Strategic Sourcing For Suppliers - Getting into the Buyer's Mindset

on Friday, February 27, 2009

Steven Belli, CEO of Source One, attempted to answer some general Strategic Sourcing questions for suppliers in a feature interview with the ThomasNet Industrial Marketer publication this month.

"Steve, what is strategic sourcing?

Strategic sourcing is a process in which the skills of the supply industry are harnessed in order to optimize a buyer's sustainable competitive advantage for their business, as well as their final consumer. The main focus is on the development of a secure and responsive supply base with the capabilities of meeting current and future business needs. Companies ("buyers") may engage in strategic sourcing………………..

Many of our readers are suppliers marketing to industrial buyers. Based on your experience, what are buyers really looking for when they are sourcing?

High quality, sufficient quantity, reasonable costs, easy-to-use technol…."

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Read the rest: http://www.thomasnet.com/industrial-marketer/February_09_full.html

Source One is a leading procurement service provider that has been providing strategic sourcing services since 1992. In addition to custom consulting services, Source One offers a self-service model for companies looking to do it on their own at www.MasterNegotiator.com as well as free sourcing tools at www.WhyAbe.com and ThomasNet's Puchasing Tools.
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Selling to the Middle Man? He already has it!

on Monday, February 23, 2009

  • “Maybe you don’t know how we do things around here”
  • “We already have that tool”
  • “We’re already doing that”
These should be on the list of quotations entitled, “famous last words of middle managers”.

It begs the question; “are they middle managers because they say these things, or do they say these things because they’re middle managers”.

You can draw them out for hours and they’ll insist over and over, that they’ve really got it all under control. All the while, you’re there because they need you to fix the mess they clearly haven’t got under control.

It’s a losing battle. Selling solutions to one who has day-to-day ownership of a process, is tantamount to asking that person if they’d like their job outsourced; maybe because it should be outsourced, but therein lies the rub.

So, after sitting in yet another bitch-board session, with yet another middle management mook , the Sourcerer is even more certain that even discussing solutions with middle management in a pre-sale capacity is salesicide.

This client, of course, was “already doing it”. They “already had the software”. Yet they were paying human beings to review invoices, line-by-line, in order to charge them to cost centers. Worse yet, those people were eyeballing the sum totals as the payment approval process, rather than checking the unit costs or contract compliance. The only worse possible ROI for people and software is to throw the software in the wastebasket.

It’s yet another example of why SaaS (software as a service) is so often a misnomer. Software alone is not the solution. The software must be utilized by folks who know not only what the desired inputs/outputs should be, but also have the training and savvy about what to do with those outputs.

So don’t accept we’re already doing it, we already have it, we already this or we already that . . . as an excuse to stop selling your service. Instead, try selling it to the folks who have the vision and objectivity so assess their goals and define the gaps with you. Then you have a shot to sell a solution.
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Anti-Trend: CEOs; Hasta la Vista, Fat Cats

on Wednesday, February 18, 2009

This might be a bit of wishful thinking, but let’s give this some thought. Alan Mulally. Stan O’Neil. John Thain. John Stumpf. Rick Wagoner. The Postmaster General. Vikram Pandit. Irving Azoff (TicketMaster is the devil. Tom Petty and Pearl Jam and (loathe I say) Dave Matthews are right). Does anyone in their right mind really think it’s fair to have golden parachutes and lavish trips to Vegas in a private jet drinking Krystal from a platinum chalice wearing a gold medallion of you wearing a gold medallion dropping deuces in a 24 caret gold commode expensing $2,000 an hour call-girls as a “business expense” while fueling up your Hummer with a corporate card when you’re laying off thousands and your stock value drops 398% in the first 15 minutes of trading after it’s revealed your revenue this past quarter is off a mathematically impossible number and Stephen Hawking’s voice emulator blows up trying to describe the indescribable math and you walk away with an eight-digit bonus on top of your designer suites thanks to your back-slapping, scotch-drinking, 12-handicap, fake-tanning, wife-cheating, stab-in-the-back, Cancun-vacationing, tax-evading, sexual-harassment-in-the-workplace-allowing, Brown-hating, Harvard-loving, foul-mouthed, red-meat-rare-eating cronies on the executive board?

