Episode Thumbnail
Episode 233  |  33:58 min

A Discussion on Labor Spend

Episode 233  |  33:58 min  |  06.28.2021

A Discussion on Labor Spend

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This is a podcast episode titled, A Discussion on Labor Spend. The summary for this episode is: <p>There are a lot of vendors that capitalize on a company's inability to properly manage labor-based categories. Rich Ham (the CEO) and Matt Smith (the CFO and Executive VP) of Fine Tune join me today to discuss the management of these labor categories. Where do they see some of the biggest gaps in a company's abilities to do this? What can be done to remedy an otherwise tough situation? Listen to this procurement-focused episode of Negotiations Ninja to learn more!&nbsp;</p><h2>Outline of This Episode</h2><ul><li>[1:54] The nitty-gritty on Rich Ham + Matt Smith</li><li>[4:47] The inability to properly manage labor categories</li><li>[13:23] Managing a service versus an expense are two different disciplines</li><li>[18:35] Separating the labor hour from the operation of the labor hour</li><li>[20:32] What do you focus on in your negotiations?</li><li>[23:18] How to operationalize and manage a labor-based contract</li><li>[28:20] What can procurement teams do proactively&nbsp;</li><li>[31:14] How to connect with Rich Ham + Matt Smith</li></ul><h2>Resources &amp; People Mentioned</h2><ul><li>Fine Tune:&nbsp;<a href="https://www.finetuneus.com/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">https://www.finetuneus.com/</a></li><li>Fine Tune knowledge center:&nbsp;<a href="https://www.finetuneus.com/resources/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">https://www.finetuneus.com/resources/</a></li><li>Rich Young’s LinkedIn:&nbsp;<a href="https://www.linkedin.com/in/richkyoung/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">https://www.linkedin.com/in/richkyoung/</a></li></ul><h2>Connect with Rich Ham</h2><ul><li>Connect on LinkedIn:&nbsp;<a href="https://www.linkedin.com/in/richard-ham-51b38a10/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">https://www.linkedin.com/in/richard-ham-51b38a10/</a></li></ul><h2>Connect with Matt Smith</h2><ul><li>Connect on LinkedIn:&nbsp;<a href="https://www.linkedin.com/in/matthew-smith-4b986122/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">https://www.linkedin.com/in/matthew-smith-4b986122/</a></li></ul><h2>Connect With Mark</h2><ul><li>Follow Negotiations Ninja on Twitter:&nbsp;<a href="https://twitter.com/NegotiationPod" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">@NegotiationPod</a></li><li>Connect with Mark&nbsp;<a href="https://www.linkedin.com/in/markraffan/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">on LinkedIn</a></li><li>Follow Negotiations Ninja&nbsp;<a href="https://www.linkedin.com/company/negotiations-ninja-podcast" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">on LinkedIn</a></li><li>Connect on Instagram:&nbsp;<a href="https://www.instagram.com/negotiationpod/" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);">@NegotiationPod</a></li></ul><p><a href="https://plinkhq.com/i/1300435924" rel="noopener noreferrer" target="_blank" style="color: rgb(51, 122, 183);"><strong>Subscribe to Negotiations Ninja</strong></a></p>
Takeaway 1 | 00:00 MIN
Separating the labor hour from the operation of the labor hour
Takeaway 2 | 05:06 MIN
Managing a service versus an expense are two different disciplines
Takeaway 3 | 01:56 MIN
Separating the labor hour from the operation of the labor hour
Takeaway 4 | 02:39 MIN
What do you focus on in your negotiations?
Takeaway 5 | 05:09 MIN
How to operationalize and manage a labor-based contract
Takeaway 6 | 02:53 MIN
What can procurement teams do proactively
Takeaway 7 | 01:43 MIN
How to connect with Rich Ham + Matt Smith

There are a lot of vendors that capitalize on a company's inability to properly manage labor-based categories. Rich Ham (the CEO) and Matt Smith (the CFO and Executive VP) of Fine Tune join me today to discuss the management of these labor categories. Where do they see some of the biggest gaps in a company's abilities to do this? What can be done to remedy an otherwise tough situation? Listen to this procurement-focused episode of Negotiations Ninja to learn more! 

