Vendor negotiation is very important, seeing the “vendor” as a partner is crucial to success in business.
Being flexible and understanding how you can work together is key. Making sure your “vendor negotiation” is done ethically is also so important. As opposed to seeing the vendor negotiation as just another way to win and you lose.
Fortunately now many vendor negotiation has become Win / Win scenarios, enabling both you the purchaser and the seller to make a strong long term working relationship.
Vendor negotiation is an important part of procurement. Procurement is the process of acquiring goods or services at the best possible price from the best possible source. Vendor negotiation is the art of getting the best terms and conditions from a supplier
There are a few things to keep in mind when negotiating with vendors. First, be flexible and understand that you can work together. Second, make sure your negotiation is done ethically. Third, see the vendor negotiation as a win-win scenario
When you keep these things in mind, you will be able to get the best terms and conditions from a supplier. This will enable you to have a strong long-term working relationship with them.
Trust takes many years to build and thankfully there are many ethical companies out there and many ethically driven procurement professionals driving the right kind of vendor negotiation.
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WARNING — AI Transcriptions May Cause Grammatically Correct People Serious Stress
Nathaniel Schooler 0:09
I’d like to introduce you to Philip Ideson.
Philip Ideson is passionate about the role that procurement professionals and leaders can plan in creating a competitive advantage for their organizations.
Over a two-decade career spanning the entire procurement value chain from Buyer to Head of Procurement, as a practitioner and consultant, Philip observed first hand the challenges that procurement professionals face in fighting the status quo, and ultimately in fulfilling their potential.
Philip founded Art of Procurement in 2015 as a way to empower procurement professionals at all levels to deliver change with confidence; whether from the inspiration of the popular weekly podcast that he hosts, or with targeted solution offerings that guide clients on their journey to transform the impact of procurement.
Let’s dig into this interesting episode.
Well, thank you for that for joining me. I’m really pleased to learn more about these exciting topics. on that.
Philip Ideson 1:28
Thank you very much for inviting me on the show.
Nathaniel Schooler 1:31
So I think it’s best if we start with start with procurement, and then we sort of lead into negotiation if that. So if that’s all right.
Philip Ideson 1:39
Nathaniel Schooler 1:40
So where would you start? If you were, if you were thinking about buying something, and you know, you might be an experienced be procurement officer, or you might be just just learning how to buy something?
Where do you start?
Philip Ideson 1:55
So for somebody who’s within the procurement side kind of side of the bed, nice, and they’re helping somebody within the business by something, what’s really important to me, is understanding truly what the outcomes that person wants to deliver. Because you know, a product or a service that you buy, is really only a vehicle for an outcome. And I think that’s something that often gets really lost is we get too fixated on this is what the specification of this widget is, are, these are all the different elements of this particular service, we get so kind of stuck in the weeds of that, that you lose the sight of:- “Actually I want it because we need to increase, you know, the some customer satisfaction!”
Let’s say :-“We want to bring in increase the conversion rate within our marketing funnel by 1%.”
It’s really focusing on the end game rather than the thing you’re buying itself. I think it’s just something that’s really important to do that we often forget.
Nathaniel Schooler 2:53
That’s really good advice. Yeah, I agree completely. I mean, there’s so many people that certainly in marketing for one example, they’re just kind of, they’re told to go and do all these things. And they might be tracking the wrong metrics. So I think certainly finding out the right place to start is definitely the way to go. Yeah.
Philip Ideson 3:13
Yeah. And metrics is a struggle for procurement folks, because most procurement folks, are measured on cost savings. So they measured, that’s their ROI to their business is, you know, I save this year, a million dollars, let’s just say, and that’s how they measured. So that leads to a lot of short term thinking. For procurement groups. One, I think they have a challenge of how to change the metrics, the way that they’re measured. Some of that relates to how they positioned their role within the business, because requirement for a long time has positioned itself as the cost saver, and therefore it’s just easy for people to see them and think of them as being somebody who only is concerned with saving money and saving money at all costs. You know, obviously, that’s not often the best long term business strategy is just focused on saving money.
For procurement folks who are thinking beyond that, they’re looking at the as I said before. What are you trying to help the business to achieve? Yeah, I always tell people, they’re not going to get fired. If they did a great job in helping their business by what they want and achieve the results that they want. They could get fired for saving more money than the business wanted them to say, but by upsetting everybody in the process.
Nathaniel Schooler 4:25
Right? When you mean upsetting everyone in the process? You mean, in the suppliers? Right?
