Mais conteúdo relacionado Semelhante a You Get What You Pay For (20) Mais de BravoSolution (16) You Get What You Pay For1. ‘You Get What You Pay For’
‘You Get What You Pay For’
Guy Allen
February 27h 2013
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Real World Sourcing
2. ‘You Get What You Pay For’
Part 1 – Introduction
The Real World Sourcing Series is a series of 6 sessions covering hot
topics for procurement professionals.
The Real World Sourcing Series is promoted and supported by
BravoSolution, and developed by Peter Smith (Spend Matters) and Guy
Allen (Real World Sourcing Limited).
Guy Allen started his procurement career with Ford Motor Company,
moving through IBM, SmithKline Beecham and GSK before becoming
CPO for Abbey National and VP Global Sourcing at Fujitsu before joining
4C as a Managing Partner. Guy has since left 4C and started his own
consultancy, Real World Sourcing Limited.
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Real World Sourcing
3. ‘You Get What You Pay For’
Agenda
1. How Prices are Set
2. Adapting Your Approach to the Economic
Reality
3. Negotiation Styles
4. PPCA
Spend Matters UK/Europe
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Real World Sourcing
4. ‘You Get What You Pay For’
It's unwise to pay too much, but
it's worse to pay too little. When
you pay too much, you lose a little
money — that is all. When you pay
too little, you sometimes lose
everything, because the thing you
bought was incapable of doing the
thing it was bought to do. The
common law of business balance
prohibits paying a little and getting
a lot — it can't be done.
Spend Matters UK/Europe
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John Ruskin
1819- 1900
Real World Sourcing
5. ‘You Get What You Pay For’
How Prices are Set
Price
20
18
16
14
12
10
Demand
8
Supply
6
Se
Series 3
4
2
0
C1
C2
C3
C4
C5
C6
C7
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Quantity
C8
C9
Real World Sourcing
6. ‘You Get What You Pay For’
Factors that ‘Corrupt’ a Free Market
Tied supply
Dominant buyer or supplier
Niche products or specifications
Government regulations or protectionism
In the medium to long term the market will
probably adjust
Spend Matters UK/Europe
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Real World Sourcing
7. ‘You Get What You Pay For’
5p on a litre of petrol
Price
20
18
16
14
12
10
Demand
8
Supply
6
Supply 2
4
2
0
C1
C2
C3
C4
C5
C6
C7
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Quantity
C8
C9
Real World Sourcing
8. ‘You Get What You Pay For’
Economic Recession
Price
20
18
16
14
12
10
Demand
8
Supply
6
Demand 2
4
2
0
C1
C2
C3
C4
C5
C6
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
C7 Quantity C9
C8
Real World Sourcing
9. ‘You Get What You Pay For’
Cost of Production Above Market Price
Price
20
18
16
Market Price
14
12
10
Demand
8
Supply
6
Column1
Cost of
Production
4
2
0
C1
C2
C3
C4
C5
C6
C7
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Quantity
C8
C9
Real World Sourcing
10. ‘You Get What You Pay For’
When Supplier Costs are Above Market Price
Supplier margins are likely to be under severe
pressure
May encourage innovation ….or.....
Cutting corners – Horsemeat
Actions to take
Risk management
eAuctions
Address consequential costs (eg delivery)
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Real World Sourcing
11. ‘You Get What You Pay For’
Cost of Production Below Market Price
Price
20
18
16
Market Price
14
12
10
Demand
8
Supply
6
Column1
Cost of
Production
4
2
0
C1
C2
C3
C4
C5
C6
C7
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Quantity
C8
C9
Real World Sourcing
12. ‘You Get What You Pay For’
When Supplier Costs are Below Market Price
Supplier margins are likely to be good
Supply may be restricted
Possibly caused by barriers to entry into the
market place
Actions to take
Build relationships
Seek open book pricing
Revise specifications
Encourage new entrants to market
Spend Matters UK/Europe
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Real World Sourcing
13. ‘You Get What You Pay For’
Different Situations Require Different Negotiation
Approaches *
Logic
Rational argument to deliver planned outcome
Power
Implied threat to use position of power
Trading
Give and take bargaining
Conciliatory
‘Split the difference’
Emotive
Appealing to reason or looking for help
* after Steele, Murphy, Russell
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Real World Sourcing
14. ‘You Get What You Pay For’
Using the Logical Approach
Real margins are high in the supply market
Your price is above the market price
If you get it right, your opponent will do the majority
of the conceding
If the power between you is balanced, be sure your
opposite number will respond to logic
Don’t Use Logic When
Purchase price is below the cost of production
Good circumstances in which to use PPCA
Spend Matters UK/Europe
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Real World Sourcing
15. ‘You Get What You Pay For’
Task
What is the manufacturing cost of this bottle?