Guest Thumbnail
Rich Ham
CEO of Fine TuneConnect on LinkedIn
Guest Thumbnail
Matt Smith
Executive Vice President & CFO at Fine TuneConnect on LinkedIn

Mark: Welcome to the Negotiations Ninja podcast, where we develop and deliver the most engaging negotiation, content and training in the world. We host negotiation experts, business people and entrepreneurs, and discuss what works, what doesn't work and how we can improve our negotiation skills. Hey, Negotiations Ninja listeners. You've got Mark here from the Negotiations Ninja podcast. Today, we've got my friend Rich Ham and Matt Smith on the show talking all about digging into the analytics of cost related to procurement specific negotiations. It's an incredibly interesting discussion and we get really nerdy about the cost breakdown, cost allocation, how things are broken out. We could have gone on for several more hours into more and more detail, and I was afraid that we would get into the weeds on this one. I think we kept it high enough level for most people. However, if you really want to chat with these guys and get into the weeds with them on cost, they are the guys that know all about it. Enjoy this incredible episode with Rich Ham and Matt Smith. All right, gentlemen, welcome Matt and Rich. So happy you're here today for the listeners, just so that you know, we're going to get into the weeds today. We're getting to get into the weeds on analytics, cost analytics on labor and stuff like that. For many people they'll be like rolling their eyes, going," God, come on. How do you talk about this stuff?" But we totally nerd out on this stuff because this is the stuff that makes a difference at the end of the day. So I'll get these two guys to introduce themselves. Rich, tell us about yourself, who you are and what you do, and Matt, well go to you next.

Rich Ham: Sure. So thanks, Mark. Always a pleasure to join you for conversation. I'm Rich Ham. I'm a CEO of Fine Tune. I am here today with my founding partner, Matt Smith, who is our CFO and executive VP. It was almost 20 years ago now that I had an inkling to start a business that at the time was just a single niche category solution focused on the uniform and industrial laundering industry. I had worked at the industry leader Cintas, and thought that there was a good opportunity for a niche category consulting entity to target that particular expense, a very complex, we call it a nuisance expense. One where the relationship between monetary priority and management time is all out of whack. We saw a good opportunity there, but we knew we had an adaptable model that we would apply to other similar expenses over time. Over time, we found ourselves operating in the really complex services end of the indirect arena, and so we now specialize in. We're six inches wide and a mile deep specializing in, of course, our originally targeted expense, the uniform and laundering industry, the waste and recycling industry, the pest control industry, the security and guard services industry and in the early stages of a launch into the sanitation services industry as well. We do other indirect projects from time to time and other diversified areas for us. We could not possibly keep up with all that we were doing without my partner, Matt Smith or Smitty to me, presiding over the operational side of our business. Maybe you can give Mark a couple moments on your background.

Matt Smith: Thanks for having me, Mark. As Rich indicated, I am the CFO and executive vice president, co- founder as well of the business. While Rich's busy growing the business, I've been helping with the back office stuff quite a bit, and focusing primarily on our software systems. So we have our proprietary software system that helps us manage the complexities of all of these categories as Rich described. We're a mile deep, so we need some help there. We have expertise, but we also need some software, and that's really where we focus. Our attention is really our differentiating element is this combination of expertise and technology, which helps us to get into the weeds as you described at the top.

Mark: That's what excites me most about this conversation guys, because for the longest time, labor categories have been my job and purchasing labor within those categories has been my job. So when we think of it from that perspective, I really nerd out on a lot of this stuff, and especially when it comes down to how do you analyze the indirect costs that go into a lot of this stuff. What we're seeing and what you guys have seen as well is that there are a lot of vendors that capitalize on company's inability to properly manage a lot of these labor based categories that include people and outsource label or contingent labor, all that other kind of stuff. Where do you see some of the biggest gaps in company's abilities to really do this?