Philip Ideson 4:31
Yeah, the suppliers, the stakeholders. Now, that’s not to say that you have to be, you know, subservient to those. But I think the so much of what we do is based I should be based on relationships. And there’s a tendency sometimes to push a supplier, for example, just using the word vendor, you know, suggest it’s a very transactional relationship. Yeah. Whereas most relationships with suppliers are ones of partnership. And we often lose that. And so we just get what we, you know, we buy the special, we get the spec, you get nothing more. And from procurement to really be a competitive advantage for our business, you need to find ways to go above and beyond in terms of the value that you’re getting from a supplier relationship. And you don’t do that by just having a transactional relationship with a supplier.
Nathaniel Schooler 5:17
Yeah, very much. So. And I think I think it’s also the added value as well, that can be I mean, you might be buying one thing, but they might actually be able to, you know, potentially might give you free advice on something and actually consult with you and sort of give you ways to actually save money in other areas, which are directly related, you know.
Philip Ideson 5:37
Yes being open to ideas, of because the suppliers know, better than you do, how to approach a problem. Now, you may not think that, and that’s a big leap in mindset. But they work in this in the area of whatever you’re buying from them every single day. They’ve seen what works, they’ve seen what doesn’t work, so be open to their suggestions of how to approach a particular challenge, rather than telling them what your approach to solving that particular challenges, I think is one of the things that’s really important.
Nathaniel Schooler 6:07
Yeah, and I think also, I mean, I did a little bit of purchasing my dad used to run a winery and for the last year, I was there, I did a bit of purchasing, you know, so I would I actually did some negotiations as well with, with some, some customers and distributors. But it was very difficult negotiating. I mean, when you buying glass bottles, there’s a very, very high price glass bottles that are one of the most expensive things to buy in the in the wine industry. And it was it was, it was amazing that, you know, you would look at very few different suppliers, there are like probably three, maybe four suppliers that you can deal with.
And in fact, you know, you had to sort of look at the quantities and say, all right, well I’m going to buy, you know, it’s quite a small amount for a lot of companies, but for us, and for the people in the wine industry, it was quite a lot. So we would you know, we would buy like one articulated lorry full of bottles, maybe perhaps every, you know, with a trader on the back that would come. And it was it was really tough negotiating with these guys, because almost like in that industry, and also in some other sectors, they’ve actually pretty much I’m not going to say fixed the price. But I would say that they have benchmarked let’s have it like that. Yeah. Because I don’t want to, you know, upset anyone, but I think they’ve benchmark the price to such a degree that they know exactly where to price it. So that, you know, you might negotiate a little bit, but they’re not going to go down beyond that base.
Philip Ideson 7:44
Yeah, they know the market. Yeah, as well as you. But you know, that doesn’t mean that there isn’t opportunity to negotiate. So an example from very early in my career, I used to be responsible buying light bulbs for an automotive company.
Nathaniel Schooler 7:57
Philip Ideson 7:58
And there were three suppliers in the world that essentially supply light bulbs to the automotive market, so not quite a monopoly. But again, almost everyone again, knows the prices for everything that’s there. Yeah. But you know, you start digging into each one of those providers. And you know, the same could be true of the four providers of glass bottles in the wine business, they’ll have certain manufacturing lines that are empty, that have less capacity, or that they have less utilization, I’m sorry, they may want to work with particular brands, for certain reasons are in certain geographic locations, because it’s part of their expansion strategy. There’s things that you can find out that actually make you more attractive than what perhaps you would expect, if you just went and did a traditional:- “Hey told me your prices and do a negotiation”
Nathaniel Schooler 8:47
I get it. So it’s more about sort of times of the year, for example, minimum order quantities, delivery times and this sort of stuff, or is there more to it than that?
Philip Ideson 8:59
Yeah, I mean, one of the things, so I was fortunate enable, that I was able to bring our light bulb spend down by about 25%, over a couple years.
And that was, you know, there was a number of different tactics in doing it. Switching business, you know, actually shows that you’re serious, when you go and ask for the best pricing, because if you don’t get it, then you will move the business. And the first time you do that people don’t think you’re going to follow through on that, because perhaps the businesses never followed through before, once you start falling through a moving business, because you know, you’re telling them that too expensive, for example, then they’ll set up a notice, the next time you do a negotiation, and they’ll actually be a lot more trust in what you’re trying to tell them, they don’t look at it as just being, you know:- “They’re just trying to pull the wool over my eyes, because they want a better price.”
