We are in an era of quick innovation cycles, sophisticated suppliers, accelerating product cycles, and disrupted supply chains. In the midst of this disruption, purchasing and global sourcing oftentimes account for more than 60 percent of an organization’s costs and in some cases these costs can be as high as 80 percent. Companies that don’t invest in their purchasing team’s capabilities are not only throwing away value but also giving up an opportunity to have a sustainable competitive advantage. We help companies turn procurement from a value erosive enterprise gap into a competitive advantage through our proprietary procurement, negotiation, and behavioral science protocols that together drive significant bottom-line impact (See Exhibits 1 and 2). Quite simply, our procurement transformations help clients achieve cost savings from 16 to 63 percent.
Despite the growing importance of a sophisticated procurement team, most organizations have seen a decline in procurement performance. Through a recent PNI study, which included ~1,500 Fortune 500 executives, we found that ~72 percent of procurement executives considered their procurement organizations to be a top three area for improvement. In addition, almost 75 percent admitted to having no post-procurement/post-negotiation metrics to track savings and post-purchasing impact. Concurrently, we’ve seen a rise in the number of both sophisticated and large, unbeatable suppliers that carry significant amount of negotiating power and thus require a different strategic approach.
This decline in procurement performance can be partially attributed to the fact that many companies decide to invest more heavily in revenue generating functions such as manufacturing and sales. The byproduct of this decision is that the corporation underinvests in the purchasing team’s capabilities, which can significantly erode profits as costs are left unchecked. By allocating further resources to this often-overlooked function, an organization can powerfully enhance its economic performance. Simply, procurement transformations can oftentimes provide the most immediate and long-term value creation available to the enterprise.
We have a proven track record of transforming and training procurement teams to effectively handle high stakes, sophisticated negotiations to ensure robust margins and a sustainable cost advantage. On average, our clients see a 16 to 63 percent reduction in costs by implementing our proprietary procurement, negotiation, and behavioral science purchasing transformation protocols across categories and industries. Furthermore, these are not simply a one time cost savings but rather sustainable and in many times followed by additional cost savings of 2 to 4 percent annually. We do this via leveraging our proprietary procurement transformation frameworks that drive both short and long-term value creation.
Procurement Transformation Framework
We have developed a proprietary procurement transformation framework in which we take clients through a holistic six-step transformation process consisting of strategic identification, customized platform creation, and function-wide implementation for embedded, sustainable results (See Exhibit 3).
Decision-Making Transformation Framework
In addition to our procurement transformation framework, we also employ our decision-making framework to ensure debiased, value added purchases across your entire procurement function. Improving decision-making via debiasing efforts can increase ROI by 9 percent and greater. We diagnose the existing decision making, identify the root causes of value eroding biases, redesign the decision-making system, and institutionalize the revised decision-making system via capability building, feedback mechanisms, and metrics/continuous audits (See Exhibit 4).
PNI's Roadmap to Maximized Value Capture - 10 Best Negotiation Practices
Post engagement, you'll be equipped not only with our proprietary playbooks and capability building protocols but you'll also be well positioned to apply our 10 quick win practices to any corporate negotiation, thus ensuring maximized value capture (See Exhibit 5).
Capability Building for Embedded Capabilities & Sustainable Results
According to our research, the traditional method of providing corporate classroom training is one of the most ineffective techniques to building procurement capabilities. Instead, PNI offers negotiation and behavioral science capability building via war room and train-the-trainer implementation. This combination of coaching and on-the-job training creates an organizational-talent engine that rapidly scales up new capabilities (See Exhibit 6).
