“When you’re negotiating, direction counts more than accuracy”
It’s been nearly 25 years since an abrasive New York real estate developer named Donald Trump initiated his first 15 minutes of fame with a self-promoting treatise titled: “The Art of the Deal.” (Whatever happened to him, anyway?)
Recently, Source One sat down with a top professional purchasing industry executive who offered his own advice for aspiring procurement professionals — Rod Sherkin, President of Propurchaser.com (and former Vice President of Supply Chain for Pillsbury). What follows is an abbreviated version of his comments, which even in shortened form, we think contains more valuable and practical insights than anything “The Donald” has had to say recently…
S1: Thank you for taking the time to speak with us. You’ve been involved in purchasing for a number of companies and for a number of years. How did you come to choose this as a career path?
RS: It’s interesting that you should ask. My education and training was actually in engineering. And that might sound like an odd beginning, but I think it helped instill a perspective that has helped me in my professional purchasing career. Very often, engineers will be looking at this distant goal, but specifically how that goal is achieved may change according to need or circumstances. Look at Leonardo Da Vinci’s plans for a helicopter or manned spaceflight. The direction was there, but the practical applications took many years to work out. That perspective – the importance of making sure you’re pointed in the right direction before focusing on the details – prepared me for one of the basic lessons for my career in purchasing.
S1: How did that lesson first manifest itself?
RS: Years ago, while working for Green Giant, I phoned our steel can sales rep to ask for a 4% reduction. We had information suggesting steel prices had fallen 8%. Naturally, he wasn’t very happy and, as expected, argued against any decrease. I said: “Are you saying you’re still purchasing steel at the same price as before? That would be surprising.” He hesitated and then asked if he could get back to me.
The next morning he called me to say he’d talked to the Head of Purchasing and that the request I’d made wasn’t as simple as it sounded. “You need to understand that we use specialty steels,” he explained. “They’re not as volatile as commodity steels. Our costs have fallen only 6%, not 8. So we can only offer you a 3% reduction.”
S1: Did you take it?
RS: Well, first I went to my boss for advice. And her reaction was immediate: “Take it! It’s 3% better than you’d have gotten if you hadn’t known about the steel drop. He certainly wasn’t going to call you.
Then she went on, “Remember. What goes around comes around. The next time steel prices rise and he calls for an increase, you’ve got a great counter-argument. After all, specialty steels are less volatile, you know. He can’t have it both ways — unless you let him!”
That was a great lesson: “When you’re negotiating, direction counts more than accuracy.”
S1: Also a practical one – especially if you’re dealing with limited information.
RS: Exactly. Trying to discover your suppliers’ true costs is often a futile exercise. Except for commodities traded on an open exchange like NYMEX or CBOT, “transaction prices” are not really knowable. Every deal is different. In fact, actual prices are often deliberately obscured by volume rebates, secret discounts, scrap allowances, and so on — many of which don’t even show up on invoices.
But for purchasers, this is very good news. Direction is relatively easy to monitor, particularly with the help of websites like Propurchaser. This kind of tool makes it quicker and easier to prepare for negotiations, and there’s no real loss of negotiation leverage. In short, it’s a boon for any busy Purchaser!