Nathaniel Schooler 9:48
Philip Ideson 9:49
But the other thing that really helped us do that was when you start to think about innovation. So even within a category that says traditional as light bulbs, which haven’t changed much in you know, hundred plus years, there are still new innovations with each one of these three suppliers are wanting to bring new products to market. And you helping them bring those products to market means that you’re going to get concessions on some of the traditional, you know, commoditized products that they’re just churning out, you know, by the million, because you’re helping them in another area, their business. And so that was really a way for us to start building partnerships with some of these bulb manufacturers, as opposed to just looking at them. As you know, this year, we’re going to build everything out. And whichever is always price wins. And that way you kind of you talked about the benchmarking before, that’s what you get. Your prices that are all pretty similar to each other. So it’s understanding what they actually need in their business and how you can help achieve it. Helps you start build partnerships, which then gets concessions across the rest of the book of business you want to buy from them.
Nathaniel Schooler 10:55
Right, right. Yeah, it’s not it’s not an easy one. But I think I think you really summed that up actually quite nicely. It’s there are many different variables in procurement. So, you know, for example, you sort of got delivery terms, haven’t you? You’ve got service, but what else? What else would you think affects procurement? actually sitting there? And, you know, so you’re going to buy something from from me? Yeah, would you? Where would you start? If you were buying something from me and say, there were 10 people in the world that did exactly what I did.
Philip Ideson 11:32
And we’ll just to step back, you know, what’s up a cannon person trying to do they have four basic priorities, you know, one is to make sure that they ensure supply. So the businesses never without the product or service that they want to buy, you know, to is to save money, or at least feel like the businesses getting value for money for what they spend with a supplier. Third is to reduce risk that’s associated with buying the product or service you’re buying, or that’s associated with the supplier that you’re working with. And the last one is to increase revenue, you know, how do I help through the purchase of whatever it may be? And it may be when you start talking about innovation? How does that apply to help my company spend, say, make more money essentially, bring in more revenue.
Now, if I was looking at buying something from you, for the first time, most procurement professionals will be trained to look at the product and service they’re buying from you and basically bucket it into one of four boxes. What the book thing of it is doing is basically saying:- “Hey, is this a commodity product where you’re one of, you know, many different suppliers:- “I can, if you fail, I can buy easily from somebody else??”
The price ranges are pretty similar between all the players in the market, there isn’t a great deal of risk it is easy to just switch to a different supplier if something goes wrong, or on the other end of the spectrum, this is highly specific, there’s very few players in the world. And we want to build a really strong relationship with you and your company. Because we feel that that’s going to be beneficial for our company. We like other things about your business, you know, all the things that position you as someone we want you to be real strategic partner with will look at that continuum of, you know, I’m buying a screw versus I’m buying a $10 million system that’s going to integrate into our end item, or that we’re going to outsource, you know, 20% of our business to you.
And so therefore, you so critical to our success, wherever you fit on that spectrum is going to determine the way that procurement person works with you. And an understanding where you fit is hard sometimes, because we all believe that we provide a lot of value to our prospects. So you gotta be you gotta really think, you know, in real terms about where you fit on that continuum, because if you fit at one end, where you so important to them, that obviously means you have a very different discussion and a very different negotiation. And if they think that they can just go to, you know, the next business down the road and get exactly the same from you.
Nathaniel Schooler 14:07
Yeah, there’s a big problem with that. It’s just it’s just commodity everything, isn’t it and putting it into the same, the same sort of area, isn’t it?
Philip Ideson 14:18
Yeah, I think that’s one of the things that we unfortunately, as procurement do. What the show “The Art of Procurement.” that I host is trying to help people kind of get out of that mindset.
Nathaniel Schooler 14:32
Philip Ideson 14:32
Is that not to try and bring everything down to an apples to apples comparison? Because that’s what we often do, you know, those the tools that we use, at the try and make everything seem like it’s ultimately the businesses making a price based decision. Right. When, obviously, for most of the things we buy, there are a lot more factors involved in it than just price.
Nathaniel Schooler 14:53
Yeah, of course. I mean, a lot of it is to do you know, with just terms, you know, payment terms, isn’t that there are all sorts of sort of things. I think we should skip on to less you want to sort of did you want to cover those other those other points that you were sort of? Because you covered one, didn’t you? Yeah,
Philip Ideson 15:12
I just wanted to say that, I think it’s just important to know, when you’re working with the procurement person, they just have those far kind of priorities in their mind.