I’d like to think (in my ideal world) I have a unique perspective on this. I have bachelor’s degrees in Finance and Psychology. Finance first, Psychology second. So I know of the blackened, tarnished innards that motivate business people and then I learned of the mental illnesses they likely conceal. And I’m not merely being facetious here. I once took care of an MBA who had a schizophrenic break-down due to stresses on the job, and my Abnormal Psychology professor said convicted criminals and CEOs exhibit high rates of anti-social personality disorder. Sounds like good company to me.

Now, I’m going to try to be realistic. I know this insignificant blog won’t salvage the world from the scourge of the narcissistic CEO. But let’s look at this rationally; if you put one person in complete control of a country, they’re called a dictator. Hugo Chaves. Fidel Castro. Benito Mussolini. Anwar Sadat. Does “dictator” have a nice ring to it? Why do the heads of American companies have dictator status? Sure, they have lackeys of lower C-blank-blank titles, but their authority is largely superseded and unregulated until the feds get involved. Hell, even when the feds get involved there can still be a Wild West atmosphere (stimulus package volume 1).

Control can’t be invested in one person. America hasn’t been in existence for over two hundred years by accident. I’m not saying it’s the absolute best system of government out there, but I don’t doubt a decent part of its success is due to the separation of powers and the checks-and-balances approach to making power equal. Why aren’t corporations structured that way? I know why: money. Bones. Loot. Clams. Moolah. Scrilla. Da Benjamins. Green (not weed).

I’m an idealist, but I’m not that stupid to think you can completely divorce executive pay from performance or lack thereof. However, with the collective outcry against CEO bad behavior, maybe, just maybe, smart corporations will re-evaluate the dictatorship model and replace it with a more egalitarian, democratic (small d) model. Here, we have a management team. Emphasis on the word TEAM. No one person has a disproportionate amount of influence. We’re making money when just about everyone else is looking under their mattress. Coincidence? Spread the control around. Create a brain trust, not a drain bust.

Oh, and I’ve been compelled to say on the advice of our resident legal team, Dewey, Cheatham, and Howe, that this opinion does not represent nor claim to represent the collective opinion and knowledge of Source One Management. So if you’re a smeared CEO as a result of this blog posting, don’t sue my employer or myself, because I’m sure your skin exfoliation disguised as an afternoon “off-site” meeting costs more than my annual salary including benefits.
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Networking, Its a Bad Thing (Anti-Trend Cross-Blog Challenge)

on Tuesday, February 17, 2009

"Networking" May Keep You Out of the Door

I have not read a single career guidance article, tutorial, blog post or seen a television reporter that has not pitched the value of "networking" in the last couple of months. Now, with unemployment approaching record levels, it seems that any person that has an outlet to write ideas or has a camera in front of them is going to tell you how to land the next great job. It does not matter what their background or what industry they come from, or the fact that they themselves have never had to go through a job search, but each media "expert" is going to tell you the same basic principals for finding your next career and "networking" is at the top of their list.

At this point, "networking" is pretty obvious advice and I am getting tired of hearing about it. And I am definitely not going to turn this blog post into an article about how to find your next job, there are PLENTY of those articles out there!

Unfortunately, for many people, networking seems to be a new concept. And their idea of networking is a bit construed. Evidentially, the media has now made people believe that "networking" means getting in touch with every single person you have ever heard of in your life and bombard them with your resume and your story. And don't just do it once. Those articles tell you to be persistent. That's right, call the person every single day!

Now don't get me wrong, if I were to lose my job suddenly, I would be contacting every single person that I thought could help me out. The key is though, I would be contacting people that I know a little bit better than once exchanging a single email with 6 years ago, or that engineer whom I asked where to get a good steak while I was visiting a foundry in Alabama 12 years ago (I actually had someone call me that tried to explain this one to me, he thought we were still "colleagues").

