It’s a trend in many B2B industries, growing procurement power and influence. This change in buying behavior can cause a decline in supplier prices and margins. Is the supplier and its sales team simply victims of this trend and the aggressive tactics used by myopic purchasing people? Or is the supplier, through its actions or lack of actions, actually contributing to the problem?
Are Buyers Too Aggressive?
Forbes.com recently published an interesting article about procurement people negotiating too aggressively. The article pointed out the problems created by buyers’ excessive focus on short-term savings. This nearsighted perspective can create longer-term supply issues. The buyers can end up with quality issues, diminished access to innovations and ideas, and suppliers unwilling to work collaboratively on improvements.
In the end, an overly aggressive negotiating style and combative procurement approach can cost the buyer more. Chrysler is held up as the case study of this behavior. By one estimate, Chrysler’s shortsighted procurement practices has cost the company $24B in profits over the years.
Some sales professionals might think that a combative negotiation style is just part of the typical procurement persona. It turns out that this is not the case. Researchers have studied the preferred negotiation style of professional buyers and found that most buyers favor a collaborative or win-win style.
Furthermore, finding collaborative solutions with suppliers and managing suppliers strategically are not new concepts. Most undergraduate courses on procurement and strategic sourcing teach these principles. In practice, nevertheless, some procurement organizations deviate from these elementary principles. Short-term financial pressures, naive management, and the wrong measures are some of the drivers of this behavior. What about the suppliers? Are they innocent victims or contributing to this procurement behavior?
Are Supplier Victims or Part of the Problem?
Although there can be situations when the buyer is in a dominant position and can impose terms, suppliers typically have power in most negotiations and can influence outcomes. The problem, many times, is sales teams are overwhelmed by procurement’s sourcing tools and negotiation tactics. Procurement’s tactics, along with suppliers feeling pressured to win the deal, can cause suppliers to acquiesce to many buyer demands without creating clear consequences and educating the buyer about value and risk.
Suppliers can also antagonize buyers and influence buying behavior by having poor pricing discipline and messy market pricing. Large loyal customers, often, are rewarded with high prices, while smaller, price-focused buyers get better pricing. Many buyers fear – usually as a result of past experiences – that the supplier is giving better prices to others. Buyers have learned that they need to push hard in negotiations to “test the market” and be sure that the supplier is treating them fairly.
While not always the case, the supplier’s own actions and behaviors can contribute to the aggressive procurement tactics. What should suppliers do?
Understanding the Root Causes
Combating this aggressive purchasing behavior and negotiation style first requires an understanding of the root causes. A number of the causes of the aggressive behavior have already been identified above. A more complete list would include the following:
- Poor leadership from the supplier management organization resulting in the wrong focus and behaviors
- Professional buyers lack proper training in strategic sourcing and supplier management
- Buyers have the wrong metrics or incentives
- The customer is under tremendous short-term financial pressure and is willing to take more risks in supply decisions
- The buyer believes the supply item is non-strategic and there’s little difference between suppliers
- Sales team is unprepared to engage and negotiate with professional buyers
- Sales team is calling on or negotiating with a person at the wrong level in the customer organization
- Supplier lacks sufficient flexibility in their offers to trade value with buyers
- Supplier does not have a clear, credible, and quantified value proposition and can’t effectively educate buyers
- Supplier has poor pricing discipline and its market prices are a jumble
Suppliers have to acknowledge that it’s not always the buyer who is responsible for the aggressive purchasing tactics. Suppliers have a role in educating buyers and influencing buying behavior. Frequently, the buyers’ behavior and tactics can be a direct response to the suppliers’ actions or lack of actions. It takes two to tango. In the face of aggressive buyer negotiation tactics, the supplier needs to take the lead.
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