Knowing how to negotiate gets more bang for the buck
By Doug Sweet
Most people are familiar with the concept of customer rewards. Buy a certain amount from a retailer and you’ll get so many points or so much discount or so much cash back at the end of the year.
On most household purchases, we’re talking about points that will take forever to amass into something worthwhile or rebates of a few dollars.
When you spend more than $300 million a year, things change.
The adoption by the Board of Governors last spring of an official Procurement Policy for the University means a lot of things, said François Pouliot, Director of Procurement Services. Not only does McGill now have a set of guiding principles to ensure integrity, sustainability and accountability, the University takes a much more active role in helping departments and individuals get more bang for their buck – whether it’s buying toilet paper or electron microscopes.
“We finally have a procurement policy,” Pouliot said. “The biggest difference is that we didn’t have one; now we have one.
“We’re there to support. We have a services plan we call VALU –Verify compliance. Accentuate quality. Leverage efficiency. Undertake cost reductions.
“We also want to provide support in terms of providing the right tools,” he said. “We also get feedback from the McGill marketplace. We receive hundreds of comments almost every month on the P-card program, how it is restrictive and inhibitive in certain ways, and so we are in the process of revamping the P-card program. It’s been in place since 2002, there’s been 11 years of evolution in technology and service levels that banks can offer now that we need to explore and see how these can better support our users.”
Changes in 2008 to provincial laws, which govern purchasing by public bodies, made purchasing processes much more complex, Pouliot said. And reductions in budgets didn’t help.
The University had stalled in trying to develop and implement a procurement policy, usually because it was confusing policy with operating procedures, Pouliot said. So McGill reviewed procurement policies from the other U15 universities in Canada and another dozen in the United States, then cherry-picked from the best of them.
Focus on cost-reduction
An engaging, outgoing individual with a big smile and a firm handshake, Pouliot came to McGill in June 2011, having spent time as a consultant in procurement and the preparation of purchasing bids and having worked at Bombardier Aerospace and Bombardier Transportation, where he was exposed to the tendering and public contract processes.
He’s delighted by the sense of accomplishment the new job has given him.
“More and more, we’re focusing on cost-reductions,” he said. “When I came on board, cost reductions were looked at negatively, probably because of experience with several bids that were handled through the lowest price. … After 2008, we probably went overboard on lowest price, which introduced some lacklustre performance from suppliers.”
Whatever purchasing option is appropriate, the mission of Procurement Services is to try to keep McGill’s costs down so that even if spending isn’t necessarily cut, the University will get more products or services for the money it spends.
Often, it’s as simple as knowing how to negotiate. Buyers in Procurement Services aren’t necessarily experts in many of the highly technical purchases a university makes, but they do know how to get the best deal.Pouliot used a fancy microscope as an example. Procurement Services staff can go to the researcher who needs to buy that microscope and say, in effect, “look, if you go to the company and do this and this and this, you can get yourself a better price. You can get yourself an extended warranty to go along with the purchase you are making.”
It is paying off. “In fiscal 2012, $43 million worth of contracts passed through this office, here. On that, our average cost saving was 4 per cent. So you take that $40 million and you apply it to an $80-million spend or a $100-million spend … you get a very decent cost saving right there. And that was last year, without having some of the tools and some of the further expertise that we have developed.
“We want to be more aggressive. We want to lose less when we enter into a contract, not be so lenient with suppliers.”
On laboratory supplies alone last year, Procurement Services was able to save about $40,000, Pouliot said.
“My objective is to bring it [the cost reduction factor] to 5 per cent. And that’s 5 per cent of $100 million, which means $5 million.”
Smart tendering
McGill was able to save more than $500,000 on a $2.1-million lighting fixture contract, Pouliot said, by smart tendering and smart purchasing.
It’s examples like this that he thinks will help him sell his services at the University.
“We can buy smarter. It’s playing the laws of the market – supply and demand – the way you will approach the market, you have to be able to influence the market, either demand or supply and preferably both.”
And reap the savings in the process.