Interview by Grand Rapids Area Professionals for Excellence. Corporations seeking to achieve significant cost reductions risk degrading their product or service quality. However, companies can reduce their vendor payments without such sacrifice - regardless of the procurement process. And often with improvements in terms, warranties, credit limit & relationships.

What is your background?

After my military service I spent over 5 years in public accounting and then 19 years working for 3 different corporations - 2 years as a corporate controller and 17 years as the CFO. The last 12 years of which I served as the CFO for the US and Canadian operations of the European-based public company. I served as President of the US holding company during the last 6 years of my tenure there. During these 12 years I was heavily involved in the acquisition and corporate integration of 15 companies in North America. When I first left the European-based company in 1988, I formed my own turnaround company that I ran for 9 years. My proudest achievement in my turnaround business was that I never had a client that filed for bankruptcy protection.

I returned to the European company when they asked me to take over from the CEO of their US operation who was due to retire in 1999 and they were planning on going on an extensive acquisition run. I left them at the end of 2005 after meeting my wife-to-be. I moved to Grand Rapids when I started Parry Murphy and Associates in 2006.

My international experience has given me a big advantage in today's international market place. My sole focus now is to help clients negotiate better pricing with their suppliers and service providers, while preserving product integrity and supplier relationships.

How did you get interested in helping companies reduce their costs?

When I was in public accounting I knew I needed to specialize in something. I did not want to stay in public accounting or taxation and within my first few months of being a corporate controller I found myself getting involved in the operations side of the business, especially process improvement and cost reduction. I very quickly realized that achieving efficient cost reductions without the negative consequences was an art that I had a natural instinct for.

The first major cost reduction achievement that I recall was when, as a 26 year old CFO for the second largest poultry producer on the African continent, I had the responsibility to purchase a new communication system in South Africa. The approved capital budget was about $300,000 (quite a bit of money in those days) which was established from the initial quotes. There were two companies qualified to supply the equipment, Plessey and GE (the British GE). There was new technology out and only Plessey had any units installed in the country. Plessey wanted to keep GE from making their first sale of the new equipment in the country and GE was keen to make their first sale.

In my discussions with both suppliers I quickly realized their individual goals. Within a very short time I had negotiated with GE that they would supply and install the equipment for free, and service it for free for 5 years. After 5 years they were to remove the equipment for free (if requested) and give us the option to purchase any of their then modern equipment at 25% less than their discounted price list. In return we allowed GE to bring no more than one of their potential customers a day, with a 3 day advance notice, to our location to show them their equipment. Within a year they had sold sufficient new systems that they no longer had the need to bother us with site visits from potential customers.

And that is how I fell in love with the art of negotiating a win-win deal. I have many more examples but there is not enough time or space. My greatest satisfaction today is to have a client say "Wow! Well done". Genuinely loving what you do every day infects those that you work with.

Was there any one common denominator in your most significant success stories?

Absolutely. It is a client who is committed to reducing costs and who is willing to follow our unique process. The one thing we cannot do is to help a client who does not want to help themselves.

Why do companies miss the obvious when seeking to contain costs?

They do not do their homework properly and then they make the process too complicated. Too often companies pay a higher price and defend it by hiding behind the relationship. Many companies struggle to get fresh ideas from critical out-of-the-box thinking. In many cases the attitude is if it is not obviously broken, why fix it? Our unique process enables our clients to get a better price, mainly from the same supplier, while improving the relationship and preserving product integrity.

Is the procurement process at all relevant for companies seeking cost reductions?

Of course it is. But our unique and proven process enables our clients to achieve substantially better pricing than if they followed their own proven processes.

What actions do corporations take when seeking to achieve cost reductions that are harmful or "miss the mark"?

The most common mistake a corporation can make is to allow a supplier to intimidate them. Especially with regard to the value of their relationship (if the roles were reversed and they had an important customer that they had good reasons to seek a lower price and they granted that reduction, they would actually strive for an even better relationship in order to avoid situations that would erode the lower margins). For me, when someone uses the excuse of good relationships to defend high prices, it is a big red flag.

Handled correctly, better relationships with suppliers can be developed with those who do not have the luxury of high prices. After all, high prices often finance a supplier's errors or lack of attention to satisfying their customer's needs. It all depends on how you manage the relationship.

Allowing the supplier to threaten or reduce content for a price concession is also very harmful. Sometimes companies back themselves into a corner. And that diminishes their credibility for future negotiations. For example, telling a supplier with a quote for $100 a part that they need to be at $90 a part in order to be awarded a purchase order - and then still awarding them the order if they have not achieved that price level. We have techniques that avoid that situation, even though the order was placed at say $92 a part.

The cost savings you talk about are generally reserved for larger companies. What size are the companies that find your recommendations most advantageous.

Actually our process works regardless, within reason, of the size of the company. We recently negotiated a price reduction in excess of 50% where the annual buy was only $100,000 from a $7 billion supplier. And the supplier thanked us, in writing, and wished all their other negotiations were as pleasant. It all depends on the strategy developed and followed in order to achieve a win-win result.

What is one tip that you can leave CEO's and CFO's with in regard to achieving cost reductions?

If it is only one tip then the answer is easy... Hire Parry Murphy and Associates to be their partner in their cost reduction process. We guarantee results with a minimum dollar savings amount. We have the track record and the testimonials.

If I had to give a second tip, it would be that nearly everything is negotiable. It is better to try and be 80% successful with a win-win negotiation than to not try and keep 100% of your current pricing. However, with the 80% win-win negotiation, most companies do not have a face-saving strategy for the 20% they lose and therefore they lose credibility the next time they try to negotiate with those suppliers. Our unique process avoids those situations.

Hope is not a Strategy

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