How Effective are Non Purchasing Groups at Negotiation Based on Total Cost for Their Needs? IT and Operations tend to get the best total cost when negotiating on their own for content specific to them. Engineering groups leave most value on the table when negotiating on their own during product development stage. HR and Finance groups have the lowest level of result regarding established items. All groups benefit collaborative support of a professional Purchasing group.

1. How Effective are Non Purchasing Groups at
Negotiation Based on Total Cost for Their Needs?
William Kohnen
Roundtable Discussion Proposal for
Global Purchasing Symposium for CPOs
Effectiveness of Non Purchasing
Groups

2. What was considered?
 Survey and benchmark data considering
effectiveness of various corporate departments in
negotiation based on total cost:
IT Operations Sales
Quality Engineering HR
Finance
 Impact of negotiation out of area of expertise
generally results in worse outcome

3. Summary of Findings
 IT and Operations tend to get the best total cost
when negotiating on their own for content specific
to them.
 Engineering groups leave most value on the table
when negotiating on their own during product
development stage.
 HR and Finance groups have the lowest level of
result regarding established items.All groups benefit when engaging with a Professional Purchasing Staff for
Assistance

4. Group Cost Service
Level
Quality
Delivery
Schedul
e
Supplier
Managemen
t
Total
Grad
e
Performance Relative to Purchasing
IT B A B B B+ About Equal but need help on detailed
business terms and Payments
Operations C B B B B- Purchasing can add value to exceed
operations goals via benchmarking with
other options but operations generally
risk averse
Sales B B C C C+ A unique domain but if Purchasing is
accepted they can contribute. If Sales
does not really want help then they will
do better on their own.
Quality C C C B C+ A real opportunity area.
Engineering D B C C C Working together upfront on new
projects Engineering and Purchasing
can drive out lots of costs. Once
product or service establish leaving to
Engineering will result in sub optimum
total cost.
HR C C D C C- Another unique domain where
Purchasing can contribute if allowed.
Otherwise suppliers in this domain do
very well.
Finance C D C D D+ Managing internal Finances does not
translate well to negotiation with
suppliers for cost or performance.
Salespeople love to make a deal with a

5. Cost Increase when Group Negotiates
Alone
Group Increased Total Cost By Having
Department Negotiate with and Manage
Supplier without help
IT 5% to 15%
Operations 10% to 20%
Sales 20% to 30%
Quality 20% to 30%
Engineering 40% with new Product Development
20% once established
HR 20% to 30% as some of spend is regulated.
Finance 20% to 35%
Equally Important: Purchasing Groups Negotiating without
collaboration of key stakeholders will not optimize results either!!!

6. Conclusions
 Leaving negotiations to individual departments
will lead to increased total costs
 Benchmark data shows that various departments
tend to do better than others when negotiating
content for their use.
 Results get much worse when departments move
outside of their expertise
 Each company must evaluate its spend profile vs.
how each department generally does

7. Specific Items for Consideration
 Provide assistance to Engineering and R & D
teams early in the development process.
 For companies with high direct operations cost
focus on support to Operations by Purchasing is
a core area
 Other areas such as IT, QA, Sales and HR offer
varying degree of opportunity and impact
 Generally having Finance involved directly with
external discussion regarding suppliers leads to
the worst total cost.