In the 1998 movie Sliding Doors, there are two plots that
play out between the leads Gwyneth Paltrow and John Hannah, depending on
whether or not the former caught a London Underground train.
Imagine, for a minute, that you
are negotiating a huge contract, worth millions of dollars, with a customer.
You’re inches away from the biggest deal your company has ever signed.
But then something unexpected
happens. The head of Procurement at the company you’re negotiating with enters
the room and tells you they need another 10% cost saving from you, or the deal
is off.
Just like the plots in Sliding Doors, what happens next could
go one of two ways. The Head of Procurement could play the Pitbull, which looks
a bit like this:
Ø She starts shouting and
bullying, part of her sledgehammer approach to an adversarial negotiation to
this single transaction;
Ø She want to “screw you into the
ground” and take all of that 10% cost saving and rob you of any profit you
might make on this deal;
Ø To her, profit isn’t good: its
dysfunctional behavior;
Ø She insist on ‘Open Book
Costing’ to mercilessly drive down your costs;
Ø Your pricing, according to her,
is cost-plus or ‘time and materials’ (Labour + Materials + Overheads + Margin),
and she doesn’t want to bear any unnecessary overhead costs, probing you on
what your overhead allocation methodology is so she can get a cheaper price.
Faced with this approach, what
do you do? Three things are probably certain: you’re going to try and hide more
costs, you’re not going to put your best people on this project and you’re
certainly going to lose interest in the customer who is looking for further
cost savings.
But image what might happen if,
like in Sliding Doors, the
Procurement Pitball wasn’t let off the leash, but rather the Pricing
Peacekeeper took control. The scene might play out like this:
Ø A collaborative workshop is
proposed…
Ø …the objective of which is to
find and share a 10% cost saving, which allows you to continue making a profit;
Ø Both parties agree to put their
best people on the project;
Ø The profit incentive remains
and margins will remain healthy, resulting in predictable behavior by both
parties;
Ø The relationship is open and
transparent, and as both parties work through the Open Book Costing exercise,
cost reduction opportunities that can be shared are identified;
Ø This relationship-based
approach focuses on total cost of ownership and lifetime customer value, and;
Ø The teams recognise that there
are alternatives to Cost-Plus and Time & Materials pricing, such as
Guaranteed Maximum Pricing.
Without a doubt, the movie has
a better ending for all concerned with the latter, rather than the former,
plot.
Posts