When you look at the relationship between procurement sales, we often don’t know sometimes why the other party exist.
Nathaniel Schooler 15:30
Philip Ideson 15:30
And that leads to a lot of conflict. Just understanding and empathizing with what the parties trying to achieve, I think really just helps to develop solutions that are Win Win, as opposed to just seeing as a zero sum game.
Nathaniel Schooler 15:44
Right? That makes a lot of sense. Makes a lot of sense. I mean, I think it’s, it’s certainly important, those relationships that you’re going to build are going to help you in all in all areas, aren’t they? And the end of the day?
Yeah, I mean, depends. What kind of company do you want to be? Do you want to be known as the kind of company that just really sees their relationships as transactional with their supply base? Or do you want to be seen as a company who really values there’s pie as partners. And, you know, you look at over the last 20 years or so, and I think, fortunately, this is changing now.
But the auto manufacturers, you know, the US based auto manufacturers, and I say this, having worked with my industry, would often see their suppliers as not as partners, but as, say, a transaction, you know, we’re going to buy this, we don’t really trust, every negotiation is win lose. And you really struggle to get the best innovation from your suppliers when you do that. And then you look at the Japanese suppliers, or Japanese manufacturers, for example. And they see the world in a very different way, and the way that they work with suppliers. And so if you’re a supplier, wherever you’re going to take your innovation, you’re gonna take it to the suppliers that treat you as a partner versus there was a treat you as a transaction?
Oh, of course you are, because they’re going to treat you better. So what do you think about sort of in procurement? Like, actually, if you were trying to sell certain products? Yeah. What do you think about kind of entertaining your customers like, you know, you might invite them to when we’re doing or you might invite the box at the offer? And this sort of stuff? Is that is that going to make any difference to you as a procurement? professional or not?
Philip Ideson 17:38
And it’s an interesting question. And I’ll be honest, you know, the last 10-15 years, procurement folks have been a lot less likely to accept offers like that, because they didn’t want this to be seen to be any inproprietary. Right? Of course, I’ve, I’ve been there I’ve been invited by supplier to the box that will modern and until the open, and so many of other different events, you know, I’d be fortunate to be able to go to those.
But one of the suppliers I was telling you about earlier in the light bulb example. They were probably the one that we’re inviting me to go and do those things, and they got hit the most, when I did the switching around the business. So it honestly has, ultimately, it has on a procurement person, pretty limited impact, I would say almost surely, maybe some that it has an impact on, what I would say is that, as somebody starting into procurement, you know, you want to make the procurement person your advocates. So I became a person, you know, ultimately, buying decisions are made by stakeholders. And a procurement person is helping with the process and a lot more. But that’s a key part of the role is supporting the stakeholder and making a decision.
So a lot of people who work with procurement and see them as you know, I want to sideline them and go around them. Because I’ve heard all these horror stories. Well, what that’s going to do is to connect, create somebody within procurement, who actually is probably not inclined to want to help you win the business, you want to win. If you build an advocate of somebody in procurement, so you’re open, you’re transparent. You don’t, it’s not like you take the go around them. You know, if they believe in your product, they’re going to do everything that they can to help you in that business.
Nathaniel Schooler 19:27
Philip Ideson 19:27
So it really how you approach the procurement person, I think does have an impact on whether you win business or not, or whether you win, sustainable, long term business, because you could go around a procurement person and win business once, the likelihood is it’s going to be much, much harder for you to win business with that company again, while that particular person is still there.
Nathaniel Schooler 19:47
Right. Yeah, I believe I believe in that completely making friends in businesses, or, you know, people who trust you, you trust them good relationship. So absolutely key, there’s no doubt about that.
Philip Ideson 20:01
I think, you know, I’ve had instances where I built really strong relationships with prospects, you know, in an RFP process, for example, who I may have advocated for, but for one reason or another, they didn’t win the business, you know, maybe they just weren’t right for the business. Yeah, at that point in time, you know, but the fact is, two years, three years, five years down the line, whatever it may be, well, we may all be in different companies, and you have built that relationship. And you know, I would go back to that person, I’ve found a way to work with them in other organizations. Yes. You know, you never lose that, if you at least are trying to, say be open with your procurment person, I want to build a relationship with them as well. Even if you don’t win the business as time round, there’s a chance you may you may be working with them again, in the future.
