Kumar Kannan: Spend Wisely As You Buy
Let’s talk procurement. Odds are you can save big if you shop smartly. Consolidation. Group Purchasing Organizations. Negotiating. Payment terms. Warranty terms. These will all save you money. Kumar Kannan, from Procural LLC, educates us.
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Transcript for 625_tony_martignetti_nonprofit_radio_20230130.mp3
thank you, Tony, very happy to be here. [00:02:24.25] spk_0:
It’s a pleasure to have you. So let’s talk procurement. Uh you’ve you’ve you’ve spent a lot of money over 30 years but I see it’s it’s your job to spend other people’s money wisely wisely. Right carefully thoughtfully. All right, so what do you think? Generally because we have plenty of time together high level what do you think nonprofits could be smarter about buying wise [00:03:54.60] spk_1:
I think I’ll speak generally to that tony Um, companies tend to not place in my view as much focus on sourcing and procuring smartly as they could. Often it’s an afterthought I think in many companies and, and nonprofits included in that their core business is their focus. And so this almost becomes an afterthought. But if you step back, Um, in nonprofits, 25-30% of their revenues is spent on buying things and services in manufacturing type of companies that can go up to 60%. So if you’re looking at a 500 million or a billion or a $5 billion dollar organization, that is a huge amount of money. Um, so it just makes a lot of sense to approach this in a structured fashion with the right talent, the right skill sets and right experience so that you’re making sure that you are not spending more than your shirt and that you’re not leaving money on the table because every dollar saved in procurement goes to the bottom line to either return to your shareholders or to use it in your projects and, and programs. All [00:04:39.03] spk_0:
Right now, our folks are most likely not at the billion dollar spend level or even billion dollar annual revenue level. Uh, you know, we have lots of folks who have annual revenues, annual budgets. Let’s talk about annual budgets in the low to mid-6 figures. So, but your point of course, well taken, you know, they’re still spending money on buying. You said 25-30%. Um They’re still buying things, they gotta buy things, least things they are terms associated with all these purchases and and we could uh we could be doing a little savvy er and and as you say of course putting money to the adding money to the bottom line. So the first thing I want to talk about is something dear to me because professional fundraising relationships, you know, people don’t think of this in terms of buying, you know, I need, I need a case of paper, I’m gonna run to the staples or I’m just gonna click and you click and buy and I’ll have it in a couple of days. [00:04:58.13] spk_1:
Uh talk [00:04:59.90] spk_0:
to me about relationships with, with your your vendors, how, how this is beneficial, how to build them up, why not just buy it as you need it, help us out with relationships. [00:06:36.45] spk_1:
Sure. And that’s that’s a really great you know, starting point on sourcing and procurement because it’s one of the things that even a lot of mature social organizations don’t necessarily focus on and I think having strong relationships adds a lot of value. Um The now you’ve got to be a little careful obviously about spreading yourself thin, so you want to identify who are the key suppliers with whom you want to invest that time and effort to build a relationship. These are typically suppliers that are providing either services or commodities that are core to what you are producing or delivering to other people to your customers, right? And managing those relationships is is not different than frankly managing good relationships even within your company. So when you run into supply chain constraints, when you run into, you know, inflationary markets, you can depend on your supplier because of your relationship to be able to put you on the top of their list versus a purely transactional sort of relationship. So when you look at your entire supplier landscape, what I generally recommend doing is identify that go with that 80 20 rule and identify maybe your top 10, 15, 20 depending on how many, how many suppliers you have any supply base as your strategic or constraint kind of suppliers [00:07:04.00] spk_0:
and for a lot for a lot of our listeners that maybe just five, you know that maybe there maybe 10 vendors overall and they can identify three or five where they’re spending, You know, I guess you’re spending 80% of your money on with 20% of your vendors, right? [00:07:51.22] spk_1:
Exactly, exactly, exactly. And you want to build a relationship with them, recognize that the supplier, sailors guides have a great visibility into your organization right there there to sell you stuff, right? But they’re also bringing their expertise and knowledge in the products and services they’re selling to you. So by having a good relationship, I like to say you’re kind of creating a disproportionate mindshare from the supplier, because you can use the suppliers, you can leverage suppliers expertise to create value for your end customers. And that’s an area that, that many many companies do not take advantage of. And I’m a big proponent of building strong supplier relationships because they bring a lot to the table, right? I may not have to invest in expertise. I could depend on the supplier to bring that to the table. [00:09:19.34] spk_0:
Let’s, let’s make this concrete with an example. Let’s take a let’s take a soup kitchen in a, in a food bank. So food is their primary expense. Maybe aside from labor, we’re putting, we’re putting labor costs aside. I’m sure they have a lot of volunteers in this hypothetical organization, but you know, labor may still be, but in terms of what they’re procuring from the outside, let’s say it’s, you know, it’s, it’s food, there’s grocery items produce, which they have spoilage issues. Um, and let’s say they have some, uh, they might have some trucks to maybe pick up food. They might have relationships with some, some supermarkets, some restaurants that they pick up food on, you know, probably daily basis. So maybe gas, gas insurance on the trucks, maintenance on the trucks, you know, those may, So let’s say food, gas, maintenance, those are there in this organization. There’s are there three top vendors with food being the predominant one, the number one, what, what can I expect from my my grocery and and produce and dairy suppliers that vendors that they can, they can help me with. [00:09:53.30] spk_1:
Sure. Sure. So if you think about food, uh think about a situation where your fragment of your food purchase amongst a lot of different suppliers, right? And you’re approaching it transactional e then you are exposed to kind of whatever the pricing is. If the food is, if that particular sort of food is available with that supplier, he or she is gonna decide who they want to sell it to, right versus if you have a relationship and you’ve consolidated this bank one, consolidating the spend leads to lower prices because now you have volumes whatever that volume, maybe maybe $100,000 right? Versus splitting it between 10 suppliers and spending 10,000 with each and then not known. [00:11:06.48] spk_0:
So even if even if some of the items that we buy frequently are more expensive with with one vendor, it’s still better. I’m not saying they’re expensive on their most expensive on everything, but you know, it’s maybe some key items, you know, maybe bread is more expensive from them than somewhere else, but their dairy is lower and and and we overall they just seem like a better company or like maybe they’re more reliable or something. It’s better to consolidate and pay a little extra for the what I say for the bread but have a relationship versus bread being transactional from the baker down the street and the but the dairy comes from the farm of and and the produce is coming from uh from the U. S. Supply or you know whatever these big companies are. So it’s better, that’s what you’re saying. It’s better to consolidate even on some of the items you’re spending [00:11:26.71] spk_1:
more exactly in total. You’ll be spending less and to you will be a bigger customer for that supplier when you call they’re going to pay attention to you right? And if you are connected well enough with them, they may be able to tell you, hey look this stuff is going to go up in price two weeks from now. We suggest you place the order right now the timing of the order can have right [00:11:32.70] spk_0:
not right. They’re not gonna, they’re not gonna inform all their customers. [00:11:36.78] spk_1:
They [00:11:37.18] spk_0:
may have 1000 customers. They’re not going to inform all their customers. Their prices may go up in a couple of weeks [00:11:42.30] spk_1:
or [00:11:47.16] spk_0:
they’ve got something else coming. You know, they see a shortage coming in something that you buy often they’re not gonna be able to write, they’re gonna do that with the folks, they have relationship with who are their their better customers, they’re bigger customers [00:11:58.91] spk_1:
