Archive for February, 2011

Are you familiar with PICOS? While you may not recognize the acronym, you probably would recognize PICOS in practice, especially if you regularly deal with aggressive and well-trained purchasing department representatives.

PICOS stands for Program for the Improvement and Cost Optimization of Suppliers. It’s a supply chain management process that was developed at General Motors in the late 1980’s with the goal of dramatically reducing suppliers’ product and service prices, transferring as much supplier profitability to the buyer as possible.

PICOS-trained buyers develop and use well-orchestrated, company-wide plans to convince sellers that their offerings are no different or better than those of their competitors, and that getting a low price is the overwhelming factor in the customers’ purchasing decision.

PICOS-trained buyers repeatedly bring up price during negotiations, and frequently resort to threats to end negotiations, buy from a competitor, or complain to supplier executives when salespeople try to hold the line on discounts and giveaways. You may be thinking “most of our customers use these tactics; how is PICOS different?” It’s different because PICOS training materials specify the use of exaggerations and outright lies as acceptable means to a desired end.

While there is a lot more to understanding PICOS, there are some tactics that sellers can use to successfully combat it. Following are three of them:

1. Know your offerings and their value relative to your competitors, the customer and the situation. Unless you know what your products and services are worth to the customer in terms of the additional profit your customer can earn using your products vs. those of your competitors, you won’t be able to convince yourself or the customer that your offerings are special and deserve a higher price. When Purchasing responds to your claims of superiorityby saying something like “competitor X can deliver the same results”, your response needs to be along the lines of “no, they can’t; we’re the only company that has proven it in the marketplace at customers A, B and C.”
2. Never negotiate one item at a time; always think in terms of final context and package. At the beginning of a negotiation, an agreement to provide 80/20 payment terms instead of your standard 90/10 terms may seem like a small concession to make. However, that concession won’t seem insignificant at the end of a negotiation when it’s combined with other concessions such as lower prices, giveaways, additional field support, and tighter specifications. When the customer says “I need better payment terms”, your response should be “that’s certainly possible if you’re willing to agree to the price we’ve quoted”, or you can say “we’ll need to know and consider all of the concessions you’re looking for before we commit to any specifics.”The takeaway: you can give as many estimates as you want, but don’t make firm commitments on pricing, delivery, specifications, terms, field support, spare parts, or software until you know what’s really most important to the customer.
3. Keep in touch with the real decision makers and the ultimate users of your products. Once a week, send a well-written, fact-filled email to all the key people involved in the negotiation, including customer executives, users of your products, and your own management, documenting any agreements and commitments made by both sides during the previous week. You might also include any threats made by purchasing representatives. If purchasing people object, and they will, you can simply say that your management insists that you document the proceedings in detail and keep everyone informed of the status of the negotiation. Doing this will also incentivize everyone involved to be more civil and honest, and to keep the rhetoric to a minimum.

For more on how you can work successfully with PICOS-trained customers, contact us here.