378: Collaboration or Competition: Cost Transparency Settles the Debate w/ Rod Sherkin

Good negotiation skills are fundamental to procurement. They allow us to maximize value while simultaneously building resilient, low-cost supply chains. But now that procurement is moving towards collaborative partnerships with our suppliers, many are concerned that reducing direct competitive pressure will inadvertently allow higher pricing.

Cost transparency allows procurement to balance collaboration and negotiation. By focusing on the primary material and service cost drivers of what is being negotiated, and using trends and should cost modeling, it is possible - and effective - to have fact-based pricing discussions with suppliers. Procurement can keep their prices in line with supplier costs and preserve the relationship by acknowledging the need to allow them overhead/gross margin and building both into the model.

In this podcast, based on an AOP Live session, Rod Sherkin, Founder and President of ProPurchaser and a former CPO, answers live audience questions about:

• Whether procurement needs to take their relative size and buying power into consideration when using should cost modeling to manage a spend category
• If there is an approximate or ballpark overhead margin percentage procurement can use when building a first-pass should cost model
• How to introduce should cost models with incumbent suppliers where they have not been applied in the past