Identify the key cost parameters that you would
need to find out to establish the cost of the bottle
Assume cost of machinery and running the factory
day to day is covered by a machine hourly rate
Spend Matters UK/Europe
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Real World Sourcing
16. ‘You Get What You Pay For’
Using the Power Approach
Used when one party has the perceived position of
power
Typically a large company buying from a smaller one
Used wisely it can change and improve the supply
base
Possible short term gain, long term pain
Don't Use Power
Unthinkingly
Without being aware of the risks
Spend Matters UK/Europe
©ALL RIGHTS RESERVED - Confidential
Real World Sourcing
17. ‘You Get What You Pay For’
High
Price
$
Low
High
Quantity
Spend Matters UK/Europe
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Real World Sourcing
18. ‘You Get What You Pay For’
Using the Trading Approach
A range of factors to consider
Searching for things easy to give up, to gain
something of value to your organisation
Start high, move little
Best chance of a win-win outcome
Don't Use Trading When
You are unclear about the value of non price factors
Spend Matters UK/Europe
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Real World Sourcing
19. ‘You Get What You Pay For’
Using the Conciliatory Approach
Often the quickest route to an outcome
You have already achieved your target outcomes
You wish to maintain relationships
Usually on a single point (e.g. price)
Useful for breaking a deadlock
Don't Use Conciliation
Early in the negotiation
If you are unsure of the market position
Spend Matters UK/Europe
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Real World Sourcing
20. ‘You Get What You Pay For’
Using the Emotive Approach
Useful when relationships are strong
Emotions can run from anger to pleading – all
potentially valid
Body language can convey emotions as much as
speech
Don't Use Emotion
If you have the power in the relationship?
Spend Matters UK/Europe
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Real World Sourcing
21. ‘You Get What You Pay For’
High
Low
Trading
Conciliatory
Your Position of Power
Spend Matters UK/Europe
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Power
Supplier Margins
Logic
High
Real World Sourcing
22. ‘You Get What You Pay For’
Be Aware of Your Opponent
Using logic with some people may prove
impossible
Pursuing a trading approach may seem to
be a sign of weakness to some cultures
Emotive approaches can be easily
countered by some personality types
Spend Matters UK/Europe
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Real World Sourcing
23. ‘You Get What You Pay For’
Final Thoughts
You get what you pay for implies that there is an
unbreakable link between price and quality –
this is not true
Paying a premium does NOT guarantee anything
‘You Pay What You Deserve to Pay’
Manufacturing costs are not immediately linked
to purchase price
Vary your negotiation approach according to
your situation and your opponent
Spend Matters UK/Europe
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Real World Sourcing
24. ‘You Get What You Pay For’
Real World Sourcing Scholarship
£2500 towards any procurement based training
Log on to the BravoSolution Education Network
with the details you’ll receive tomorrow
Complete the certification programme
Check your ranking!
The winner will be announced at the Sourcing
Experts Dinner in December
Spend Matters UK/Europe
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Real World Sourcing
25. ‘You Get What You Pay For’
THANK YOU!
Please feel free to contact me on
guyallen@realworldsourcing.com
Spend Matters UK/Europe
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Real World Sourcing