However, the modern form of "networking" seems to take that a bit further. Now we have phones, emails, facebooks, myspaces, LinkedIn's, text messages, and even cheap gas. Yes, we have even had to turn people away who literally walk in our front door. I think the trend of Networking, or at very least the term "Networking" is quickly going to lose its luster this year. Aside from utterly being bombarded with network requests, many people will want to keep any knowledge they have about a job close to the chest, in case they need it themselves. That person that knows someone who knows someone who dated the sister of someone that worked with my cousin is not going to get special treatment, especially when I have dozens of more qualified resumes sitting on my desk and the pile is growing every day.

Now, I am not saying to give up. And I am not saying to not be persistent. In fact, I would encourage everyone to do everything in their power to make sure you provide a roof over you and your family's head. However, when you call me, and I don’t know who you are, or I tell you that I will do my best, but do not know anyone that is hiring, I am not lying! So please, do NOT call me every day. Do NOT call my cell because you found the number in an old email.

Trust me, I will do what I can for people, when I can. But, keep in mind you are not the only people out there, and I just don't know any places that are hiring that you are a good fit for. That's another key component. Part of "Networking" is asking someone to stick their neck out there for you when they make a recommendation in you. Please be respectful of the fact that most people will not put their neck out there for just anyone, so sometimes you must accept "not right now" as the answer. Check back in three or four weeks, I don't mind that level of persistence.

In 2009, I would say that the trend of "Networking" is going to be looked at as a negative thing.

Part of the Anti-Trends for 2009 Cross-Blog Challenge:

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Software is Not the Whole Solution (in procurement)

on Monday, February 16, 2009

“But we can do it ourselves”

“We already have a procurement team”

“We use SAP/Orace/Ariba/Cognos /(Insert name here)”

“What makes you think you can do better than us?”

The list of anti-outsourced strategic sourcing excuses goes on and on. But none of them is harder to conquer than a significant investment in software and training to use that software. After all, the internal sale to invest in that software was likely extensive. So who would want to sign up to lead the charge and say “software alone is not enough”.

But in fact, it is not enough. Software is a tool, and a tool only functions as well as the user knows when, where, why and how to use that tool. Many firms make the mistake of believing that a single tool can revolutionize their sourcing. After all, that’s what the salesman are telling them.

Let’s take for example an expense management software product that is gaining significant traction in the marketplace, telecommunications expense management software. Suppliers are springing from the wood work with solutions offering a number of functionalities designed to offer the following:
  • Traffic Management
  • Asset Management
  • Inventory Control
  • Contract Management
  • Billing Audit and Payment
  • 100%, 24/7/365, real time visibility
Now don’t mistake me. The products are good, and I’d be bought in too. But the software alone is not enough to meet the needs of sound strategic sourcing. It fits well into the lifecycle, but where are the sourcing events? Where is the dispute resolution? Where is the contract negotiation? Where is the inventory right-sizing? Where is the industry savvy and market monitoring that finds more efficient, lower cost solutions? Where’s the refund recovery? How do they monitor and manage new offerings? How does the system search tariff filings?

The answer is; it isn’t in there. All the software does is capture the information necessary to maintain the strategic sourcing life cycle. It’s an excellent tool for just that, and some back office functions as well. But it’s no substitute for strategic sourcing.

That’s where the people come in; because software may have logic, but logic is no substitute for thought, for vision or for creativity. Thank heavens us people are not redundant quite yet.

Let's hope that this year, more forward-thinking organizations break the trend of "Software is the answer to everything"
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Week of Anti-Trends

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Michael (the doctor) Lamoureux recently posted a nice piece titled "Technology Duds for 2009".

Mr. Lamoureux then decided that "Anti-Trends in Supply Chain and Procurement" would be a great cross-blog topic for this week... We agree.

I have asked a few of my colleagues to share their thoughts for some anti-trends for 2009, and asked them to throw them up here. Hopefully we will have at least a few this week, though I cannot promise that they will be short and to the point, like the doctor's posts were.

First up... "Software is not the whole solution" (for procurement).
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Refining Core Competency

on Wednesday, February 11, 2009

Shareholders and stakeholders and stakeholders are taking quite a bath these days. Take for example, Citigroup shareholders. Citi stock, once as sure a sure thing as sure things can surely be, was trading at just over $60 a share last year in early February. This February, Citi stocks market value is just a few pennies over three (3) dollars. In simple terms, if you were Citi rich last year; take your stock value from last February, divide it into 20 equal bags of money, and then pretend you lost 19 of them.

