In this, the third installment from Trelleborg’s Jonas Olsson, we provide insights and ideas, straight from a master of the arts of procurement, to help you better navigate your next engagement with a modern procurement team:
- Be sticky. You should always try to get your product or service specified by R&D or the main users. Then you cannot be easily exchanged and Procurement find it harder to replace you or negotiate with you.
- Stand out. You have to stand out from completion by using your value winners – again, this makes it difficult for Procurement to change supplier. Here Sales and Marketing need to work together to clearly articulate and quantity your value proposal.
- Understand your client’s value criteria. Price may be one criteria, but there will be other criteria which will often have equal or more weight, such as total cost of ownership, quality and reliability. Procurement will be scoring all these criteria. If you have asked the right questions, and understood or influenced their value criteria through your stakeholder meetings, you will be able to compete without giving as much away.
- Don’t panic. Procurement want to keep as much competition in the buying process for as long as possible. You can hold your line on price, the need to speak to stakeholders, or refuse to give details you consider commercially sensitive without being thrown out of the process. They are looking at the entire package, and if you have understood and responded to their buying criteria you will get to the final stages and be able to make your case.
- Don’t be afraid. No matter how much Procurement seem to have advanced in importance in the organisation, they are still lower in the corporate pecking order than many other functions. Align your stakeholders, ensure they are invested in your solution, and make it difficult for Procurement to open up the process to your competitors.
- Avoid Procurement as long as possible. Some consultants advise early engagement with procurement teams – to get them onside. However, you are much better off dealing them when the organisation has bought into both you and your solution.
- Avoid Procurement as long as possible (2) – unless you are the incumbent. Procurement like a quick win. If you are the incumbent supplier, go early to Procurement and offer them a deal to extend the contract. By providing multiyear but measured discounts you will hit their own metrics and KPIs, and unless you have been underperforming they may well decide not to open up the contract to your competitors. You may achieve this by holding prices, rather than offering discounts, which Procurement will measure and accept as a cost reduction.
- Give out as little information as possible. Requests for open book costing are only made to increase the customer’s leverage. If they can see your margins, they will reduce them. Explain the information is confidential, point to your business’s overall margins as an indication of profitability, and carry on.
- Use the Kraljic Matrix (see the previous post on the inexorable rise of the modern procurement department) to map your own client relationships. Just as procurement teams are trying to move you to the left of the matrix (commoditisation, and price-led negotiations) you need to be working hard to move to the right (partnerships and hard-to-replace valued supplier). Where are you expendable and at risk of replacement? Where can you build stronger, deeper partnerships to resist commoditisation and reduce the influence of procurement departments? How can you prove and better communicate the value of your contribution?
How can we help? Our Creating Client Value consultative selling programme provides sales teams with the skills to communicate value, and identify and sell to client needs. Our Negotiations programme helps salespeople create and capture value throughout the customer’s buying process.