Rich Ham: Well, Mark, maybe since it's your first question of the day, I'll start at 30,000 feet and we can hone in from there. I think that it's worth noting as we embark on this discussion that we're here in early 2021, having in our firm from some of our first cousins in the expense management consulting arena are much younger than us. We're in our 20th year, and as such, we've lived now through two recessionary periods, and perhaps the most noteworthy thing that we've observed in our clients and prospective clients during that period of time is just this really significant leaning out of many corporate functions and procurement, certainly in various expense management. Functions are at the top of the list or near the top of the list of departments where existing resources are being asked to do the most in comparison to what they were responsible for managing 15 years ago. So while we understand why that has happened along the way that has created certain vulnerabilities and those vulnerabilities, I think are most noted in the areas that go just contracting for expenses, but actually managing costs on a month to month, week to week, year to year basis. The tendency now in an ultra lean procurement environment is for a contract to get done and that contract to be lobbed over the wall to operations and whatever happens from there happens, and then for accounting to pay bills and just everybody's doing whatever they can to keep up. But the missing element of course is, what's happening after contracts get signed? How are suppliers extracting profitability from deals? I think the vulnerabilities that we're talking about here are probably less important when it comes to simple widgets. You can probably manage a widget type expense pretty well by putting an optimal contract in place operations use the widget, accounting pays for it. But when you get into these really complex indirect categories where there's moving parts, nooks and crannies, discretionary charges by the supplier, a constantly shifting in the changing landscape, this is where the contract to execution gap is most significant. So as it relates to expenses where there's a labor component in addition to the products and services being provided, this gap is probably most pronounced. I mentioned to you earlier today that Matt has been deeply immersed in a product launch surrounding the security guard services industry, and Smitty, maybe you can comment a little bit on, in more directly answering Mark's question, where are some of the areas that we're seeing projected savings disappear into thin air and the road after deals get?

Matt Smith: Yeah. I think the way I've been thinking about it is, and it goes to just the fundamental reason for outsourcing this type of expense. You don't want to have to manage people in- house. So you pay some third party to actually employ those people that you need and you think you're okay." Hey, I got some third party solution here. They're going to employ all these people. I don't have to worry about it, and everything's good." Everything should work out great at that point, but as we know that isn't the case, and I think what we're finding is that we really have to get you into that minutia that you were describing, Mark. I mean, you have to manage it at the highly detailed weekly employee level, but it runs counter- intuitive right. I mean, that's why they're outsourcing these expenses in the first place. They don't want to have to do that, and it's very difficult for large organizations in particular to do it at that level. So mean. I think that's the fundamental disconnect that we see, but it's the usual suspects that shell game of moving different people around in different positions. The havoc the turnover could create over time, the low hanging fruit of unapproved overtime, and not being able to manage that. There's just a host or a laundry list of areas than levers that these vendors can pull to extract profits after a deal's aside. I mean, we have a phenomenon that we call good contract- bad deal, even in the situation where we see just the best in class contract, where a third party was even... We have clients that have actually engaged third parties to help them with their RFP that are experts in the specific area that they're contracting for the contracts look amazing. Then you see the invoicing and it bears little resemblance to put the expectations we're on the front end. I mean, I would describe it as a high level. It's just that they think they're outsourcing an expensive, and with that, they're outsourcing their concerns. They don't have to watch it at the level of detail that you otherwise would, but really you need to otherwise you're over that.

Rich Ham: I would add there, Mark. One of the fundamental problems in a lot of these relationships, when you go to align with a sanitation services provider, any form of contract, labor security and guard services is certainly one we've been so deeply immersed in, applies to pest control, to the intermediary, the company you're aligning with to employ people and provide service for you. It's typically a markup type of relationship, right, where they're getting a percentage of the action. So when the ink dries on the deal, they have every incentive to find ways for the money you're spending to grow. So even if your hourly needs are clearly communicated, it's better for that provider to provide more of the more expensive people. For example, just to use one phenomenon, we had an account that we were working on recently where nearly 60% of the total hours over a recent trailing quarter of security guards were supervisors. So in other words, there was a 60- 40 ratio of supervisor to rank and file. That was one supervised guard force, let me assure you, but of course, they're more expensive people. In fact, it's even better for the supplier in that case because there are also the easiest people to manage and there's less turnover. The dollars are higher, the market's worth more, but we actually, in that one category, we put together a list of data points that had to be managed, and I'm just looking at it right now. It reads invoice number week, ending date, contractor, employee, name, level and position, wage rate, bill weight, bill rate, bill code, and type bill description in time out time, regular hours, overtime hours, holiday hours, lunch hours meal and rest break hours in certain states. Then you have a whole host of other direct bill items, supplies, equipment, et cetera, et cetera, employee benefits. The list continues incredibly complex layer upon layer and look. So just an expense that can't possibly be adequately controlled at the contracting level. The only way is dedicated and vigilant management throughout the term of an agreement.