What was Citi’s big blunder? Specifically, they rushed to enter the derivative mortgages market. For those of you who don’t know what a derivative mortgage is, it’s an investment you hope to sell, and then rush to the bank to cash the commission check before reality sets in. Generally speaking, Citi did what a lot of other banks and companies do when things look bright, they got into a business they weren’t really in.

Was Citi unique or special? Absolutely not. Consider the fact that almost every business is in several businesses, every day. Let’s look at the example of Hostess, and further drill down to Hostess cupcakes. The cupcake plant isn’t just in the business of making cupcakes, although that was their charter in the beginning. Hostess stores, ships and delivers its cupcakes. So now they’re in the logistics business. Let’s say they own their trucks, now they’re in the fleet business. Of course they have a team to hire employees, administer benefits and manage worker complaints, so now they’re in the human resource business. Let’s not forget that they manage the money in and money out, along with numerous financial functions, so now they’re in the finance business. Last but not least, they have a team to manage their procurement of goods and services, so now they’re in the purchasing business.

All those non-cupcake functions, they’re called “support” functions, so the assumption is that they’re necessary costs to sell the cupcakes. They’re also the functions that drag 30-40% gross margins down to low, single digit % net profits. The answer to that huge delta is to give away those processes that do not add value to the core offering.

The need to control support services is a flawed assumption. A flaw that represents tremendous opportunity for firms that can deliver competently managed services, procurement or otherwise. For those of us in the “outsource resource” business, we should tailor our services to assume these non-core functions and operate them profitably. It represents not only tremendous growth in the procurement service industry, but also light at the end of the tunnel for fledgling enterprises weighed down by the businesses in which they are not.

For too long, firms have been able to afford the luxury of inefficient, unprofitable support services by ratcheting up prices and passing the pain along to the consumer. But tough times find the customer scrutinizing every purchase that much more closely. In tough times there is always a flight to quality. With so many imaginary fortunes disappearing into the ether, every company’s survival will be tied to delivering both top quality and rock bottom prices.

The next year or two will be as close to the “state of nature” we’ve seen in business since the industrial revolution. The fittest will survive only by refining core competence while farming out non-value added functions. It’s gonna be a bumpy ride, but those who prepare themselves for the him and haw will be better able to compete in the next new economy.
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One guy in Boston . . .

on Monday, February 9, 2009

Beer commercials tell us more about ourselves than we like to let on. It’s no accident that they’ve become a big-ticket expenditure for brewing companies, especially around Super Bowl time. But one commercial more than any other held my attention recently. It’s the bud light “drinkability-regional study” complete with telestrator. I won’t into full detail but the essence of the presentation is that one region of the US thinks drinkability meant the ability to drink, one region thinks it means the ability to swallow, and one guys from Boston tells the interviewer to “get out of his yard”.

I found that hilarious because I live in Massachusetts. For the first year here, I noticed a difference in the affect of New Englanders. By the second year I was forming an opinion. Four years in, I’m pretty sure this isn’t actually part of the United States; because US residents are never this cold, suspicious, and generally unpleasant.

But why, oh Sourcerer, is this relevant to procurement? I’ll tell you why. Because regional affect has a lot to do with how one can effectively do business. Even in this electronic age, there are still human touch points.

I was shocked to learn, many years ago, that telephone trainers were farmed out to Ohio for their training. This, I’m told, is because Ohio is the area of the country where folks have the least noticeable speaking accent. It seems the key on the telephone is to sound like you’re not from anywhere, thus reducing the chances of creating an accent based language barrier or being deemed offensive. It’s the vanilla principle.

But raising the performance bar, it isn’t always enough to be inoffensive. One must strive to be harmonious-in tune with the client.

Politely stated, that same leisurely conversation that charms the Georgia client may get you thrown out of the yard in Boston. It’s easy to think, as we become ever more e-enabled, that regional affect is going to become less of an issue in working effectively with our clients. But consider this; it’s yet to be seen how much e-commerce will remove emotionally based decisions from the business equation. Even if e-factors remove emotional touch points from the process, is it a safe assumption that the trigger pulling will not be emotionally based? Probably not.

