In the recent economic downturn, companies turned over every stone in search of costs to take out of their business.  One of the first places companies usually look for cost savings is in supplier related costs.  It is not surprising.  In many industries, supplier related costs usually account for the single largest expense of a company or, in service related businesses, a close second behind people related costs.

Recognizing the importance of suppliers to both cost containment and competitive advantage, many CEOs and CFOs have looked to upgrade their procurement capabilities and practices in recent years.  Yet, I’ve often been surprised at how few people involved in selling in business-to-business recognize the change occurring in procurement, or let alone, are prepared to deal with the change. 

One of the basic principles of negotiations is to understand the needs, fears, interests and motivations of the person across the table from you.  While most sales people do a great job of understanding the user buyer, few have a deep understanding of the economic buyer, particularly procurement.   There are five basic points to consider when selling to or through procurement:

(1)  Supplier segmentation:  Just as good marketers segment customers, good procurement organizations segment suppliers and supplies into categories.  This means that it’s important to try to understand how they think about whatever you are seling.

(2)   The negotiation process is one of the areas where procurement often looks to drive a quick hit and capture some savings.   Most well run procurement organizations provide substantial negotiations training to their procurement teams.  This means unprepared sales people are in for a battle, often a losing battle.

(3)   Driving savings is seen as one of the core responsibilities of procurement professionals.  Many procurement organizations struggle with the process of accurately evaluating and counting savings, which sometimes results in wrong supply decisions as well as skepticism within their own organization about their real contributions.  If you can help them quantify the differentiated value you provide, you’ll help them improve their position within the firm.

(4)   Many procurement professionals will claim the use of sophisticated supplier selection models.  However, the reality is that many use simple, subjective and incomplete models for supplier selection.  Indeed, in one study, only one third of world-class procurement organizations used total cost of ownership models for the majority of their spend.  This means that if you are hoping they’ll figure out the value you provide as part of an RFP or bid, you’ll need more than luck.

(5)   The reality is that while saving money is one of the key goals of procurement, particularly in tough economic times, most CPOs are also very concerned about supply continuity, quality or a supplier causing damage to the company’s brand or image.  A recent survey of top performing CPOs revealed that reducing supply risk scored almost as high as reducing costs even in the midst of the worst recession in decades.

Many sales people lack a basic understanding of the underlying fears, interests and motivations of procurement.  This can lead to a lack of confidence and undervaluing your position in the negotiation.  With a better understanding of procurement, how they think about what you sell, and your value proposition, you’ll have the chance to dramatically improve your negotiation position.   Good selling!

The following post is an excerpt from the article I published below.  If you would like a copy of the original article, please contact me.  

Understand The 5 Secrets of a Chief Procurement Officer for Smarter B-to-B Selling and Pricing, Journal of Professional Pricing, Q1 2011