Mark: Yeah. You're preaching the gospel to me basically, because one of the things that frustrated me the most when I managed these types of categories was even if you get that great contract in place, right, you've broken down the labor hour, you understand the allocation of costs out for vacation time and retirement benefits and unemployment insurance and overhead, all of that within the components of the labor hour, and you've done the research to make sure that they're not hiding dollars in any of those categories, and you get a great contract in place. The nuisance of now managing that contract at a site- based level becomes significant. A few of the big areas that we noticed were obviously timecards, right? Timecards being probably the easiest place to hide money, right? So you put in overtime or a certain amount of hours over every single time to be able to recover any kind of money that you lost in the negotiation or they lost in the negotiation. The other big thing was even if you had that, you talked about that supervisory level. If you had maybe a trade labor person that was a certified trade labor at this level, they would put in two levels below that and collect on the back end. So that they didn't have to pay out as much, and the margins for them were significantly higher. No one was watching that. They thought they were getting those people, but they were getting someone of a significantly lower skill or experience or whatever it might be. The other ones would be, let's just say there was a washroom that was 200 feet away from the workspace. They wouldn't would be no port- a- potty close to the workspace. They would have to walk 200 feet, which would take a certain amount of time. They would walk very slowly. So no one's managing the ongoing labor, all of it. So if it's a time and material based contract, the amount of hours that you're losing as a result of not managing it properly and effectively become significant in the back end. It's shocking to me, how many companies just let it go, or they don't know, and that's what I want to draw light on today is many companies that are contracting this type of labor based service, don't know. If you were to put a ballpark on the amount of money that's overspent as a result of poorly managed labor based contracts. Is there a percentage that you could put on it?

Rich Ham: You got a thought on that, Matt?

Matt Smith: I mean, it would be a high percentage. I mean, just from what we've seen, I got to believe it's anywhere from 25 to 40% or more. It's a huge number. I mean, Mark, you were touching on a lot of the areas. It's just really difficult, and it's compounded by the fact that you're right. Many of these organizations have these disparate locations, and those locations are being managed by commission based route people or service people of the vendors that are incented to grow those accounts, and to play all those games. You're exactly right.

Rich Ham: It's worth noting there on that front, the client side contacts that they interact with are generally not people with bottom line cost incentives, components in their plan. For example, on take pest control, which is an expensive or deepen in that category, they're interfacing with quality folks who have one concern and one only. I need to pass my audits, and so there's absolutely no cost considerations in that. I mean, sure, maybe that you find a company minded guy or gal here and there in the quality departments, but that's absolutely a secondary concern. Guard services, same deal. You have a lot of ex cops, ex military folks with security backgrounds, but let's be clear, managing a service and managing an expense are two different disciplines.

Mark: Talk on that. What do you mean by that?

Rich Ham: Well, the guys and gals out there in the working world who have the best idea about how to strategize and set up a company's security program are oftentimes very deficient when it comes to managing the costs. Their mission is keep us secure. Well, they're going to go out and execute that mission. There's somebody else in the organization who is tasked with save us money in these areas. But generally speaking, the folks in quality and the folks actually working on security teams, they tend to carry a bigger stick in an organization. These are, and as a result, procurement gets scared away from these expenses. We deal in other categories too, where we see this fear factor, prevent people from even pursuing cost savings. When in fact, if you can bring the right combination of insider expertise on the service side, but also on the commercial landscape side, you really do find there's abundance savings available in these categories if you know how to do it right, and it doesn't have to come with any kind of compromise in terms of quality, security, et cetera.

Matt Smith: I would just add to that real quick. Rich was describing the people that are in charge of the expense, right?

Mark: Right.

Matt Smith: They have bigger concerns, right? They got to keep their facilities safe and their people safe, or they have quality because they can't fail an audit or food safety audit. So we get all that. But then the people that are supposed to be thinking about cost savings when it comes to these labor categories, when you talk to them," Well, oh, that's just..." We hear this a lot." Well, that's just labor, and we're just at the whims of the labor market and there's this rising tide." There's just this expectation of inflation in these categories. It just drives us crazy. So you have this mindset of like," Oh, that one's just going to go up every year." I mean, and those are the people that are supposed to be thinking about cost savings and their mindset is," Hey, we're just going to plug in whatever, some arbitrary growth rate for this category." It doesn't make sense to us, and so the combination of those two things is why you get to such significant potential overpayment in these categories.

