead up to the negotiation.
  1. Gather information on requirements
  2. Qualify Supplier
  3. Analyze Supplier, Supplier Risks
  4. Select Bid and Contract Templates, Modify as needed
  5. Assemble specifications and requirements
  6. Prepare Bid, Quote, Proposal Document
  7. Manage Bid, Quote, Proposal Process
  8. Analyze, clarify response

To be effective in a negotiation, you also need to develop knowledge of your Company’s Tools and Processes so that you are not off making commitments and promising things you can’t delivery under your systems or procedures

To be effective in the negotiation you need to build knowledge of the Commodity that the contract will be for, as each commodity will have its own unique aspects.

To be effective in the negotiation you need to have knowledge about the Supplier which means that you need to know how to:
  1. Pre-qualify Suppliers
  2. Qualify Supplier Risk
  3. Understand the different Supplier types and relationships
  4. Understand how companies are organized and the impact of who you contract with.
  5. Perform a financial analysis of Suppliers

To effectively negotiate you need to understand the Product or Service that you will be buying.  For example, if you want to negotiate lead-time, you need to understand all the processes and tasks involved in making the Product or performing the Service, whether they are serial or may be done in parallel and their durations. If you negotiate cost you need to understand the materials, processes and tasks performed.

Some procurement people look at the pre-qualification of a Supplier as only to check whether the Supplier can perform the work. If you only look at that you are missing out. Pre-qualification should also be used to identify the cost impact of what you see, which can impact your ability to negotiate lower costs now and in the future.  How efficient is the Supplier in making the product or performing the service? What tools do they have and how does that impact their costs?

Pre-qualification should also be used to identify any specific issues or problems that you see that may need to be addressed in the negotiation or that cab be used as leverage for the negotiation. For example, if you went to a supplier location that made products and there was either a large area used for re-work or a large returns area, what should that be telling you? 

We'll talk about all of these in subsequent posts.