right? And they may show up in time when you when you actually need something urgently they may actually go out of their way to deliver that to you quicker faster, cheaper. [00:12:03.22] spk_0:
Yes you get you get favor right? You’ll get favors. Okay, [00:12:06.98] spk_1:
Okay, [00:12:23.72] spk_0:
relationships and so should we, you know, like should we try to have meetings, you know, instead of doing this all online ordering and face? Well, you’re not going to build a relationship through online clicking and shipping, but instead of just phone, uh or you know, probably phone with most vendors. Should we, should we have meetings? I mean get meet face to face. Well, you know, when, when you’re in town, please come by things like that. [00:13:17.82] spk_1:
Sure. I mean, you can, you can get as sophisticated as you want or you can keep it simple but absolutely having that face to face, meeting that connection with your supplier helps a lot because always putting a name and a face together, meeting with them that forms a bond, you know, and people ultimately want to work with people, right? If I’m just a phone call or I’m a website, who cares? Right. Why would, why would you go out of the way to interact with me if you don’t know me at all? However, if you and I meet for coffee every now and then we could discuss business then that’s the objective, Right? I could be talking to you in those meetings about how my, I’ve spent with you, What are the kinds of things I’m buying and you may come back and say, hey look here are some alternative commodities that are coming down the road that might be better suited for your needs. They may be priced less. So you get an insight into things that otherwise would not be available if you treat it as just a transactional purchase. [00:14:00.90] spk_0:
And again this is you know this is your top, your top spend vendors now, this is not every vendor, this is your top three maybe or so something like that, where you see your spending the bulk of your money. Alright, the relationships and you know what you just said, we could have been talking about fundraising, we could just as easily been talking about fundraising relationships, what you just said in the last minute or so. Um Alright, relationships. So that leads to and you know we were talking about consolidating, consolidating around the vendors that [00:14:09.30] spk_1:
are that [00:14:10.51] spk_0:
are I guess. Well how do you, I suppose we are, let me ask you this suppose we are pretty fractured in our in our buying of food, how do we pick which vendor to consolidate around? [00:15:48.57] spk_1:
I think first you want to get a view into watch your supplier landscape. So who are you buying things from and how much are you buying and what are you buying? Right. And let’s say you talk about you pick a particular category and typically we categorize these categories for each of the different types of spend that big categories. Right? So food gas, maybe within food, you may have categories like you know there could be meat, there could be a vegetable, there could be something else, Right? Just depends on how large your operation is and how you want to categorize that there isn’t a straight answer for that, but you have to figure out what’s appropriate for you. So you build that category and then look at who are the suppliers in that space. Typically, if you have never done a competitive bid before, we generally recommend go out and put out an RFP, which is like a request for proposal to say, look Mr MS supplier, this is the kind of product we want to buy, right? These are the specification, these are the deliveries that we need and this is what we think we’re going to be spending overall from a quantity perspective annually, we’d like you to bid on this. So you get bids from different suppliers, look at the bed, see what, what kind of suppliers this is. Call them and talk to them and pick one and contract with them on an annual basis, [00:16:14.60] spk_0:
listeners, I just lost my internet, so tomorrow and I got cut off and so now you hear that my sound is not anywhere near as good as it was with my nice studio mic because now I’m on my phone, maybe our Kitchen and food bank could do an informal RFP like, you know, we we project spending $50,000 on and you know, uh you know over this, you know, like so much per month or you know, maybe we could do this in an email that is not as formal as a, as a full RFP. [00:17:39.91] spk_1:
Yeah, absolutely tony I mean, I, you know, I I don’t want people to be scared off by, you know, these jargon type of things like R, F, P S and R F Q and all, they can be as complex or as simple as you want it to be. Right. I mean just think about it. Just me, if you were to go to buy a car, you probably go to three dealerships and ask for quote, what you’re basically doing is an RFP you have in your mind, what kind of car you want, what specifications and you go and look for it, right, that’s exactly what an RFP is. But the only thing I suggest is just think about what it is you’re buying and to what, what are the characteristics that are important to you, right. How much you’re spending, maybe an idea of how that spend, you know, happens over the year. What are the kind of products you’re buying, What are the minimum requirements for those products? And I wanted to be absolutely, you know, one day old or I can live with a week old product, what does the deliveries need to be? You know, I need it yesterday or I can give you a week’s notice all those things, factor into the pricing that you receive. So if you sit and think about what exactly it is you want to buy and how you want to structure your spend. That’s an RFP, you could do it in one page or you can do it in 100 pages. [00:18:15.89] spk_0:
Okay. Okay cool and that that car buying analogy is perfect. So you’re you’re right as you’re shopping around the three different dealerships, there’s your RFP. Okay. Very so long as consolidation you have, there’s something, well there’s something called group purchasing organizations or G. P. O. S. How can we, can we find these or do we create them ourselves or what what what what flesh this out for us? [00:20:40.77] spk_1:
Okay so the G. P. O. S. Have been around for you know several decades. Uh They really started in the medical industry so small hospitals and clinics and all decided they didn’t have enough spend individually. So they like to get together and and combine their spend so then they have more power to negotiate and then go and talk to these big medical providers and put contracts in place with them. So GPS started in that space, they’ve expanded now into other areas like for example restaurant food supplies. There are several G. P. O. S. That cater to individual small restaurants. So if you started a restaurant you would go to one of these G. P. O. S. And sign up and become a member with them. Um early on in the early days they used to charge you a membership free. Now I believe many of them do not, right? And then you have access to their contracts and the prices they have negotiated now what you miss and that is you don’t have a direct one on one relationship necessarily with the supplier. However you have the choice, you have the ability to kind of take advantage of the G. P. O. S. Pricing and contractor. So for a lot of your spend again, if you apply the 80 20 rule as as a nonprofit you may say look 2080% of my spenders with these 10 suppliers and I want to have uh you know, direct relationships with them because they are extremely important to my uh to my services. However, the other 20% of the standard with like 500 suppliers, I would rather go to a GPO and just kind of pick up the best prices that they can offer. Right? So there are some G. P. O. S. Now, I believe the medical G. P. O. S are also expanding into non medical areas. Right? And then there are some G. P. O. S that cater only to, you know, the broader manufacturing and other service type of organizations. So nonprofits can certainly go and sign up for them. You can check them out on the website. I don’t want to necessarily endorse one or the other on the show because a lot of them have good services, they bring good capabilities to the table. They actually will help you consolidate your spend and actually analyze your spend to see how you’re doing, how, how you’re doing your spend and whether opportunities like to maybe make some changes in the way you buy things so you can, you can kind of rely on their expertise as well to take a look at your spend pie and see what’s the best way to structure it. [00:23:50.55] spk_0:
It’s time for Tony’s take two. I am grateful, very grateful to the many people and companies and nonprofit agencies that are helping me to promote planned giving accelerator for the next class starting in March, lots of webinars and podcasts uh guest spots and I’m grateful and I have to shout them out, gotta gotta recognize them. They are sherry, Kwame, Taylor Lawrence paige known, I wish he’s pronounced his name pinon but he doesn’t Julia. Campbell non profit solutions, hurdle Callahan, nexus marketing brian saber at asking matters. We are for good podcast NATO National Association of Y M. C. A Development Officers A F P Long island new york chapter J Frost and Responsive non profit podcast. I’m thankful to all these folks for hosting me giving me an opportunity to meet their audiences, give them value of course, talking about planned giving and then have a chance to explain plan giving accelerator. If you are interested in plan giving accelerator, it’s all at planned giving accelerator dot com help you launch your planned giving That is Tony’s take two And I’m sorry about the sound issues this week. The delays and it’s slowed down and dragged out. It sounds like somebody’s stepping on my tongue. But thank you for listening through it. This week. We’ve got boo koo, but loads more time. I love the book. Ooh, you gotta for spend wisely as you buy with Kumar cannon and maybe if we cannot find a GPO around what we’re procuring, uh, maybe we can partner with another. It could be anything, it could be a non non profit or could be a company in the, could be a company in your community or that you have a relationship with doesn’t have to be another nonprofit that you know, that they’re buying the same, the same, uh, goods that you’re buying the same food you’re buying. Maybe you can partner with them and, and negotiate, which we’re gonna get to negotiate better terms with a, with a common vendor when there’s, you’re, you’re buying more together than you are separately. [00:24:06.09] spk_1:
Absolutely. Absolutely. I mean you hit the nail on the head there. I mean, I would, I would also add to that and say, you know, think about your big donors, your big donors are probably sitting on some boards or some other companies that, you know, you’re going to them for donations. Why not go to them and say, Hey, look, you’re sitting on the board of Del. Why don’t you get me some good computers, you know, at a cheaper price or something like that. Right? I think you can access your your donor base to for that. [00:24:56.81] spk_0:
Yeah. Very good. I’ll bet I’ll bet for board members people are hopefully they’re savvy and they’re they’re thinking that way but good, good, good to say it explicitly. Um And you know, in our this hypothetical food food banks and soup kitchen that I set up. Uh you know, one of the one of the things they were buying was insurance. So I just want to make the point that this this does not apply only to tangible goods but services to you. You can have you you should have relationships with your insurers. [00:25:07.05] spk_1:
You [00:25:07.78] spk_0:
can create your own GPO around insurance buying. [00:25:11.67] spk_1:
Right? [00:25:12.31] spk_0:
And this all applies to services as well as goods. [00:25:25.57] spk_1:
Yes. I mean I think the point you make tuning on kind of uh several maybe, you know, nonprofits kind of coming together uh and maybe hiring even an advisory firm to help consolidate their spin. So you can even create an informal gpu you don’t need to put a formal GPO structural place and you can take advantage of consolidating your spin. [00:25:42.88] spk_0:
Yes. All [00:25:43.79] spk_1:
right. [00:25:47.41] spk_0:
So let’s talk about negotiating and and you know, we’re gonna lump together I think [00:25:50.08] spk_1:
uh [00:25:51.46] spk_0:
you know, well [00:25:52.52] spk_1:
you [00:25:53.24] spk_0:
pricing and and payment terms and warranty terms these all these all fit together I think under negotiating. Um But let’s talk about just being comfortable [00:26:05.45] spk_1:
you [00:26:05.64] spk_0:
know getting comfortable talking about terms with [00:26:09.87] spk_1:
the [00:26:10.98] spk_0:
cos you’re spending money with [00:27:15.89] spk_1:
right? Um And you know a lot of us are just not comfortable asking like you know and we tend to take the price is given right Especially if it’s a commodity type of item. You know who goes to negotiate Kroger or whole foods or wherever you do your grocery shopping right? But if you spend a significant amount of money I would say ask. And that’s one of the biggest things that holds people back. We just don’t ask just going and asking and saying look you know I’m willing to put this much of spend through your organization. What can you do for me? And you’ll be surprised at the benefits you get just by asking that question. At worst they’re gonna say no we can’t do it. But the chances are they will give you something of value. Um So I think it’s getting over that initial hurdle of asking. And uh if you do that you know you can probably get a whole lot of additional value. Whether it’s in in in in in the ability to return things if you don’t like it if you buy access whether it’s getting lower pricing whether it’s them storing stuff for you free of cost and delivering it when you need it. So you can get a lot of value just by asking. [00:27:41.86] spk_0:
Excellent okay so yes don’t don’t be afraid like you said, you’re gonna be no worse off, [00:27:48.58] spk_1:
yep. All [00:27:50.87] spk_0:
right, so you just brought up some excellent terms, you know, people are not going to think of this. I don’t know, maybe maybe listeners are brighter than their lackluster host things like returns, return terms, storage, [00:28:06.55] spk_1:
you know, [00:28:37.24] spk_0:
we’re short on, we’re short on freezer space, you know, can you store for for 10 days we will pay for it. But can you hold it? I mean that those are I mean that’s a simple thing for uh A grocery or you know, a meat uh vendor to provide. I mean they probably have 10,000 square feet of storage space. So carve out a little bit for our for our side of beef for you know, for our whatever’s alright, alright, returns storage, okay. Uh let’s talk more, you know, pricing payment uh warranty warranty terms, help us understand what’s what we could be benefiting [00:30:04.31] spk_1:
from. Sure payment terms, that’s a that’s a great you know, item of value that that you know, a good solid sourcing can open up and and frankly it’s It’s not that difficult to get better payment terms. A lot of people don’t just don’t actually see value when there is real value on there. The sense of think about this if you were paying for what you buy immediately versus paying in 60 days or 90 days. There’s real value in keeping that money for another 60 or 90 days, maybe you’re borrowing something from the bank. Right? Maybe your cash flow is, is not quite, you know, uniform and there are peaks and valleys. This helps you build up your working capital. And again in these cases I find that a lot of people are, don’t even think about going and asking the supplier to give them 60 day payment terms. Right? If you’re flush with cash, different story, you couldn’t care less. Maybe the cost of money to use zero, you just pay up. But even then I would say ask if you’re going to pay immediately, ask for a discount, Right? vs paying in 30 or 60 or 90 days. [00:30:07.12] spk_0:
Yes, brilliant. Right. Right. Yeah. I think I’m certainly not thinking of when you talk about payment terms, I’m thinking of price, give us a discount but payment over time. Give us 60 days, 90 days and if we’re gonna pay immediately, give us give us a deeper discount. Yes. [00:30:25.71] spk_1:
Yes. Yes. So you have [00:30:27.96] spk_0:
like, you know, [00:30:45.59] spk_1:
2%, for example, the terms like uh, 2% 30 net 60, which basically means, Hey, if I pay you within 30 days, I’ll take a reduction of 2% in the, in the price. Otherwise I’ll pay you in 60 days. You know, you can structure a lot of different kinds of payment terms. Keep it simple again, let’s not complicate it too much. Um, just say you’ll take a discount if you pay upfront. Otherwise you want that 60 payment terms. So you pay them after 60 days. [00:31:07.56] spk_0:
Okay? You sound like a real insider would say uh 2% 30 net 60. All right, come on. You’re dealing with a savvy buyer here. Let’s, let’s talk about, let’s start. [00:31:13.65] spk_1:
Let’s, [00:31:14.46] spk_0:
Let’s talk about 2% 30 net 60. Come [00:31:16.81] spk_1:
on. This [00:31:18.77] spk_0:
is where we should be starting. Alright, alright. I’m an inside buyer now. Alright. Anything else about price or payment terms? Anything else in that in those categories? [00:32:28.52] spk_1:
Yeah, I also recommend think about you may think you’ve negotiated the price and everybody goes back happy and then on the invoice show that you’ve got three additional items that it do it right. It could be um delivering, afraid they could be afraid of charge. Hey, fuel prices gone up. My transporter is now charging me a fuel surcharge. So I’m going to get it from you. So look for some of these hidden things and discuss it up front. That’s why having a good contract in place, health, You know, you want to be very clear what you’re finally gonna pay for that product. They’ll put handling child this child and that child and suddenly looked at your phone bill, you know, like 15 items they’ve added to it and who knows where that money goes and it ends up being 20% of your of your actual what you thought you were gonna pay and adds another 20% of it. Um So so being very clear about what are these additional items or making sure that your price reflects what you’re actually gonna pay. Plus maybe a sales tax. So make sure you know who’s gonna, you know who’s gonna, who’s gonna pay for the freight. Are there any handling charges um for [00:32:49.23] spk_0:
for nonprofits or even their their sales tax exempt? [00:32:53.46] spk_1:
Yes. [00:32:54.85] spk_0:
So I mean that’s really not even something to negotiate. That’s just that’s just state law. You give them your I. R. S. Tax determination letter and they should not be charging you sales tax. So, but you know, you’re mentioning lots of other terms beyond beyond your sales tax. Just making the point that sales tax is just that’s a given. [00:33:14.90] spk_1:
All [00:33:21.77] spk_0:
right. These are excellent. Come are great insights, great insights. Um uh warranty, let’s talk about warranty terms, [00:35:27.37] spk_1:
sure warranties, you know, very from product to product. Sometimes. Often the suppliers will will say, hey this is our standard warranty, right? You know, you buy a piece of software, they’ll say, you know, 90 day warranty, which means the 90 days you can return the product, But there’s a lot more that goes into this, right? So you would want to understand now in the case of things like software products, you know, people may say, you know, 90 days you can return the product, but we will give you a replacement. Like product, we’re not gonna refund your money, right? You need to understand that. That’s what is gonna happen right? If you want your money back, you’ve got to be very clear that the warranty is money back and then you have to be very clear about understanding what qualifies as a warranty, right? Is the product the fact that you open it and then realize it doesn’t work for you. They will typically water into their specifications. If your specifications are different from their specifications then guess what you’re stuck. It doesn’t meet your specifications. So again, it goes back to kind of that whole RFP kind of question. Think about what it is you want to buy and what’s important to you, right? And you can negotiate warranty terms. If you’re able to consolidate and have a large enough spend, if you walk in and say, hey I just want this For you know $100. They’re probably not gonna negotiate warranty with you and you don’t want to spend your time doing that either. But if you’re gonna spend $100,000, you probably want to want to negotiate good warranty terms and understand when warranty kicks in and if warranty kicks in, what’s the remedy, right? Do you want your money back? You want them to replace it with another product and if they replace it with another product, you want to make sure that that product works. So think about warranty as something that gives you protection um that what you are wanting to buy is actually delivered to you. [00:35:34.76] spk_0:
Awesome, awesome. What else? I don’t want to let you go [00:35:38.78] spk_1:
yet. What [00:35:40.09] spk_0:
what else can we talk about buying wise that that I haven’t asked you about, [00:36:50.94] spk_1:
I think when you talk about, I like to, I like to say strategic sourcing and within that I’d like to talk about again, we talked about supplier relationships and management, supplier relationships with more than just meeting people and getting to know that it’s understanding how they’re actually performing in your environment, which means kind of having the data to understand your spend. You know if they were delayed, if they were late deliveries, if they were spoiled goods, having that data to have a really robust conversation with your supplier and to make sure that that they performed to what you expect them to perform and if they don’t there could be penalties. So managing your suppliers performance can be a, can require a little bit of effort but it tells the supplier that you are serious about how they perform for it. So [00:36:55.30] spk_0:
just by just by opening the conversation you’re you’re letting them know that you have standards that you expect them to meet. [00:37:49.90] spk_1:
Yes, yes. And tracking those standards. So having data um the other thing that’s valuable now is using technology. So really the underpinnings of all these other strategic sourcing and you know, supply management, the underpinnings are really three things people process and technology, right? Having the people who have the skills to do this kind of work, having processes that are repeatable and not just ad hoc so that everybody knows how this process works and frankly having good technology and today there’s a lot of technology available that can at least automate and make life easier for the people who are doing this kind of work right. There are simple subscription software that can help you do your sourcing much more efficiently, that can make your organization look a lot more professional when you’re going to suppliers and that can help that can provide the data for you to analyze and look at what your spend looks like. A lot of cases. I find people don’t even know what that actually looks like, [00:38:14.66] spk_0:
what this the technology. Uh are there any platforms that you can name that? Not necessarily endorse, [00:38:23.16] spk_1:
but [00:38:24.03] spk_0:
I’m not sure folks are familiar [00:38:26.03] spk_1:
with [00:38:30.11] spk_0:
procurement software applications. [00:39:11.08] spk_1:
I would, there are, there are lots and lots of, you know, sourcing software available. tony What I recommend is just google for Gartner’s Magic quadrant. Gardner is is as you know, you know, this advisory firm consulting firm that does a lot of work in in in the technology space and they they publish a magic quadrant where they identify the top dozen 15 supplier technology suppliers and a whole plethora of different spaces and out of that you can actually pick and and and drill in and see, you know who those suppliers are, what are their strengths, What are their weaknesses. And then you can decide which three you want to talk to. So I would say start with that Gartner magic quadrant in the space in which you’re interested in uh in the technology that you’re interested in. [00:39:48.38] spk_0:
Okay. The Magic Gartner’s magic quadrant. Alright. Um Alright leave us leave us with something else. This is incredible. You know, I don’t think people are thinking about this at all. I know sophisticated strategic sourcing which I almost put you in jargon jail for. But you were you flush you flushed it out so I didn’t feel you deserve to be sentenced to jargon jail. [00:39:59.43] spk_1:
Uh [00:40:22.93] spk_0:
You’re you’re you’re you’re you’re helping us. So we we we take these things in the cooperation we have a cooperation agreement. You’re kind of we flipped you we picked your brain uh We flipped you to a cooperating witness. So no no sentence. What else? Anything else? Anything else you can leave us with around the relationships or the consolidating or being [00:40:26.90] spk_1:
strategic. [00:40:28.54] spk_0:
All this negotiation that we talked about. What else can you leave us with? [00:40:36.32] spk_1:
Um The thing that the one thing that I leave you with a couple of things that I would leave leave your [00:40:43.19] spk_0:
is [00:42:18.74] spk_1:
um focus on sourcing. Uh make sure that you’re actually paying attention to it because a lot of money could throw out the door and you don’t even know it number two. Uh as I mentioned earlier just to recap, look at sourcing as these, as strategic and as supplier management. Two big buckets. Strategic is what you buy, how you buy it from whom you buy. Supplier management is about once you’ve decided your supplier and you’re you, you know what you’re buying that the supplier performs the way you want them to perform. And the underpinnings of these are the kind of talent you have, the kind of processes you have and the kind of technologies you use. Think about this landscape and make sure that you have the talent available to focus on each of these areas. You don’t have to boil the ocean right pick on a couple of them consolidation to drive value negotiations. There are lots of great negotiation training courses available, develop your talent, you know, give them the skills tools and abilities to do the job more effectively for you. And I think at the end of the day you will find that it adds a lot of value. It streamlines your processes and you don’t have to run around with your hair on fire because of emergencies. Now those will happen. But you’ll be better positioned to manage them and having good relationships with your suppliers will again make it much easier for you to manage those ups and downs and emergencies that are bound to show up. [00:42:49.99] spk_0:
Mark Cannon, He’s Kay Cannon, K K A N N A N at Procuring services dot com. The company is at procuring services dot com camara. Thank you very much for sharing all this expertise. [00:43:04.82] spk_1:
Thank you for having me tony for the real pleasure. [00:43:32.16] spk_0:
Thank you. Next week. Eric Sapperstein returns by popular demand. If you missed any part of this week’s show, I beseech you find it at tony-martignetti dot com. Our creative producer is Claire Meyer Hawk shows, social media is by Susan Chavez. Marc Silverman is our Web guy and this music is by Scott’s tony Thank you for that information. Scotty B with me next week for nonprofit radio big nonprofit ideas for the other 95% go out and be great.