Nathaniel Schooler 20:50
Yeah. Oh, definitely. I mean, I think, because there are many, many criteria, all it takes is for a few bits and pieces on that on that form, to not fit, you know, your business. So I mean, it might say, Well, you know, we’re not going to work with any business that’s below 5 million turnover, or it’s below 50 million, or it’s, it’s only been in business for five years, like we, you know, it could be all sorts of different criteria, right. So you could actually just lose the business from might just be down to the spec of the particular product or service, right.
Philip Ideson 21:23
Yeah, there’s so many variables, that unfortunately, you know, as I’ve been on the other side, now, you never really know. You can do everything that you can to try and find out when the what criteria business is going to be awarded on. But there are a lot of variables and at the end of the day, you know, people, people who are buying from suppliers, most of them, they want to minimize risk.
Nathaniel Schooler 21:49
Philip Ideson 21:49
First Instance. Yeah. And whether that’s risk for the business, or whether that’s a risk on their own personal reputation.
Nathaniel Schooler 21:56
Philip Ideson 21:58
That is the lense they’re going to be looking at it decision through.
Nathaniel Schooler 22:01
Yeah. That makes that makes a lot of sense. Definitely. It’s not, it’s, it’s, it’s not really complicated. Is it? But it’s, it’s a lot. I mean, there’s a lot involved.
Philip Ideson 22:12
But not we joke around the fact procurement certainly isn’t rocket science. And when you are trying to distill it, it’s very common sense. Yeah. But that doesn’t mean like you said that it’s easy.
Nathaniel Schooler 22:22
No, but that’s the same with sales, isn’t it? I mean, I think if if sales and marketing and procurement actually got on a bit better, I think life would be a lot easier wouldn’t it really.
Philip Ideson 22:31
Me too. Yeah, that’s what I try and advocate for. Because there’s, you know, great things can happen when people trust each other. Yeah. But there’s a long way to go. I think before sales and procurement folks, john, we trust each other.
Nathaniel Schooler 22:46
Oh, very much. So by there’s a lot of great stuff happening in the supply chain these days. I mean, I don’t think we should talk too much about that today. But I think, you know, we’ve sort of artificial intelligence and data and, being able to actually track things all the way, all the way from the field to the bottle or the table. It’s just as one example. I mean, I’ve heard that, that food prices, apparently, well, food costs are actually going to come down by 15% is what I heard on food, no food wastage, that was, I was talking to someone about that the other day. And that’s purely because of supply and demand, and actually making sure that we’re not over producing but also with the water and actually being able to, to monitor the amount of water that’s actually needed, versus the water that is wasted. Yeah, and the vitamins, you know, in the soil and all these sorts of fertilizers and this. So I think we’ve got quite an exciting future ahead, providing that is actually given back, you know, there needs to be a kind of ethical policy doesn’t there to procurement, and also doing business in general.
Philip Ideson 23:55
Yes I mean procurement folks are certainly getting more involved in sustainability, helping with sustainability. what’s what’s interesting to me, you know, I did the podcast I’ve mentioned before in procurement space, still the episodes that have the lowest numbers of downloads, the ones where I talked about supply chain sustainability. So I think we still got a long way to go, in terms of that really being a seen as being a core, like, we have to do this.
Within supply chain, you know, I know, it’s not an area I’ve spent a lot of time in for a while, although I say that I did co author a book recently within supply chain, but looking at supply chain visibility. And it’s interesting to me, because it kind of touches on the point that you said before around data, is we’re now becoming so more so much better informed about where a particular item that’s within a truck, for example, is any point in the supply chain, that you can plan around that rather than just waiting for it to show up somewhere?
Nathaniel Schooler 24:54
Philip Ideson 24:55
You can. Within the food example, I used to work for Chiquita Banana grower years ago. And we would have, you know, you never quite know what the temperature is on the truck. Well, now you have sensors everywhere, they can tell you exactly what temperature that banana has been exposed to from the moment it was picked up the plantation so it goes in the star. And so you can then quickly make adjustments.
If you see in a container, for example, that the banana is the temperature within there is too warm or too cold, you can make those adjustments because you have the data that tells you it whereas before you just have to wait till it turned up at the part, you know, and you have a container for spoilt bananas. So it is definitely is possible these days to have so much more insight into what the supply chain looks like for essentially anything and then you can plan around it, which takes out the efficiencies of the inefficiencies in those processes.