So the moral to the story . . . . . .In business, any part of business, it’s probably still a good idea to know one’s audience, even if they throw you out of their yard.

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Stop RFP Spamming!!!

on Thursday, February 5, 2009

Get help, Stop RFP SpamHaving recieved four of these over the last couple of weeks, I was reminded of a topic I have been meaning to blog/rant about...

Sending out unsolicited Requests for Proposals is NOT strategic sourcing.

Let me clarify that.

  • Inputting someone's email address into your favorite "sourcing system" and letting the system send out the invitation is not strategic sourcing.
  • Finding a bunch of addresses of companies in a particular industry, cramming copies of documents into multiple envelopes and mailing them out is not strategic sourcing.
  • Filling out a templated email and blasting it to a group of email addresses letting them know that they are going to get an RFP, blasting the RFP, and then sending a follow up email blast asking why they did not fill out the RFP is not strategic sourcing.
  • Send an RFX out to companies that do not offer the product or service you are looking to buy is not strategic sourcing.

In fact, I do not think any of the above scenarios even barely qualify for "sourcing", let alone being "strategic".

Causes of "RFP Spamming"

So why do people/companies continue with this practice? There could be several reasons:

  • The RFP was just a formality. (the #1 Reason)
    The company (or the government agency) already had their selected vendor chosen, but either policy or law dictates that the RFP be sent out. In these cases it is not uncommon to see a RFP that only one company (the incumbant) would qualify for anyhow (see this).

  • Over reliance on technology.
    Many companies believe that simply because they put some expensive software into the mix that their procurement projects become magically automated.

  • Lack of resources
    The company simply does not have the peoplepower or technology to properly conduct a sourcing initiative.

  • Lack of training
    The procurement person (or team) simply does not know better.

  • Elitist or entitled attitude
    Let's face it, procurement teams sometimes get a "big head", especially when working for the government or a very large corporation. For some reason, some people think that suppliers should be tripping over themselves to win their business and that all of the hard work and effort should be the supplier's responsibility.

  • Laziness
    Unfortunate, but true, some procurement people are simply lazy, and only want to do the bare minimum to get by.

Now, chances are, if you are reading this blog, you do not fall into the "Laziness" category, so I will not even address that here. But, let's look at the reasons why "RFP Spamming" simply does not work.

The results of "RFP Spamming"

What results can you expect to see from "bulk blasting" of your RFP?
Well, the simple answer is that you can expect to see ZERO results.

You see, just as smart procurement professionals choose their suppliers carefully, smart suppliers choose their customers carefully. Good salespeople and good management teams know that 99.5% of the time an unsolicited RFP that arrives unexpectedly is not going to result in any type of business.

Marketing and sales are NOT fixed costs for businesses. That is to say, good companies do not need always need to spend 19-30% of their revenue on marketing and sales and WILL NOT invest proper resources in responding to an unsolicited request for proposal when they are reasonably confident that they will not actually win the business.

To quote a commenter on another site:

  1. Blind bids are for suckers
  2. If you don't have a relationship BEFORE the RFP, you won't have one after

The commenter goes on to suggest that suppliers should make it a condition that in order to respond to a RFP they are guaranteed a pre-brief meeting and a de-brief meeting regardless of the results of the RFP selection. This is a great suggestion, however the procurement team should be the ones initiating these discussions, you should not wait for the supplier to do so.

Some tips:

  • Do not rely on your company's Fortune 100 status to make suppliers hungry for your business.
    In fact, working for a mega-corporation often is a turn-off to many suppliers.
  • Do not rely on your $15,000/month software package to conduct the sourcing event.
    Just because you have fancy site that I can log-in to and see your specification, doesn't mean I have the desire to bid, or will even treat your bid seriously.
  • Do not rely on your free sourcing software to conduct your sourcing event.
    Same as above! We have seen hundreds of procurement professionals complain the sourcing software does not work, when their process has always been to just upload a specification, email it to 30 supplier's email addresses that they have found online and expect results. That is not a weakness of the software, it is a weakness of the process!

Now sure, some of you are going to tell me that the best supplier you ever awarded business to came from a random rfp you shot into their email box. But just think about the other suppliers that did not respond to you. One of them may have been better, but you will never know.

