Omid Ghamami, MBA, CPSCM

President, Purchasing Advantagewww.PurchasingAdvantage.com

CEO & Chairman, Center for

Purchasing & Supply Chain

Management (PSCM) Excellencewww.CenterForPSCMExcellence.org

Presentation to Rocky Mountain Governmental

Purchasing Association

About Omid Ghamami, MBA, CPSCM

❖ MBA, University Of California System

❖ President & Chief Consultant, Purchasing Advantage

❖ CEO & Chairman of the Board, Center for PSCM Excellence

❖ 18 Years At Intel: Ran Global Corporate Purchasing Operations with $16B USD scope – “THE Godfather of Negotiation Planning”

❖ Thousands Of Hours Consulting/Speaking/Training In 23 Countries

❖ 2 Best Selling Purchasing Books; Multitude Of Industry Purchasing Articles, including Fortune Magazine

❖ 50+ Hours TV Appearances As Purchasing Industry Expert

❖ Have worked with multitude of public procurement entities: State and agency CPOs, NASPO, ValuePoint, FedBid, US Communities, CAPPO, NIGP, etc.

❖ Twice called upon to speak to Harvard University Supply Chain Management Master’s Program

❖ Adj. Professor Of Purchasing, Folsom Lake College

How Did We Get Here?

• We All Landed In This Profession By Accident

• Not knowing better, we followed group wisdom

when we first started

***1962 Candid Camera

Experiment on Conformity**

Supplier Has

Your $$

Procurement Transformation Model

Supplier Has

Your $$

Session #1:

How to Stop Buying

Goods & Services

(and Start Buying

Performance

Results)

Does This Characterize Your Job?

“I go into work every day with

an idea of what’s on my plate,

but then somebody gives me a

serving of something else”

“THE #1 Problem With

Procurement Today Is We

Are Buying Goods &

Services Instead Of

Performance Results”

- Omid G

Grab a MirrorQuestion #1: What percentage of your time is spent in unplanned activities?

Question #2: How many of those unplanned activities end up on your performance review and help your career and income path?

Question #3: What is the root cause of this unplanned time allocation?Question #4: If you could waive a wand and cut that allocation by 50 – 75%, what could you accomplish with that freed up time?

Are You Spending

Your Time

Preventing Fires or

Putting Out Fires?

Does Your

Management Value

Good Firefighters

Or Employees That

Prevent Fires?

End User Asks for Goods/Services

You Solicit for Goods/Services

End User Complains about Performance

Results, Using Criteria Not in

Solicitation

Suddenly It’s Your Fault Because You

Didn’t Buy Performance Results

You Try and Fix, But Contract is for

Goods/Services and Supplier Has Your $$

Circle

of Life

For How Long Have You Been

Repeating This Cycle and Expecting a

Different Result?

Key Decision Point – Are You

Buying Resources or Results?

11

12

Buying Performance Results Starts From the Beginning!

the End

Real Janitorial Scope of Work

ex. – What Could Go Wrong?

• Daily, dry mop, Wet mop hard surfaces

• Daily, vacuum, spot clean carpeted surfaces

• Weekly, Change Matting

• Weekly, buff / burnish hard surfaces

• Weekly, Damp refresh carpeted areas

• Weekly, Clean and wax vinyl tile surfaces

• Monthly, shampoo / extract carpeted surfaces

Ex of Janitorial SOW WITH

Performance Standards

Smart Lighting Project

for City – Real Case

• A 40 square mile city wanted to upgrade from sodium to LED lighting for 1,000+ light polls on all 1 & 2 lane streets.

• The end user spec called for 125 watt light bulbs to be used

• Result: 1 lane roads too bright, 2 lane roads had dark spots

• Purchasing complained to supplier – what do you think happened?

End Users offer little resistance

when buying RESOURCES but

will be the source of

endless heartache when

they don’t like the

RESULTS

1616

End Result

How it will be used

What they want to

buy

What You Need for Every Major

Purchase From Your End User

The Three Legs of the Stool

1. Procurement Mission – What will this

purchase accomplish?

2. Results Oriented Success Metrics – How

will you measure success?

3. Remedies – What are the exact remedies

for failure to perform?

Procurement Mission

• Tell a story in your solicitation

• Why is this purchase happening?

• What problem do you want to solve?

• What opportunity do you want to capture?

• What is working today and what’s not?

Suppliers Give Better Solicitation

Responses And Do Better Work When

They Understand Your Objectives

Why the ROSM is CriticalDefine them ONCE – But Use Throughout!

19

SOW/Spec/

Supplier Selection

Performance Agreement/Contract

Supplier Performance Management Score Card Criteria

Results Oriented

Remedies

• What actions must be taken if the supplier

fails to meet the ROSM?

• Required Criteria: What it will take to make

you WHOLE again – no profiting, no

punishing

• Don’t use the word “penalties” – use

“liquidated damages” or “price reductions”

• Be super-specific, or supplier “convenient

confusion” will ensue

Sit Down With Your End User

21

“Assume we’ve signed a contract with this supplier. Given this assumption:• What is everything that could go wrong

with this good or service?• What kind of things frustrate you or take

your time unnecessarily with such goods or services?

• What kind of problems or excursions have you seen in the past?

• In detail, what does success look like for you? How would you measure that?

• For each of the areas that are important to you, how would you want them fixed by the supplier if they fail to perform?”

• After the contract is signed, I can’t help you. Is there anything you’ve left out?