Mark: Hey listeners, I want to tell you about another company that I run called Content Callout. It is a thought leadership brand marketing company. Now what does that mean? It means that we take you as an executive or entrepreneur, a leader of a small or medium sized business, and we turn you into a thought leader online. We take your personal brand and we ended up two 11, so that you can lead with confidence, knowing that people will recognize you recognize your brand and recognize your business because of the thought leadership approach that you've taken on social media, through content creation and content distribution, as well as engaging with all of your following online. How do you get involved in this? Easy, easy, easy, just go to contentcallout. com/ getstarted. And you will see there're three different options that will allow you to take your thought leadership brand for yourself and for your business to the next level. We are super excited to talk to you about this. We've seen some massive growth with the businesses that we've been working with. Very, very exciting time for us. Look at that. We appreciate it. Now back your show. What I find interesting is that people, they don't separate the labor hour versus the operation of that labor hour, right? So let's just say we'll make it a foregone conclusion. We know it's not, but let's just say for example, that there's going to be inflation on the dollar per hour, that you would pay someone. Sure, we could make that argument. There might be an index. We could tie that to as long as we're comfortable with the amounts within each of the buckets that contained within that labor hour, maybe we can make that statement. But then the operation of that labor hour in the field is where most of the spend keeps getting really lost. So when you start to, like, when you talk about the percentages that you're talking about, right, 25 to 40%, if I have a million dollar spend on pick a labor, right? Welding, scaffolding, security services, whatever it is, there could be upwards of 25% of savings that I could achieve. If I just looked at the operation of that labor hour on a day- to- day basis.

Matt Smith: Yeah. You're hitting the nail on the head here. I mean, there's so much focus on the actual price if you will about the labor rate and then this expectation of that to increase. But what about all the things that you're multiplying that number by? Over time one and a half times for them, and then the markup percentage. I mean, there's all these multiplier effects on that one number. Right, price is important of course, and you're right. I mean, there is a legitimate expectation there of certain instances or at least on from general standpoint that the labor markets are going to increase, and then you have certain locations that whatever Amazon opened up a new facility there and was attracting a lot of labor. So there are instances where the price can be an issue, but hit the nail on the head, really the management of all of those multiplier effects is really where the money is being spent.

Rich Ham: There's a conundrum that I think is worth talking about, Mark and admit here, maybe as good a time as any, especially in an environment where procurement resources are so lean. There's a conundrum that even the shrewdest buyers are forced to deal with in categories like this, which is what approach to take and what to prioritize in their negotiations. The kinds of expenses we're talking about generally presented with the following conundrum, the path to optimal costs is the path of less convenience and the path that requires more time and the path that will be more difficult to manage on an ongoing basis. So where a lot of buyers end up leaving a pile of money on the table, as they say, I need to prioritize convenience or lean. We don't have the resources to manage a complex contract over time. So I'm going to negotiate a blended rate. Give me the best blended rate across everybody, and what ends up happening is just they've left so much money on the table by not taking the more targeted lasered approach to each and every component of the overall cost structure of the supplier's agreement. So in the end now, if they go that route and then to be fair, many buyers don't understand what is optimal for all those little components. So it's easier to force three or four suppliers to come and say," Give me your best blended rate and I'll take the best one." But if you can bring to bear an industry insider, who actually understands all the components of the cost structure and can optimize each and every one. Now you're still forced going forward with," Okay. Now I have to hold this supplier to that." And there's a lot to hold them to, and I can assure you in most of these industries that we're talking about, the suppliers are not set up to adhere without auditing cajoling, continuous management. They're not set up to adhere to complex contracts where there are a lot of rules on them, and I know you've been deeply immersed in some of this stuff lately spending.

Matt Smith: Yeah. So you're right. You talked about the spectrum. We see two ends of the spectrum. Rich was describing kind of," Well, we're too big. We're busy. Let's just keep it simple." Well, we've seen some really awesome contracts and we have this concept called good contract- bad deal, and we've seen some amazing agreements in this space where all of these details are spelled out by location, minimum, maximum, markups by level and location, and you just end up with a situation where that's just, it ends up being impossible to manage for them.

Mark: Nobody can operationalize that.

Rich Ham: Now that really good contract is sitting in a file folder on somebody's machine, and out there where the invoices are being paid in the real world, they bear little resemblance to the contract and that's even at month one, fast forward to month 18 of that contract. It's like, there's less and less resemblance over time.