Nathaniel Schooler 25:57
Yeah, and the higher quality of it. I was talking to talking to a gentleman the other day who did an interview with him. He’s he’s actually launched, he was the he was the chairman of Bruichladdich, the distiller in Scotland. And it’s like, if you’re into your single malts, then this is the distillery that right. But when it kind of came in, and it and it sort of disrupted the the kind of age old spirits business and it said, well, we’re actually going to use ingredients from local farmers. And we’re going to work with local farmers to actually grow the barley. Yeah. And, and they did that. And then they basically sold sold the business for a big chunk of change to to a big, big company. And since then they’ve actually gone on to create to two new distilleries once once in Grenada for Rum. They’re actually growing sugarcane in Grenada. But they went to Grenada, and they said, well, we’re opening this distillery, and we want to help you to make money. And they went and spoke to all the people that own the land, and then they said:- “We’re going to pay you more than you’ve ever made on this piece of land. If you grow this, and then we’re going to give you give you the sugarcane to grow, and we’re going to tell you how to do it. And we’re going to provide you the tractors and we’re going to help you.”But they said no, because they were suspicious, because it just because they couldn’t understand it.
Yeah, they couldn’t understand it. And, they’ve actually done this in Ireland, and they basically working with the local farmers in Ireland with with growing the body and to create an Irish single malt Whiskey.
Philip Ideson 27:37
Nathaniel Schooler 27:38
And it’s so interesting to actually be able to track the flavor from each one of those fields. So they can actually turn around to I mean, he was telling me that the farmers in Islay were actually speaking to each other and saying, well, taste the whiskey that came from my field.
Philip Ideson 27:56
Nathaniel Schooler 27:57
You can taste the difference between Whiskey there. And it’s messing up the drinks industry completely, because it’s making the consumer realize that there is flavor that comes from the soil. And then it is possible to buy local local products and work with local farmers. And people get paid a fair amount of money for that grain and barley. And every instead of the cutthroat euro market of :-“Oh, well, we can buy a Whisky now in Scotland. Oh, it doesn’t matter where the body comes from is just from the Euro market. Right.”
Philip Ideson 28:29
Yeah. It’s just all part of the manufacturing process, I guess.
Nathaniel Schooler 28:33
Exactly. Which annoys me the cheapness of ingredients annoys me. I mean, I think, you know, quality, yes comes at a price. But the actual price of ingredients for things like that are, you know, the amount of money you’re going to save? in transport? Yeah, probably, you know, because that comes into the negotiations, doesn’t it?
Philip Ideson 28:56
It’s interesting that how standardization basically reads to to commoditization, and the fact that you know, people in this in that example, I’m probably less concerned about what the taste is over, let’s just create something as cheaply as we possibly can. Yeah, I’d you lose sight, we’re going back to what we said at the very beginning of what the outcome is that you’re trying to drive. Versus, you know, what’s the cheapest way to get something that looks kinda like it.
Nathaniel Schooler 29:26
Where would you start then with with negotiation? Like, would you would you determine the price? And then the other person determines the terms? Or would you try and do it the other way round? Or how would you begin with negotiation?
Philip Ideson 29:39
I think in the more traditional procurement model, it’s, you know, I’m going to put a scope out to you or a, a specification, you give me a price. And I’ll decide whether I like that or not, and try and negotiate accordingly. And you know, what, whether, what goes into it, decide whether I like that, or not cost many different factors. It could be on the, I’d say, the bad end of things is just:- “Hey, I’m going to tell you, I like it, because I think I got leverage over you.”
And it’s not particularly ethical to do that. But I’m, it’s, it exists, just to try and get as much as you can, because you think you’ve got a position of power, which is something that I hate, to be honest with you is our dynamics in negotiation. Yeah, but it works in some cases. So the other end of the spectrum of, you know, I’ve done a detailed cost cost modeling, you’ve put you’ve given, show me your books, because we’re in a partnership, I still think that your take your your profit margin of 25% that you’ve applied, there is too expensive, and these them all the reasons why, based on what I know of the market, right, and it can be anywhere in between them.
Nathaniel Schooler 30:50
Right? I’ve been on that side of things, I had to negotiate with it. So I was selling some Mead, honey wine. Yeah. And we used to export to the states. So so my Dad went to MIT. And the other guy, he went to Harvard. So my dad was teaching me how to negotiate against this guy from Harvard. Yeah, right. And it was really, really interesting experience. I’ve never learned so much in the space of three days in my life seriously. And, and it was kind of like, you know, everything we would go back with, he would come back with something else. So we would say, well, the price of honey has gone up, and it’s gone up by 35%. And per X amount, and blah, blah, blah, and, and then the bottle price has gone up. And then the price of this has gone up. And and then he would come back with Oh, well. Yeah. But you know, I mean, I think the price the dollar versus the pound and right that and, you know, so we would it’s a bit like being in a Thai market in Bangkok, right? You know, you kind of start a little bit away from where you won’t get it but I have had a lot of fun with that guy.
