Weather-wise, Day 2 (Monday) of the 2010 ISM Annual Conference started very much like the day prior—overcast and foggy. But that didn’t stop attendees from packing the exhibitor hall in the morning… It was more than the typical grabfest, with attendees spending some talking with exhibitors before loading themselves down with goodies. The exhibitors seemed to be pretty happy with the action on the floor and getting quality time with prospective customers. My company has a booth here as well—but instead of the usual products or services, we’re looking to “sell” our company as the employer-of-choice for a couple of top-notch procurement pros. Interestingly enough, Goldman Sachs had a booth right next door with the same idea—they’re looking for procurement talent as well (but they’re in Jersey City and we’re in DC).

The first session I attended was “World-Class Procurement: An Evolution of Value and Capability,” presented by the Hackett Group. The presenter, Chris Sawchuk, explained that procurement has become more “deliberate” since the economic downturn—focusing on “cost, cash, and risk.” I liked the description: “deliberate” implies “thoughtful,” and I agree that companies have become much more “thoughtful” in spending their hard-fought revenue on goods and services that they need. I also agree with the characterization of focusing on cash—companies are worried about reducing costs AND freeing up working capital.

In a recent survey, the Hackett Group determined that the economic downturn has been a boon of sorts for procurement pros—73% of the respondents reported that they were now involved in NEW spending areas where they had traditionally never been involved before, such as HR (sourcing benefits), Legal (hiring outside counsel), and IT. Chris cautioned that 2010 is the “Year of Agility” for companies and that procurement functions need to be onboard with corporate initiatives associated with preparing for lower growth, moving to global (not just multi-national) operations, and moving fixed costs to variable costs (meaning more outsourcing and contingent labor).

According to the Hackett Group, procurement functions are changing their priorities as well. In past surveys, the objective of cost saving was at the top of the list. Now, cost savings has dropped to third, being ousted by a focus on strategic sourcing (73% of respondents rated strategic sourcing activities such as supplier rationalization as numero uno) and upgrading procurement staff and skills (hallelujah, 63% respondents rated staff as the number two priority). Surprisingly, “going green”—greatly hyped in the media—was at distant number 13 on the list.

Fun Fact: The Hackett Group reported that world-class procurement organizations, on average, reported a 7% cost savings (which includes cost avoidance) in 2009. So, on average, if you’re saving more than 7% overall on your deals, you’re doing pretty good.

I was up next, giving my presentation entitled “Implementing Best Practices: The Procurement Maturity Model” to a packed audience of about 300 attendees. There’s only so much you can get across to a large group in around an hour’s time, but one of my goals whenever I give a presentation or conduct training is to offer some real-world job aids or at least tangible, useful advice. Based on feedback afterward, I think I did a good job of letting folks know how to use the Procurement Maturity Model in their day-to-day jobs to implement best practices.

After a yummy lunch of convention center chicken and what I thought was really bland fried fish (but what I later learned was a fried risotto) sponsored by Oracle, I was off to the next session. It was a tough choice in the afternoon, with “Critical Elements of Supplier Negotiation” barely beating out “Five Universal Best Practices That Help in Trying Economic Times” and what seemed to be some other very interesting sessions. The “Critical Elements” session was presented by Ernest Gabbard, Senior Director of Corporate Strategic Sourcing at Allegheny Technologies. Ernest has quite an impressive set of academic and professional credentials, including a law degree and a CPSM.

As a part of his presentation, Ernest provided a “Negotiating Plan Checklist” (which should be available on ISM’s website), with the stages of Preparation, Execution, Documentation, and Follow-up. I was happy to see that, of the one page handout, one side was dedicated to Preparation and the other side was dedicated to the rest. I agree with that philosophy 100%—successful negotiations are mostly a direct result of preparing.

Ernest first talked about what he considered the “most frequent negotiating mistakes” and they bear repeating here:

Inadequate preparation
Inappropriate strategy
Focusing on a single deal element (e.g., price)
Misunderstanding or misuse of power

So, how do you avoid those mistakes and ensure a greater likelihood of negotiation success?

Knowledge / Information
People and communication skills
Reasonable negotiation objectives / goals (not too low and not too high)
Planning and preparation
Appropriate strategy
Power / Leverage
Tactics and counter-tactics (to ploys)
Time and timing

Another interesting topic that Ernest touched on was what he calls “relational negotiation,” which is intended to assess the impact of negotiating elements on a vendor relationship. For example, the impact of employing ploys and tactics—do they build or destroy trust? Another example is the impact of the negotiation process—is it conducive to building trust? The point is to be aware of the impact of a negotiation on the more extended delivery process. Did you achieve a great negotiation result with the unintended side effect being that you better be looking over your shoulder because the supplier is, some how, some way, going to make it up when delivery the negotiated product or service? So, a word of caution—just because your vendors may have gigged you when the economy was going gangbuster, don’t try to “get back” at those vendors during this down economy because things (i.e., the economy) will change again.