Mark: Now, is that a function of the time collection or the time entry system that may exist on site? That's definitely part of it. But what would you say when you have that gap? You've got a great contract and everything has been spelled out to the ends degree, awesome detail, and now you want to operationalize that contract and manage it on an ongoing basis. What are some of the big things that you would make as recommendations to operationalize a contract like that?

Matt Smith: Well, you touched on the one. I mean, you have to have some control over the data and control over the time management component because it's described like that's the multiplier here, right? We can talk all day about labor rates and so forth, but what we're multiplying those labor rates by is really the key here, and so you have to have that data, all of it by individual employee, and then from there, you have to break down each of those hours further. So you really need access to that payroll system you were describing earlier. It's not just regular hours. So there's lots of different types of hours. There's overtime hours, there's holiday hours, there's real and break hours. There's tons of different types of hours as well, and then you have this multiplication that goes on are these complex calculations with markup and everything else. So you really need that line by line detail and you need to have a system that could spit it out. Now, most of these companies have time and labor management systems. They've just never been asked to properly... We've seen a lot of... I've got a full spectrum here. Either they have the system and it hasn't been set up properly, and they're not managing it and producing the data that's needed or they just don't even have the capabilities. They just have some archaic system or multiple systems that they're trying to cobble together to produce some summary invoice. So it's a wide range there of issues that you're facing in terms of getting the data, but really starts with controlling that data on the front end. If it's not your own system that you have some control of, you have to force the vendors to comply with the need for all of that data, and populating all of those fields appropriately.

Rich Ham: I've been shocked, Mark by, in our entry to the pest control industry, and then more recently the security services too have been fascinating to me because it's become apparent to me that we've been a significant disruptor in each of these industries. What I mean by that is the way that we are auditing and managing these expenses, it's becoming clear to me, the leading suppliers in these spaces are totally unaccustomed to actually having to substantiate the things we're talking about today. It's almost as though, and maybe this is partly a product. I've thought from time to time as Rich Young has gotten me more deeply and deeply immersed in our arena of the consulting world and more understanding what other solutions are out there revolving around procurement augmentation, procurement support services. None of us come from procurement. Our Fine Tune team were built up of lead operators from our targeted industries.

Mark: Right.

Rich Ham: People who've had P& L ownership. As a result, we have this tendency to think common sense of, well, the best thing to do with any particular expense is to drive it to optimal and keep it there. I find myself continuously amazed at how little time and attention is spent on the continuous management of expenses that so much time is spent on reportable savings initiatives, and then whether or not those initiatives manifest the way they were projected to is an afterthought. It's like," Oh, whatever, we'll do it again in three years." And so what a boon for the suppliers and these indirect industries, right? They've learned that because of these procurement environments," Oh wow. We can give it all the way at the contract and then..."

Mark: Make it all back in the execution.

Rich Ham: Right. We will develop buttons to push and leverage, to pull to extract more than we ever would from a better contract. So as we've entered these industries with a new focus, the focus on the actual P& L, it's become evident to us that the suppliers are totally unaccustomed to being asked to actually live up to the more complex agreements that they're signing and more to the point to provide the documentation of the supporting facts in an audit type of setting. So it's been regulatory to see how little focus there's been on deal force.

Mark: I mean, this is why it's so important to have a vendor audit clause inside of these contracts because even if you don't have the operational capabilities to carry out the management of that contract, being able to go back a year, two years, three years after the fact to say," All right, I mean, how did we actually get charged here? I mean, was this all above board is really important." I mean, one of the roles that I had was running a vendor audit team to be able to on labor categories, to be able to assess how much money have we actually spent, and the amount that we clawed back after the fact was insane. It's like, seriously substantial. There's no way we could have done that if we didn't have those audit clauses in those contracts, and so having those audit closes in those contracts is essential to a large degree is now you guys come in, basically I would assume when someone's like," Oh my God, this thing is completely out of control. You need to call in someone like the SWAT team of this particular type of work, right?" That's when you come in and sort things out. But what are some basic things that procurement teams could do, maybe three things that procurement teams could do that would be proactive so that when they do call you in, at least it's not a total storm?