Note to attendees: earmark this slide and use it over and over.

End User Asks for Goods/Services

You Solicit for Goods/Services

End User Complains about Performance

Results, Using Criteria Not in

Solicitation

It’s Your Fault Because You Didn’t Buy Performance

Results

You Try and Fix, But Contract is for

Goods/Services and Supplier Has Your $$

Break the Cycle and Do Something Wonderful.

Call to Action

• Transform your entire purchasing approach from buying RESOURCES to buying RESULTS

• Establish ONE set of Results Oriented Success Metrics (ROSM) that are used from SOW/Spec to post contract

• Have your solicitations tell a story and be performance oriented

• Establish Performance Agreements (not contracts for G&S!) that have ROSM and remedies pre-defined

• Follow these steps and enjoy much more free time, more job satisfaction, and better supplier results

23

Session #2:

How to Achieve

Cost Savings

BEFORE Going to

Solicitation

Pushing suppliers for a lower price year after year is not a sustainable

purchasing strategy

CostsProfit

Quotation to Consider…

“On the public side, we notice that a lot of

customers are separated from the

purchasing departments. They develop

their SOW and Specs with virtually no input

from purchasing.”

- CEO, high volume procurement software company

that is used extensively by State & Federal

Government, August 2014

Source: McKinsey Consulting

Cost Reduction

Opportunities

Average Amount Of Purchases By Industry as a

Percentage Of Revenue

Don’t Wait Until the

Spec/SOW Handoff….

On average, 18% of

the Savings

opportunities are

already gone by the

handoff!

Understand What the End User

Wants to Accomplish

Influence The Design of the Procurement

Demand

Influence Procurement

Strategy

Ensure Best Value Outcomes

The REAL Goal of Early Engagement

• Our profession has focused on early engagement with

end users to proactively develop the best strategy for

what the end user wants to buy

• This is good, but not enough! This is just getting the

baton sooner in the process!

Traditional

Engagement Point

Supplier Innovation

StandardizationReuse

Simplification

Definitions

• Simplification – what can you take away without

impacting procurement success metrics?

• Standardization – what can you move from

custom to standard? (applies to services too)

• Reuse – what existing and proven contracts/

solutions/practices/specs/SOWs can be used?

• Supplier Innovation – can the supplier help us

achieve our procurement success metrics in a

better way?

32

“Perfection is

achieved, not when

there is nothing more

to add, but when there

is nothing left to take

away.”

Antoine de Saint

Exupery

French writer

(1900 - 1944)

Real Case – Light Pole

Customization

Completely

Custom Design

Custom

Application of

“Special

Coating”

Some Light Poles

Designed to Come Off

Of Back Of Truck,

Others Off Of The Side

Real Case: High Tourism City That

Needed City Cameras

Source: http://www.turnerconstruction.com

Airport Terminal Case Study, cont

36

Real Case: Beautiful Master Packaging

for Retail Product Shipments

What the Master Packaging

Designer Imagines will

happen

What Actually Happens

Real Case: Procurement

of Oxygen Tubes

• Used in turbines for cooling,

purchased from SOLE source

supplier in Germany

• End user specified 99.95% grade

• 99.95% grade costs $350/foot… and

worked WONDERFUL

• Problem – the sole source supplier

ran out… what now?!

PVC Pipe Specs: Real Case

No Wonder Lattes are So Expensive

What You Can Do Starting Now

• Ask the end user how they arrived at their SOW/Spec

– If custom, why not standard offering or coop

contract

• Offer supplier avenue to provide solution or inputs in

solicitations (even in RFQs!)

– Make sure procurement mission & success metrics

are provided

• Ask suppliers to provide line item cost proposals - ask

questions & compare to success metrics

• Do value analysis on all bells and whistles – which

success metrics get impacted if removed?

Securing

Nominal

Savings

Through

Solicitations

43

44

BEFORE WE

GET TO THE

“CALL TO

ACTION”…

…WE HAVE TO

CELEBRATE

MY FIRST

RMGPA

ENGAGEMENT

Supplier

Has Your $$

Transformation Model

Supplier

Has Your $$

• 30 Hours Online

• All Exams Online –Take Until You Pass

• On-Demand/

Permanent Access,

hosted by Amazon

S3

• See materials, hear

Omid G’s voice as

personal instructor

throughout

Certified Purchasing and Supply Chain Manager

www. tinyurl.com/RMGPA

Partnership with University of Houston

My Confidential Offer to RMGPA Attendees – The

Whole Enchilada (Normally $3,300)

49

Call to Action1. Ensure your end user establishes a Procurement

Mission and Success Metrics for every solicitation

2. Analyze the SOW/Spec for opportunities for Standardization, Simplification, and Reuse

3. Include language in RFQs soliciting supplier innovation

4. Foster a culture of rewarding end users for Standardization, Simplification & Reuse -- not for customization & innovation

5. Become a SOW/SPEC analyst and capture the 18% average cost savings opportunity before solicitation

50

• Results Oriented Strategy Sessions

• In-House Customized Seminars

• Procurement & Negotiations Consulting

51

www.CenterforPSCMExcellence.org

www.PurchasingAdvantage.com

Omid@PurchasingAdvantage.com

1-888-TCO-4889

51

Omid@PurchasingAdvantage.com

1-888-TCO-4889

Reach Out To Me At Any Time!

Consulting/Training/Negotiation Support