Granted, there a few commodity items out there that a unsolicited spam RFP might actually get you some pricing results, but it will also not provide the supplier the ability to discuss other creative ways to improve your supply chain.

Stop the Spam!
  1. Make Contacts, Make Time - Take time to research your prospective suppliers. Take time to contact your prospective suppliers. Take 10 minutes to speak on the PHONE with prospective suppliers. Make sure your prospective suppliers understand your needs and wants and that they truly do have the opportunity to win your business. Calling a prospective supplier, asking for their email address, and telling them that they are getting a RFP before you hang up, does NOT qualify as taking time to speak with a supplier!
  2. Training - If you need to learn more about sourcing and procurement in general, and would like formal training on procurement best practices, contact a trusted training partner like Next Level Purchasing

  3. Get Help - Chances are, you just do not have the resources to conduct strategic sourcing initiatives, if that is the case, get help now, hire a Procurement Service Provider, like Source One.

    Just be careful that you do not justify not getting help with any of these excuses.
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Suppliers are people too!!

on Wednesday, February 4, 2009

Purchasing professionals tend to view the various people within supply organizations as having similarly aligned interests: sell as much as possible at the highest acceptable price while ensuring that the customer feels that they got a good deal. A closer inspection of the decision making tree might reveal that there are many different forces impacting decision makers and people of influence over sales offers:
  • A quarterly or annual bonus or sales volume contest victory might be in reach. How motivated is the salesperson or the district manager in getting the sale this quarter, or month or year versus maximizing markup?
  • A new product or service is being rolled out. What incentives will a product manager offer to get a customer to try this service?
  • The national sales or marketing director wants to get play in a particular vertical market or add a particular customer brand name to the sales portfolio. What kind of improved pricing or terms might he or she push for to meet this objective?

Opening up the sales/buy conversation with more than just the one or two people that ordinarily engage from the supplier might reveal new and valuable lines of communication. We at Source One have found that helping our suppliers meet their individual as well as collective objectives produces as much emotional and informational leverage as does significant available spend.

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Economic Woes Spur Innovation and Opportunity

on Tuesday, February 3, 2009

Source One Green Sourcing
While perusing the January edition of Lubes'N'Greases magazine, I noticed a common theme in the "Product News" segment. Take a look at a handful of the featured new products:

Citgo has released a low-viscosity motor oil designed specifically to maximize drain intervals and accommodate the sporadic oil-flow needs of hybrid vehicles.

Direct Packaging Solutions rolled out a brand new, "state of the art" operation that allows them to recycle and rebuild steel drums that are "indistinguishable from a new steel drum" to be sold at prices %25 lower than the average cost of new steel drums.

Rustlick has come out with an additive that can extend the life and augment the rust-inhibiting properties of cutting fluids to prevent "costly waste disposal or coolant replacement".

Kimberly-Clark has partnered with Safety-Kleen to create a cost-effective shop-towel disposal system that delivers many of the oil-soaked towels to a waste-to-energy incineration facility.

In the spirit of Altruism, I would love to believe that the motivation for these product developments is a deep concern for the environment and a desire to help struggling customers save money. This is most likely not the case, but, as they say in philosophy, sometimes it’s not the "why" but the "how" that is important. The bottom line is that in the wake of economic turmoil and support of initiatives to protect the environment, suppliers and manufacturers have found it profitable to create products/processes that allow customers to reduce, reuse, or recycle the resources they need.

What does this mean for sourcing professionals? It means that we need to keep our eyes peeled for creative alternatives to the status quo. Economic adversity drives large-scale innovation. Many historians argue that the Great Depression was one of the most technologically progressive eras in American history. The companies that noticed these advances and leveraged them strategically survived the storm and came out stronger than their stodgy competitors. In every great challenge lies a great opportunity. Are you looking for yours?
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Save Save Save

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Master Negotiator provides a free, quick and easy way for your business to gain immediate access to preferred pricing for commonly purchased items and services.

Check out some of the other deals available such as:

Merchant Services
Telecommunications
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Outsources Services
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Visit www.masternegotiator.com today!
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