Finally, we leverage the following procurement services, support, supply chain tools, and capabilities, including:
- Negotiation and behavioral science skill transfer, talent management, capability building, and clean sheet negotiation implementation
- Contract management
- Diagnostics and playbook creation
- Supplier selection, management, and development
- Global sourcing/procurement performance and supply chain management and metrics implementation
- Post-merger procurement integration management and negotiation implementation
Three Quick Wins
QUICK WIN #1: Increase Power via Bargaining Zone and BATNA initiatives (See Exhibits 7 and 8)
Our clients capture on average ~82 percent of the bargaining zone compared to an industry average of ~50 percent via:
- Analyzing both sides' BATNA to leverage bargaining zone
- Engaging in covert BATNA RFPs (e.g., if buying go acquire additional RFPs to increase leverage and market insight; if selling, covertly request RFPs from competitors)
- Leveraging strategic economic analysis, proprietary negotiation techniques, and capability building initiatives
QUICK WIN #2: Develop Multiple Equivalent Simultaneous Offers (MESOs) (See Exhibits 9 and 10)
- Increases the chance of a Pareto Optimal outcome by ~139 percent while also ensuring ~37 percent greater likelihood of reaching a negotiated agreement
- Provides key insight into the opposing side, allowing for informed decision making
- Shows flexibility and willingness to concede which improves collaboration and enlarges the bargaining pie
- Naturally fractionates the issues leading to "package" level versus single issue negotiations
QUICK WIN #3: Leverage External Biases (See Exhibits 11 and 12)
Most corporations can't help themselves from being led by biases such as anchoring.
- For example, by initiating aggressive anchoring (make the first offer) users can capture almost 3x more of the bargaining zone
- Increases revenue by up to 43 percent by leveraging subconscious biases that few are aware of or trained to detect
- Provides powerful, covert offense and defense
Next Step: Become comfortable in identifying and leveraging the five most common corporate biases to develop a unique competitive advantage at the decision-making and negotiating table (See Exhibit 6)
Examples of Our Work
We have helped clients unlock enormous cost savings via procurement transformations. Examples of our work include:
- Example #1 (See Exhibit 13): Unlocked ~$615 million in annualized run rate savings through (1) procurement diagnostics, (2) negotiation playbook and contract management creation, (3) supplier consolidation to gain improved negotiating power via economies of scale, (4) behavioral science/debiasing formation, and (5) war room and train the trainer implementation
- Example #2 (See Exhibit 14): Reduced costs by 37 percent followed by an additional 3 percent of sustainable annual costs savings via: (1) diagnosing existing procurement protocols, (2) redesigning the procurement management system through selection of relevant negotiation, contract management, and decision-making tools/playbooks, (3) creation of tracking metrics to analyze post-procurement success or lack thereof, and (4) institutionalizing the revised system through capability building via internal trainings (war room and train-the-trainer initiatives)
- Example #3: Improved margins by over 2x (i.e., 23 percent versus 11 percent) by (1) identifying biases that negatively impact purchasing decisions, (2) institutionalizing a negotiation war room, and train the trainer capability building, (3) implementing feedback mechanisms and continuous audits of the revised system to ensure successful adaptation, and (4) transforming the procurement contract management system
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Additional Client Results
Additional Transformation Services
Our customer experience work ensures top customer engagement/loyalty, top quartile net promoter scores, and a pain-point free customer journey, equating to 12 percent and greater revenue increases
Our digital transformation engagements drive significant growth, innovation, and organizational success ensuring distinctive (1) employee empowerment, (2) product differentiation & (3) customer experience
Our organizational health, culture, and employee transformations ensure ownership, company wide adoption rate, sustainability, and significant revenue and profit growth, including up to 4X ROI
Our M&A and PE engagements optimize purchase price while ensuring target synergies are fully reached, resulting in 28 to 77 percent higher RTSR and ~37 percent increase in deal closings
Our sales transformations includes key negotiation and behavioral science levers, allowing our clients to experience revenue improvements of 12 to 33 percent and margin increases from 6 to 17 percent
We help clients improve their decision-making protocols via debiasing initiatives, resulting in 8 to 15 percent improvement in ROI and ~29 percent increase in the likelihood of exceeding targeted returns
We help clients unlock key account value while improving the customer journey via elimination of pain points, enabling 11 to 17 percent revenue growth and 8 to 15 percent margin increase
Our contract transformations increase profits up to 31 percent, improve the likelihood of reaching an agreement by ~95 percent, and increase chances of Pareto efficiency by ~139 percent
We help clients increase their proposal conversion rate by 21 to 59 percent, improve margins per winning bid by 6 to 14 percent, and increase the revenue per winning proposal by 13 to 36 percent