Philip Ideson 31:55
Yeah, you know, so much of it is, is how do you know your business as much as they know your business? Yes. Because an example I can think of is, and this is back whenmust be 10 years ago now. And when oil prices were just going through the roof, you know, every single day. And I was helping a company by tracking on logistics, okay. And the CEO of this company, had committed to the market, they were publicly traded company, they were going to save all this money now on logistics, because the price of oil and now starts to fall. So it picks out it was starting to fall. We’re just going into the recession, you know, now it was, let’s say 60 bucks a barrel, whereas before it was 150 bucks. So he’s telling Wall Street, it’s going to save all this money. What he didn’t realize I hadn’t factored in was that actually, that may be true, but the cost of oil, gas or petrol in shipping is only you know, 15- 20% of the total cost, right. And the biggest cost is the humans. And there was a shortage of drivers.
Nathaniel Schooler 33:06
Philip Ideson 33:07
So anything that was coming down in the gas prices was gonna is going to be hitting because now there’s a shortage of drivers, and his employment costs are going to be higher. And so you just reminded me with the backwards and forwards you say before, because ultimately, the things that you may think irrational, but when you start looking at the data behind them, it may tell you a different story. And so it’s one thing is just not to assume that you know, the impact of a particular cost driver without truly knowing what the all the cost drivers and how those build up. Ultimately, what the finally cost is.
Nathaniel Schooler 33:42
If you could see me now I’m nodding away, right? Because, like, that’s just so true, is because if you don’t know, it’s like, you’re just you’re going to have that’s why taking the process, and taking time and not rushing into things is is really important. And prior planning, I mean, what did they say prior planning beats piss poor performance, I don’t like to swear, but that’s what they say, you know,
Philip Ideson 34:06
You know, when you told me, we’re going to ask some questions about negotiating, I wrote some tips down, the number one tip was be prepared, you know, 90%, preparation, 10% execution for negotiation. And a lot of people struggle with that, because we’re all running like headless chickens, from one meeting to the next. But planning doesn’t mean, have a strategic plan of how you’re going to approach this negotiation. It means how am I going to plan for the next email? You know, how am I going to plan for the next call? How am I going to plan for the next meeting? How does that fit into my overarching negotiation strategy? That’s the level of planning that we really need to be doing. And it’s the level of planning that very few of us, myself included, you know, struggle to do because you always find it difficult to find the time. But you can be pretty sure that the person on the other side of the table who is going to be commissioned based on the you know, his final price is probably done that preparation.
Nathaniel Schooler 35:07
Philip Ideson 35:08
Which, which is going to leave you at a disadvantage.
Nathaniel Schooler 35:10
Oh, yeah. So So would you think a good place to start is to write down on a piece of paper, draw one line down the middle, and put on the left what he wants? And on the right what you want?
Philip Ideson 35:21
Yeah, I would say that and understand,this goes to something I said about the light bulb example again earlier, when you’re doing that on understand what’s important to them, because what’s important might not be what looks like it’s important on the face level. So I give you another example. You know, one of the things I bought in my past was a child care center, a weird and wonderful, random thing. So this was a pharma company in the UK, okay, had they had their, their head office in the UK was in a very remote location. So they had to do everything they could to attract scientists, essentially, to come and work for them. And one of the things that they wanted to do was to develop and build a childcare center on site, you know, because they were targeting employees, who were who may have kids who were, you know, 5/10 years old, whatever, probably sorry, lower than that before school age?
Nathaniel Schooler 36:22
0-4 Years old.
Philip Ideson 36:28
But they couldn’t afford to build it themselves. So we went to market, you know, all the bits came into expensive. But we found a provider who was a US based provider, who actually wanted to get their foothold in the UK market. With such a big company, a big brand, like we were, it was only from understanding that, that we were then able to turn that into a deal, where ultimately was no cost to us. You know, we gave them a building because we add in a building that was empty, they ran the center, and they run it or their cost, we were able to provide the service back to the employees without it costing as a penny. Other than the like the opportunity cost of not using this building that was already empty.