Rich Ham: Yeah. I mean, look, the biggest one is this, and as important as it is to audit your vendors, looking back, make no mistake. When you find you've been overcharged, even if it's of a black and white nature where it's quite apparent, nobody could really argue, this is non- compliance. You never recover 100% of the dollars inaudible already flown out the door. My first advice is while yes, you do need to conduct audits from time to time, and make sure your audits go beyond the surface level of, well, this unit rate connects to this price in the contract, so we're good. No, not so fast. A deeper dive audit will reveal like pest control, for example, yes, they charged us the right price for these services. However, the service ticket shows that they were onsite for 45 minutes, and the list of services they perform can't possibly be performed in less than two and a half hours. There is absolutely, noncompliance there. We just have to dig further and figure out what was happening. That's the difference between playing checkers and playing three- dimensional chess. But what's really important is to keep those dollars from flying out the door in the first place.

Mark: Yes.

Rich Ham: It's much easier to avoid spending a dollar than it is to get a dollar back that you've already spent. So putting solutions in place that actually promote continuous, dedicated, vigilant management of expenses that promote the tight procurement's effort to true P& L performance. That to me is the most critical answer I could give you, and of course, that's complex because we understand that procurement departments are lean. Now here's the good news. The good news is these recessionary periods where we've seen the leaning out of procurement departments have also seen the emergence of a host of solutions out there to help the average procurement department resource do the work of two or three people. This is what you have to do. You have to find ways to multiply your own efforts because you no longer have a bandwidth to tie your efforts to the P and L. So you got to look for ways to ensure that your efforts actually manifesting ways that your internal customers, stakeholders, operations both will appreciate. That just really requires I think, an understanding of what are the cutting edge solutions out there, what's out there in the expense management consulting arena that can help you make sure you're optimizing actual costs, not agreement costs. If we can get people to shift their focus away from reportable savings to checks flying out the door, that would be a healthy shift, and that would win procurement more influence and respect in organizations as stakeholders see," Hey, their promises are actually coming to light." I don't have this frustration where the promises of procurement are so quickly eroded after deals get done. To me, that's the big one. Put tools in place that helped you enforce the good deals you negotiate.

Mark: I totally agree with you. Well, listen guys, as we close off today's discussion, one of the things that I wanted to ask is, I mean, we're going to have people that are listening to this right now, going," This is the issue that I have, right? This is the problem these guys are speaking. It's like they've heard my problems, and now God has intervened, and these guys are speaking directly to my problem." If these people want to reach out to you, how do they do that?

Rich Ham: Well, Mark, they can, first of all, learn more about us and frankly, about the categories that we're so deeply immersed in on our website, finetuneus. com. I would encourage people particularly to visit Our Knowledge Center wing of our website, where there're both facts and opinions from our industry insiders. That gives you a sense of the extent of their expertise, but also just gives you a nice running start into the categories that we specialize in. So finetuneus. com. Of course, you can find us on LinkedIn as well, where you'll see regular content coming out from our folks. You can also look up our VP of marketing and communications, Rich Young on LinkedIn is a stream of content that comes from him is truly, I'm not going to say it's as prolific as the Negotiations Ninja, but it's rock solid. It's

Mark: Pretty good. It's pretty good. Well guys, listen, thank you so much for being here. Thanks for getting into the weeds with me and bringing up old scars. I don't know if that was a good thing, but definitely it was interesting and entertaining.

Matt Smith: Apologies there.

Mark: I know for sure like that, a lot of friends that I have in the procurement industry that are listening to this right now, trying to get a handle on their labor based spend are going to be definitely wanting to have further discussion. So I appreciate you reaching out. I appreciate you spending time with me. We'll definitely have to get into some more analytics. Maybe we can bring up some actual data and do a video on it or something like that. I think that would be really cool, but regardless, thank you for being here today was a great pleasure to have you.

Rich Ham: Likewise, Mark. Thanks forever.

Mark: Hey friends, thanks so much for listening to this episode. If you enjoyed it, please share it with friends and colleagues so that they can benefit from it as well. If you find Negotiations Ninja podcast worthy, please go on to iTunes and give us a cool rating with a nice review. We certainly, appreciate every single one that we get because it helps us to understand who is listening, how they're listening and what it is they like. If there's something that you would like me to discuss around negotiation influence or persuasion, give me a shout. You know how to reach me on social media or you can get me on my website, which is www. negotiations. ninja.

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