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[00:01:50.34] spk_0:
Hello and welcome to tony-martignetti non profit radio big nonprofit ideas for the other 95% I’m your aptly named host of your favorite abdominal podcast. Oh I’m glad you’re with me. I’ve come down with Treacle. Oh my itis if you strangled me with the idea that you missed this week’s show, spend wisely as you buy, let’s talk procurement odds are you can save big if you shop smartly consolidation group purchasing organizations negotiating payment terms, warranty terms these will all save you money Kumar cannon from procuring LLC educates us on tony steak too. I’m grateful. It’s a big pleasure to welcome Kumar con into non profit radio he is principal of procuring LLC. He has 30 years of global leadership experience in sourcing and procurement. He spent 16 years at Owens corning where he managed an annual spend of $900 million in categories such as I. T. Marketing HR and finance Kumar also led IT sourcing at American Airlines for eight years. The company is at procure all services dot com and he’s taken in K A N N A N at procuring services dot com Kumar Welcome to nonprofit radio
thank you, Tony, very happy to be here. [00:02:24.25] spk_0:
It’s a pleasure to have you. So let’s talk procurement. Uh you’ve you’ve you’ve spent a lot of money over 30 years but I see it’s it’s your job to spend other people’s money wisely wisely. Right carefully thoughtfully. All right, so what do you think? Generally because we have plenty of time together high level what do you think nonprofits could be smarter about buying wise [00:03:54.60] spk_1:
I think I’ll speak generally to that tony Um, companies tend to not place in my view as much focus on sourcing and procuring smartly as they could. Often it’s an afterthought I think in many companies and, and nonprofits included in that their core business is their focus. And so this almost becomes an afterthought. But if you step back, Um, in nonprofits, 25-30% of their revenues is spent on buying things and services in manufacturing type of companies that can go up to 60%. So if you’re looking at a 500 million or a billion or a $5 billion dollar organization, that is a huge amount of money. Um, so it just makes a lot of sense to approach this in a structured fashion with the right talent, the right skill sets and right experience so that you’re making sure that you are not spending more than your shirt and that you’re not leaving money on the table because every dollar saved in procurement goes to the bottom line to either return to your shareholders or to use it in your projects and, and programs. All [00:04:39.03] spk_0:
Right now, our folks are most likely not at the billion dollar spend level or even billion dollar annual revenue level. Uh, you know, we have lots of folks who have annual revenues, annual budgets. Let’s talk about annual budgets in the low to mid-6 figures. So, but your point of course, well taken, you know, they’re still spending money on buying. You said 25-30%. Um They’re still buying things, they gotta buy things, least things they are terms associated with all these purchases and and we could uh we could be doing a little savvy er and and as you say of course putting money to the adding money to the bottom line. So the first thing I want to talk about is something dear to me because professional fundraising relationships, you know, people don’t think of this in terms of buying, you know, I need, I need a case of paper, I’m gonna run to the staples or I’m just gonna click and you click and buy and I’ll have it in a couple of days. [00:04:58.13] spk_1:
Uh talk [00:04:59.90] spk_0:
to me about relationships with, with your your vendors, how, how this is beneficial, how to build them up, why not just buy it as you need it, help us out with relationships. [00:06:36.45] spk_1:
Sure. And that’s that’s a really great you know, starting point on sourcing and procurement because it’s one of the things that even a lot of mature social organizations don’t necessarily focus on and I think having strong relationships adds a lot of value. Um The now you’ve got to be a little careful obviously about spreading yourself thin, so you want to identify who are the key suppliers with whom you want to invest that time and effort to build a relationship. These are typically suppliers that are providing either services or commodities that are core to what you are producing or delivering to other people to your customers, right? And managing those relationships is is not different than frankly managing good relationships even within your company. So when you run into supply chain constraints, when you run into, you know, inflationary markets, you can depend on your supplier because of your relationship to be able to put you on the top of their list versus a purely transactional sort of relationship. So when you look at your entire supplier landscape, what I generally recommend doing is identify that go with that 80 20 rule and identify maybe your top 10, 15, 20 depending on how many, how many suppliers you have any supply base as your strategic or constraint kind of suppliers [00:07:04.00] spk_0:
and for a lot for a lot of our listeners that maybe just five, you know that maybe there maybe 10 vendors overall and they can identify three or five where they’re spending, You know, I guess you’re spending 80% of your money on with 20% of your vendors, right? [00:07:51.22] spk_1:
Exactly, exactly, exactly. And you want to build a relationship with them, recognize that the supplier, sailors guides have a great visibility into your organization right there there to sell you stuff, right? But they’re also bringing their expertise and knowledge in the products and services they’re selling to you. So by having a good relationship, I like to say you’re kind of creating a disproportionate mindshare from the supplier, because you can use the suppliers, you can leverage suppliers expertise to create value for your end customers. And that’s an area that, that many many companies do not take advantage of. And I’m a big proponent of building strong supplier relationships because they bring a lot to the table, right? I may not have to invest in expertise. I could depend on the supplier to bring that to the table. [00:09:19.34] spk_0:
Let’s, let’s make this concrete with an example. Let’s take a let’s take a soup kitchen in a, in a food bank. So food is their primary expense. Maybe aside from labor, we’re putting, we’re putting labor costs aside. I’m sure they have a lot of volunteers in this hypothetical organization, but you know, labor may still be, but in terms of what they’re procuring from the outside, let’s say it’s, you know, it’s, it’s food, there’s grocery items produce, which they have spoilage issues. Um, and let’s say they have some, uh, they might have some trucks to maybe pick up food. They might have relationships with some, some supermarkets, some restaurants that they pick up food on, you know, probably daily basis. So maybe gas, gas insurance on the trucks, maintenance on the trucks, you know, those may, So let’s say food, gas, maintenance, those are there in this organization. There’s are there three top vendors with food being the predominant one, the number one, what, what can I expect from my my grocery and and produce and dairy suppliers that vendors that they can, they can help me with. [00:09:53.30] spk_1:
Sure. Sure. So if you think about food, uh think about a situation where your fragment of your food purchase amongst a lot of different suppliers, right? And you’re approaching it transactional e then you are exposed to kind of whatever the pricing is. If the food is, if that particular sort of food is available with that supplier, he or she is gonna decide who they want to sell it to, right versus if you have a relationship and you’ve consolidated this bank one, consolidating the spend leads to lower prices because now you have volumes whatever that volume, maybe maybe $100,000 right? Versus splitting it between 10 suppliers and spending 10,000 with each and then not known. [00:11:06.48] spk_0:
So even if even if some of the items that we buy frequently are more expensive with with one vendor, it’s still better. I’m not saying they’re expensive on their most expensive on everything, but you know, it’s maybe some key items, you know, maybe bread is more expensive from them than somewhere else, but their dairy is lower and and and we overall they just seem like a better company or like maybe they’re more reliable or something. It’s better to consolidate and pay a little extra for the what I say for the bread but have a relationship versus bread being transactional from the baker down the street and the but the dairy comes from the farm of and and the produce is coming from uh from the U. S. Supply or you know whatever these big companies are. So it’s better, that’s what you’re saying. It’s better to consolidate even on some of the items you’re spending [00:11:26.71] spk_1:
more exactly in total. You’ll be spending less and to you will be a bigger customer for that supplier when you call they’re going to pay attention to you right? And if you are connected well enough with them, they may be able to tell you, hey look this stuff is going to go up in price two weeks from now. We suggest you place the order right now the timing of the order can have right [00:11:32.70] spk_0:
not right. They’re not gonna, they’re not gonna inform all their customers. [00:11:36.78] spk_1:
They [00:11:37.18] spk_0:
may have 1000 customers. They’re not going to inform all their customers. Their prices may go up in a couple of weeks [00:11:42.30] spk_1:
or [00:11:47.16] spk_0:
they’ve got something else coming. You know, they see a shortage coming in something that you buy often they’re not gonna be able to write, they’re gonna do that with the folks, they have relationship with who are their their better customers, they’re bigger customers [00:11:58.91] spk_1:
right? And they may show up in time when you when you actually need something urgently they may actually go out of their way to deliver that to you quicker faster, cheaper. [00:12:03.22] spk_0:
Yes you get you get favor right? You’ll get favors. Okay, [00:12:06.98] spk_1:
Okay, [00:12:23.72] spk_0:
relationships and so should we, you know, like should we try to have meetings, you know, instead of doing this all online ordering and face? Well, you’re not going to build a relationship through online clicking and shipping, but instead of just phone, uh or you know, probably phone with most vendors. Should we, should we have meetings? I mean get meet face to face. Well, you know, when, when you’re in town, please come by things like that. [00:13:17.82] spk_1:
Sure. I mean, you can, you can get as sophisticated as you want or you can keep it simple but absolutely having that face to face, meeting that connection with your supplier helps a lot because always putting a name and a face together, meeting with them that forms a bond, you know, and people ultimately want to work with people, right? If I’m just a phone call or I’m a website, who cares? Right. Why would, why would you go out of the way to interact with me if you don’t know me at all? However, if you and I meet for coffee every now and then we could discuss business then that’s the objective, Right? I could be talking to you in those meetings about how my, I’ve spent with you, What are the kinds of things I’m buying and you may come back and say, hey look here are some alternative commodities that are coming down the road that might be better suited for your needs. They may be priced less. So you get an insight into things that otherwise would not be available if you treat it as just a transactional purchase. [00:14:00.90] spk_0:
And again this is you know this is your top, your top spend vendors now, this is not every vendor, this is your top three maybe or so something like that, where you see your spending the bulk of your money. Alright, the relationships and you know what you just said, we could have been talking about fundraising, we could just as easily been talking about fundraising relationships, what you just said in the last minute or so. Um Alright, relationships. So that leads to and you know we were talking about consolidating, consolidating around the vendors that [00:14:09.30] spk_1:
are that [00:14:10.51] spk_0:
are I guess. Well how do you, I suppose we are, let me ask you this suppose we are pretty fractured in our in our buying of food, how do we pick which vendor to consolidate around? [00:15:48.57] spk_1:
I think first you want to get a view into watch your supplier landscape. So who are you buying things from and how much are you buying and what are you buying? Right. And let’s say you talk about you pick a particular category and typically we categorize these categories for each of the different types of spend that big categories. Right? So food gas, maybe within food, you may have categories like you know there could be meat, there could be a vegetable, there could be something else, Right? Just depends on how large your operation is and how you want to categorize that there isn’t a straight answer for that, but you have to figure out what’s appropriate for you. So you build that category and then look at who are the suppliers in that space. Typically, if you have never done a competitive bid before, we generally recommend go out and put out an RFP, which is like a request for proposal to say, look Mr MS supplier, this is the kind of product we want to buy, right? These are the specification, these are the deliveries that we need and this is what we think we’re going to be spending overall from a quantity perspective annually, we’d like you to bid on this. So you get bids from different suppliers, look at the bed, see what, what kind of suppliers this is. Call them and talk to them and pick one and contract with them on an annual basis, [00:16:14.60] spk_0:
listeners, I just lost my internet, so tomorrow and I got cut off and so now you hear that my sound is not anywhere near as good as it was with my nice studio mic because now I’m on my phone, maybe our Kitchen and food bank could do an informal RFP like, you know, we we project spending $50,000 on and you know, uh you know over this, you know, like so much per month or you know, maybe we could do this in an email that is not as formal as a, as a full RFP. [00:17:39.91] spk_1:
Yeah, absolutely tony I mean, I, you know, I I don’t want people to be scared off by, you know, these jargon type of things like R, F, P S and R F Q and all, they can be as complex or as simple as you want it to be. Right. I mean just think about it. Just me, if you were to go to buy a car, you probably go to three dealerships and ask for quote, what you’re basically doing is an RFP you have in your mind, what kind of car you want, what specifications and you go and look for it, right, that’s exactly what an RFP is. But the only thing I suggest is just think about what it is you’re buying and to what, what are the characteristics that are important to you, right. How much you’re spending, maybe an idea of how that spend, you know, happens over the year. What are the kind of products you’re buying, What are the minimum requirements for those products? And I wanted to be absolutely, you know, one day old or I can live with a week old product, what does the deliveries need to be? You know, I need it yesterday or I can give you a week’s notice all those things, factor into the pricing that you receive. So if you sit and think about what exactly it is you want to buy and how you want to structure your spend. That’s an RFP, you could do it in one page or you can do it in 100 pages. [00:18:15.89] spk_0:
Okay. Okay cool and that that car buying analogy is perfect. So you’re you’re right as you’re shopping around the three different dealerships, there’s your RFP. Okay. Very so long as consolidation you have, there’s something, well there’s something called group purchasing organizations or G. P. O. S. How can we, can we find these or do we create them ourselves or what what what what flesh this out for us? [00:20:40.77] spk_1:
Okay so the G. P. O. S. Have been around for you know several decades. Uh They really started in the medical industry so small hospitals and clinics and all decided they didn’t have enough spend individually. So they like to get together and and combine their spend so then they have more power to negotiate and then go and talk to these big medical providers and put contracts in place with them. So GPS started in that space, they’ve expanded now into other areas like for example restaurant food supplies. There are several G. P. O. S. That cater to individual small restaurants. So if you started a restaurant you would go to one of these G. P. O. S. And sign up and become a member with them. Um early on in the early days they used to charge you a membership free. Now I believe many of them do not, right? And then you have access to their contracts and the prices they have negotiated now what you miss and that is you don’t have a direct one on one relationship necessarily with the supplier. However you have the choice, you have the ability to kind of take advantage of the G. P. O. S. Pricing and contractor. So for a lot of your spend again, if you apply the 80 20 rule as as a nonprofit you may say look 2080% of my spenders with these 10 suppliers and I want to have uh you know, direct relationships with them because they are extremely important to my uh to my services. However, the other 20% of the standard with like 500 suppliers, I would rather go to a GPO and just kind of pick up the best prices that they can offer. Right? So there are some G. P. O. S. Now, I believe the medical G. P. O. S are also expanding into non medical areas. Right? And then there are some G. P. O. S that cater only to, you know, the broader manufacturing and other service type of organizations. So nonprofits can certainly go and sign up for them. You can check them out on the website. I don’t want to necessarily endorse one or the other on the show because a lot of them have good services, they bring good capabilities to the table. They actually will help you consolidate your spend and actually analyze your spend to see how you’re doing, how, how you’re doing your spend and whether opportunities like to maybe make some changes in the way you buy things so you can, you can kind of rely on their expertise as well to take a look at your spend pie and see what’s the best way to structure it. [00:23:50.55] spk_0:
It’s time for Tony’s take two. I am grateful, very grateful to the many people and companies and nonprofit agencies that are helping me to promote planned giving accelerator for the next class starting in March, lots of webinars and podcasts uh guest spots and I’m grateful and I have to shout them out, gotta gotta recognize them. They are sherry, Kwame, Taylor Lawrence paige known, I wish he’s pronounced his name pinon but he doesn’t Julia. Campbell non profit solutions, hurdle Callahan, nexus marketing brian saber at asking matters. We are for good podcast NATO National Association of Y M. C. A Development Officers A F P Long island new york chapter J Frost and Responsive non profit podcast. I’m thankful to all these folks for hosting me giving me an opportunity to meet their audiences, give them value of course, talking about planned giving and then have a chance to explain plan giving accelerator. If you are interested in plan giving accelerator, it’s all at planned giving accelerator dot com help you launch your planned giving That is Tony’s take two And I’m sorry about the sound issues this week. The delays and it’s slowed down and dragged out. It sounds like somebody’s stepping on my tongue. But thank you for listening through it. This week. We’ve got boo koo, but loads more time. I love the book. Ooh, you gotta for spend wisely as you buy with Kumar cannon and maybe if we cannot find a GPO around what we’re procuring, uh, maybe we can partner with another. It could be anything, it could be a non non profit or could be a company in the, could be a company in your community or that you have a relationship with doesn’t have to be another nonprofit that you know, that they’re buying the same, the same, uh, goods that you’re buying the same food you’re buying. Maybe you can partner with them and, and negotiate, which we’re gonna get to negotiate better terms with a, with a common vendor when there’s, you’re, you’re buying more together than you are separately. [00:24:06.09] spk_1:
Absolutely. Absolutely. I mean you hit the nail on the head there. I mean, I would, I would also add to that and say, you know, think about your big donors, your big donors are probably sitting on some boards or some other companies that, you know, you’re going to them for donations. Why not go to them and say, Hey, look, you’re sitting on the board of Del. Why don’t you get me some good computers, you know, at a cheaper price or something like that. Right? I think you can access your your donor base to for that. [00:24:56.81] spk_0:
Yeah. Very good. I’ll bet I’ll bet for board members people are hopefully they’re savvy and they’re they’re thinking that way but good, good, good to say it explicitly. Um And you know, in our this hypothetical food food banks and soup kitchen that I set up. Uh you know, one of the one of the things they were buying was insurance. So I just want to make the point that this this does not apply only to tangible goods but services to you. You can have you you should have relationships with your insurers. [00:25:07.05] spk_1:
You [00:25:07.78] spk_0:
can create your own GPO around insurance buying. [00:25:11.67] spk_1:
Right? [00:25:12.31] spk_0:
And this all applies to services as well as goods. [00:25:25.57] spk_1:
Yes. I mean I think the point you make tuning on kind of uh several maybe, you know, nonprofits kind of coming together uh and maybe hiring even an advisory firm to help consolidate their spin. So you can even create an informal gpu you don’t need to put a formal GPO structural place and you can take advantage of consolidating your spin. [00:25:42.88] spk_0:
Yes. All [00:25:43.79] spk_1:
right. [00:25:47.41] spk_0:
So let’s talk about negotiating and and you know, we’re gonna lump together I think [00:25:50.08] spk_1:
uh [00:25:51.46] spk_0:
you know, well [00:25:52.52] spk_1:
you [00:25:53.24] spk_0:
pricing and and payment terms and warranty terms these all these all fit together I think under negotiating. Um But let’s talk about just being comfortable [00:26:05.45] spk_1:
you [00:26:05.64] spk_0:
know getting comfortable talking about terms with [00:26:09.87] spk_1:
the [00:26:10.98] spk_0:
cos you’re spending money with [00:27:15.89] spk_1:
right? Um And you know a lot of us are just not comfortable asking like you know and we tend to take the price is given right Especially if it’s a commodity type of item. You know who goes to negotiate Kroger or whole foods or wherever you do your grocery shopping right? But if you spend a significant amount of money I would say ask. And that’s one of the biggest things that holds people back. We just don’t ask just going and asking and saying look you know I’m willing to put this much of spend through your organization. What can you do for me? And you’ll be surprised at the benefits you get just by asking that question. At worst they’re gonna say no we can’t do it. But the chances are they will give you something of value. Um So I think it’s getting over that initial hurdle of asking. And uh if you do that you know you can probably get a whole lot of additional value. Whether it’s in in in in in the ability to return things if you don’t like it if you buy access whether it’s getting lower pricing whether it’s them storing stuff for you free of cost and delivering it when you need it. So you can get a lot of value just by asking. [00:27:41.86] spk_0:
Excellent okay so yes don’t don’t be afraid like you said, you’re gonna be no worse off, [00:27:48.58] spk_1:
yep. All [00:27:50.87] spk_0:
right, so you just brought up some excellent terms, you know, people are not going to think of this. I don’t know, maybe maybe listeners are brighter than their lackluster host things like returns, return terms, storage, [00:28:06.55] spk_1:
you know, [00:28:37.24] spk_0:
we’re short on, we’re short on freezer space, you know, can you store for for 10 days we will pay for it. But can you hold it? I mean that those are I mean that’s a simple thing for uh A grocery or you know, a meat uh vendor to provide. I mean they probably have 10,000 square feet of storage space. So carve out a little bit for our for our side of beef for you know, for our whatever’s alright, alright, returns storage, okay. Uh let’s talk more, you know, pricing payment uh warranty warranty terms, help us understand what’s what we could be benefiting [00:30:04.31] spk_1:
from. Sure payment terms, that’s a that’s a great you know, item of value that that you know, a good solid sourcing can open up and and frankly it’s It’s not that difficult to get better payment terms. A lot of people don’t just don’t actually see value when there is real value on there. The sense of think about this if you were paying for what you buy immediately versus paying in 60 days or 90 days. There’s real value in keeping that money for another 60 or 90 days, maybe you’re borrowing something from the bank. Right? Maybe your cash flow is, is not quite, you know, uniform and there are peaks and valleys. This helps you build up your working capital. And again in these cases I find that a lot of people are, don’t even think about going and asking the supplier to give them 60 day payment terms. Right? If you’re flush with cash, different story, you couldn’t care less. Maybe the cost of money to use zero, you just pay up. But even then I would say ask if you’re going to pay immediately, ask for a discount, Right? vs paying in 30 or 60 or 90 days. [00:30:07.12] spk_0:
Yes, brilliant. Right. Right. Yeah. I think I’m certainly not thinking of when you talk about payment terms, I’m thinking of price, give us a discount but payment over time. Give us 60 days, 90 days and if we’re gonna pay immediately, give us give us a deeper discount. Yes. [00:30:25.71] spk_1:
Yes. Yes. So you have [00:30:27.96] spk_0:
like, you know, [00:30:45.59] spk_1:
2%, for example, the terms like uh, 2% 30 net 60, which basically means, Hey, if I pay you within 30 days, I’ll take a reduction of 2% in the, in the price. Otherwise I’ll pay you in 60 days. You know, you can structure a lot of different kinds of payment terms. Keep it simple again, let’s not complicate it too much. Um, just say you’ll take a discount if you pay upfront. Otherwise you want that 60 payment terms. So you pay them after 60 days. [00:31:07.56] spk_0:
Okay? You sound like a real insider would say uh 2% 30 net 60. All right, come on. You’re dealing with a savvy buyer here. Let’s, let’s talk about, let’s start. [00:31:13.65] spk_1:
Let’s, [00:31:14.46] spk_0:
Let’s talk about 2% 30 net 60. Come [00:31:16.81] spk_1:
on. This [00:31:18.77] spk_0:
is where we should be starting. Alright, alright. I’m an inside buyer now. Alright. Anything else about price or payment terms? Anything else in that in those categories? [00:32:28.52] spk_1:
Yeah, I also recommend think about you may think you’ve negotiated the price and everybody goes back happy and then on the invoice show that you’ve got three additional items that it do it right. It could be um delivering, afraid they could be afraid of charge. Hey, fuel prices gone up. My transporter is now charging me a fuel surcharge. So I’m going to get it from you. So look for some of these hidden things and discuss it up front. That’s why having a good contract in place, health, You know, you want to be very clear what you’re finally gonna pay for that product. They’ll put handling child this child and that child and suddenly looked at your phone bill, you know, like 15 items they’ve added to it and who knows where that money goes and it ends up being 20% of your of your actual what you thought you were gonna pay and adds another 20% of it. Um So so being very clear about what are these additional items or making sure that your price reflects what you’re actually gonna pay. Plus maybe a sales tax. So make sure you know who’s gonna, you know who’s gonna, who’s gonna pay for the freight. Are there any handling charges um for [00:32:49.23] spk_0:
for nonprofits or even their their sales tax exempt? [00:32:53.46] spk_1:
Yes. [00:32:54.85] spk_0:
So I mean that’s really not even something to negotiate. That’s just that’s just state law. You give them your I. R. S. Tax determination letter and they should not be charging you sales tax. So, but you know, you’re mentioning lots of other terms beyond beyond your sales tax. Just making the point that sales tax is just that’s a given. [00:33:14.90] spk_1:
All [00:33:21.77] spk_0:
right. These are excellent. Come are great insights, great insights. Um uh warranty, let’s talk about warranty terms, [00:35:27.37] spk_1:
sure warranties, you know, very from product to product. Sometimes. Often the suppliers will will say, hey this is our standard warranty, right? You know, you buy a piece of software, they’ll say, you know, 90 day warranty, which means the 90 days you can return the product, But there’s a lot more that goes into this, right? So you would want to understand now in the case of things like software products, you know, people may say, you know, 90 days you can return the product, but we will give you a replacement. Like product, we’re not gonna refund your money, right? You need to understand that. That’s what is gonna happen right? If you want your money back, you’ve got to be very clear that the warranty is money back and then you have to be very clear about understanding what qualifies as a warranty, right? Is the product the fact that you open it and then realize it doesn’t work for you. They will typically water into their specifications. If your specifications are different from their specifications then guess what you’re stuck. It doesn’t meet your specifications. So again, it goes back to kind of that whole RFP kind of question. Think about what it is you want to buy and what’s important to you, right? And you can negotiate warranty terms. If you’re able to consolidate and have a large enough spend, if you walk in and say, hey I just want this For you know $100. They’re probably not gonna negotiate warranty with you and you don’t want to spend your time doing that either. But if you’re gonna spend $100,000, you probably want to want to negotiate good warranty terms and understand when warranty kicks in and if warranty kicks in, what’s the remedy, right? Do you want your money back? You want them to replace it with another product and if they replace it with another product, you want to make sure that that product works. So think about warranty as something that gives you protection um that what you are wanting to buy is actually delivered to you. [00:35:34.76] spk_0:
Awesome, awesome. What else? I don’t want to let you go [00:35:38.78] spk_1:
yet. What [00:35:40.09] spk_0:
what else can we talk about buying wise that that I haven’t asked you about, [00:36:50.94] spk_1:
I think when you talk about, I like to, I like to say strategic sourcing and within that I’d like to talk about again, we talked about supplier relationships and management, supplier relationships with more than just meeting people and getting to know that it’s understanding how they’re actually performing in your environment, which means kind of having the data to understand your spend. You know if they were delayed, if they were late deliveries, if they were spoiled goods, having that data to have a really robust conversation with your supplier and to make sure that that they performed to what you expect them to perform and if they don’t there could be penalties. So managing your suppliers performance can be a, can require a little bit of effort but it tells the supplier that you are serious about how they perform for it. So [00:36:55.30] spk_0:
just by just by opening the conversation you’re you’re letting them know that you have standards that you expect them to meet. [00:37:49.90] spk_1:
Yes, yes. And tracking those standards. So having data um the other thing that’s valuable now is using technology. So really the underpinnings of all these other strategic sourcing and you know, supply management, the underpinnings are really three things people process and technology, right? Having the people who have the skills to do this kind of work, having processes that are repeatable and not just ad hoc so that everybody knows how this process works and frankly having good technology and today there’s a lot of technology available that can at least automate and make life easier for the people who are doing this kind of work right. There are simple subscription software that can help you do your sourcing much more efficiently, that can make your organization look a lot more professional when you’re going to suppliers and that can help that can provide the data for you to analyze and look at what your spend looks like. A lot of cases. I find people don’t even know what that actually looks like, [00:38:14.66] spk_0:
what this the technology. Uh are there any platforms that you can name that? Not necessarily endorse, [00:38:23.16] spk_1:
but [00:38:24.03] spk_0:
I’m not sure folks are familiar [00:38:26.03] spk_1:
with [00:38:30.11] spk_0:
procurement software applications. [00:39:11.08] spk_1:
I would, there are, there are lots and lots of, you know, sourcing software available. tony What I recommend is just google for Gartner’s Magic quadrant. Gardner is is as you know, you know, this advisory firm consulting firm that does a lot of work in in in the technology space and they they publish a magic quadrant where they identify the top dozen 15 supplier technology suppliers and a whole plethora of different spaces and out of that you can actually pick and and and drill in and see, you know who those suppliers are, what are their strengths, What are their weaknesses. And then you can decide which three you want to talk to. So I would say start with that Gartner magic quadrant in the space in which you’re interested in uh in the technology that you’re interested in. [00:39:48.38] spk_0:
Okay. The Magic Gartner’s magic quadrant. Alright. Um Alright leave us leave us with something else. This is incredible. You know, I don’t think people are thinking about this at all. I know sophisticated strategic sourcing which I almost put you in jargon jail for. But you were you flush you flushed it out so I didn’t feel you deserve to be sentenced to jargon jail. [00:39:59.43] spk_1:
Uh [00:40:22.93] spk_0:
You’re you’re you’re you’re you’re helping us. So we we we take these things in the cooperation we have a cooperation agreement. You’re kind of we flipped you we picked your brain uh We flipped you to a cooperating witness. So no no sentence. What else? Anything else? Anything else you can leave us with around the relationships or the consolidating or being [00:40:26.90] spk_1:
strategic. [00:40:28.54] spk_0:
All this negotiation that we talked about. What else can you leave us with? [00:40:36.32] spk_1:
Um The thing that the one thing that I leave you with a couple of things that I would leave leave your [00:40:43.19] spk_0:
is [00:42:18.74] spk_1:
um focus on sourcing. Uh make sure that you’re actually paying attention to it because a lot of money could throw out the door and you don’t even know it number two. Uh as I mentioned earlier just to recap, look at sourcing as these, as strategic and as supplier management. Two big buckets. Strategic is what you buy, how you buy it from whom you buy. Supplier management is about once you’ve decided your supplier and you’re you, you know what you’re buying that the supplier performs the way you want them to perform. And the underpinnings of these are the kind of talent you have, the kind of processes you have and the kind of technologies you use. Think about this landscape and make sure that you have the talent available to focus on each of these areas. You don’t have to boil the ocean right pick on a couple of them consolidation to drive value negotiations. There are lots of great negotiation training courses available, develop your talent, you know, give them the skills tools and abilities to do the job more effectively for you. And I think at the end of the day you will find that it adds a lot of value. It streamlines your processes and you don’t have to run around with your hair on fire because of emergencies. Now those will happen. But you’ll be better positioned to manage them and having good relationships with your suppliers will again make it much easier for you to manage those ups and downs and emergencies that are bound to show up. [00:42:49.99] spk_0:
Mark Cannon, He’s Kay Cannon, K K A N N A N at Procuring services dot com. The company is at procuring services dot com camara. Thank you very much for sharing all this expertise. [00:43:04.82] spk_1:
Thank you for having me tony for the real pleasure. [00:43:32.16] spk_0:
Thank you. Next week. Eric Sapperstein returns by popular demand. If you missed any part of this week’s show, I beseech you find it at tony-martignetti dot com. Our creative producer is Claire Meyer Hawk shows, social media is by Susan Chavez. Marc Silverman is our Web guy and this music is by Scott’s tony Thank you for that information. Scotty B with me next week for nonprofit radio big nonprofit ideas for the other 95% go out and be great.