Nathaniel Schooler 37:12
Philip Ideson 37:12
If we had gone to market just thinking this is a price based decision, we would have never got there, we will ultimately never been out of when when our budget got cut. We’ve never been off put childcare centre in place. But my understanding they are different motivations, letter a completely different deal than we thought was possible when we started.
Nathaniel Schooler 37:30
Well, that’s, that’s fantastic. That’s really exciting. Do you know what I think I might have actually read about that was in the newspapers.
Philip Ideson 37:37
I have no idea. I mean, it could have been, but I have no idea
Nathaniel Schooler 37:41
which part of the country was in?
Philip Ideson 37:42
It was is in Kent.
Nathaniel Schooler 37:44
Yeah, I think I might have read something is quite a few years ago.
Philip Ideson 37:47
Yeah, this will have been 2000. When I was there, 2004 2005.
Nathaniel Schooler 37:53
I seem to remember reading something about that in the paper. I think it’s a brilliant idea. More businesses need to do that. So stuff, you know, there’s no doubt about it. But I like the idea of just thinking what do they want? Maybe just ask them? You know, yeah. Ask them find out about their business, you know.
Philip Ideson 38:10
Because you may be surprised. Yeah. And you may be able to make things possible that you didn’t think we’re possible, because you just assumed that all they wanted was the best financial deal. You know, it is a small business. I know that? Well, yes. I always want to have as good a financial deal as I possibly can. It’s not the only thing that’s important to me. So I’ll make concessions. Right. And for other things that may be, you know, additive for my business.
Nathaniel Schooler 38:36
Yeah. Well, it might be just an introduction, you know, they might say to you, Well, I’ll tell you what, you know, I’m only going to buy 50 of these or 200 of these, but I will introduce you to a very good friend of mine, he does the purchasing for a very large chain of of shops or pubs or whatever, you know, yeah.
Philip Ideson 38:54
I’ll do a case study with you. Use my you can use this testimonial on your website site or, you know, just things that don’t actually take that much, but have a big difference. A big impact, right.
Nathaniel Schooler 39:06
But also, I mean, when I was buying labels, we came up with a good a good a good idea. Because we didn’t want to have the stock in our premise, because it was too much to buy the minimum quantity that they wanted us to buy. It was it was too much. So we had to commit to a certain amount of labels, but we said, Well, I’ll tell you what, you know, you guys need to keep 75% of these labels. They’re under your temperature controlled environment, and we will draw upon them as we need them. And when we do, we will come and pick them up. So there are all sorts of different different ways to kind of skin the cat, right. Let’s say it skinning a cat at the end.
Philip Ideson 39:46
Nathaniel Schooler 39:48
Well, for it, it’s, it’s been a pleasure. And so if people want to go and listen to your show, how do they How did they find you?
Philip Ideson 39:55
Yeah, the easiest way is just go to our website, which is “artofprocurement.com.” And there’ll be there’ll be a link there for the podcast, or just go to anywhere where you get your podcasts, you know, whether it’s on iTunes, your podcast app, you can just search for “Art of Procurement.”
And it’ll come up and subscribe. Listen in there. We basically every single week, we talked to different people within the procurement industry and outside the procurement industry, to help inspire folks within procurement to really think more deeply about their value proposition, how they can make a difference for their company, how they can partner with others. Interestingly, I get a lot of feedback from folks outside of procurement, like in sales, business development and account management, who listen, because it helps them get a better understanding of the psyche of a procurement professional.
Nathaniel Schooler 40:44
Yeah, yeah. Well, I’m going to listen because I’ve got this tender I am working on coming up.
Philip Ideson 40:47
Nathaniel Schooler 40:48
That’s what you started saying about tendering really sort of hit home there? You know, it’s kind of like just working out what on earth they actually want is the most important thing. It’s just like, you know, put yourself in their shoes, right?
Philip Ideson 41:01
Yeah. Don’t assume anything. Unfortunately, you know, there are there’s going to be procurement people who are more traditional procurement people who are there to run a process. Yeah. And there will be people who are there that are more commercially minded, and, you know, being understand being able to figure out which of the two that is, will really help you determine what’s the best way of approaching and working with that person.
Nathaniel Schooler 41:26
Right. But the relationship is what matters. Longer term.
Philip Ideson 41:31
Yeah. And help them help you.
Nathaniel Schooler 41:33
Yeah, yeah. Yeah. Well, thank you. It’s been it’s been fantastic.
Philip Ideson 41:37
Well, not it’s been my pleasure. Thank you for inviting me on the show.
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