Across industries, businesses are investing in getting smarter at purchasing and managing suppliers. It’s no surprise why. Multiple studies show a direct link between procurement maturity and improved business results. Procurement maturity impacts an organization’s ability to generate savings, manage supply risk, harness supplier innovation, and engage suppliers strategically.
As businesses get better at procurement, suppliers and their sales teams need to be able to engage more sophisticated buyers. Growing buyer sophistication has already had an impact on suppliers in a number of industries and is likely to continue. If you work in sales or lead a sales team, here are reasons you should be ready and signs that you have an opportunity.
Rise of Procurement
While there are procurement teams that operate like this Dilbert cartoon, many procurement organizations are trying to evolve to a twenty-first century model. This evolution includes building the right structure, tools, strategies and, most importantly, upgrading people. The movement of businesses to be smarter buyers is unlikely to end. Trends such as low-cost competition, outsourcing, transparency, sustainability, and supply chain risk will keep pressure on businesses to get better at procurement and supplier management.
In fact, one indicator that procurement/supply chain will continue to grow in importance is the change occurring in business education. Supply chain management/procurement is a hot major at both undergraduate and MBA level programs across the world. According to the Bureau of Labor Statistics, supply chain management is projected to continue as one of the fastest growing areas for jobs over the next ten years.
Preparing for the Sales-Procurement Challenge
Sales teams that hate working through procurement to close deals better get used to it. Successfully managing the interaction with procurement will likely become a much more important sales skill in the future. For marketing teams, better aligning strategy, messaging, and tools to account for a maturing of your customers’ buying process is critical. While this article is focused on the sales team, the reality is that sales and marketing need to work together to prepare for the evolution in their customers’ buying process and sophistication.
7 Signs Your Sales Team Doesn’t Get Procurement
Every industry is at a different level of procurement maturity. If you are in sales or leading a sales team, here are signs you need to better prepare to engage with procurement.
- Act like every RFP is for real: There are a lot of reasons why a business issues a request for proposal (RFP) or request for quotation (RFQ). Understanding the “why” behind the RFP is critical. It could be their policy (e.g., need to bid out a supply item every three years). Alternatively, it could be that the customer may be trying to keep the incumbent supplier honest. Not all RFPs are real. In many cases, the buyer has no intention of switching suppliers. If you apply equal effort to all competitive bids, you are likely wasting valuable sales time and resources.
- Have a rudimentary understanding of buying process: Ask your sales team to map out the typical buying process used in your industry. If they struggle to map out the specific steps of the customers’ buying process, it’s a sign you may have opportunities. Every organization has a buying process. For more sophisticated buyers, this tends to be much more formal, and usually has 5-7 steps. If you don’t understand the specific steps and what the buyer is trying to accomplish, you can easily miss opportunities, waste sales time, and fall prey to sophisticated buyer games.
- Don’t understand supplier segmentation: Just as sales and marketing organizations segment customers, savvy procurement teams will segment supplies and suppliers. This is sometimes called a supplier segmentation or portfolio model. This model often drives the sourcing strategy used, the supplier relationship sought, the negotiation approach, and the time and energy procurement will spend on the supply item. Smart sales and marketing teams understand where their supply item fits into the buyers’ model. They then use this insight to build strategies and programs to protect margins and grow business.
- Not clear on sourcing strategies: Sourcing strategies are simply the strategies, tactics, and tools buyers use to buy a particular supply item or solution. Examples of strategies are: exploiting purchasing power through competitive bidding, developing alternative suppliers, changing specifications or unbundling. In some industries, sourcing strategies have caused substantial erosion to supplier margins because the suppliers were not prepared. Understanding how to effectively counter or take advantage of the sourcing strategies is critical.
- Can’t recognize buyer games: Even the most sophisticated buyers will admit that they sometimes play games during the buying and negotiation process. Something as simple as intentionally slowing down the buying process in order to put pressure on the supplier (the delay tactic) can be effective for buyers. Sales teams need to be able to recognize when they’re trapped in a game and have some clear counter strategies developed.
- Think all procurement cares about is price: For many supplies and services, there is usually a formal supplier selection process with a selection “tool.” In most cases, price is used along with other buying criteria such as total cost of ownership, quality, service, regulatory requirements, assurance of supply, and innovation. If the buyer says the vendors are all the same, it could be that you’ve done a poor job convincing the customer of your value. Alternatively, it might be a bluff. In either case, the sales team needs to get clear on the vendor selection process, the buying criteria being used, and the specific selection tool for the decision.
- Believe procurement is the enemy: Procurement shouldn’t be viewed as the enemy. There are times when procurement people negotiate too hard or act inappropriately. Most procurement people, however, are ethical and are just trying to get a job done. Most twenty-first century procurement organizations recognize that collaborating with suppliers and building strong process around supplier relationship management is where real value is created. If you approach procurement as the enemy, you’re missing a big opportunity.
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To learn more about pricing and selling to 21st Century Procurement Organizations, join me at PPS in Miami on May 2. You can also take a look at this book – Selling to Procurement or if you work in healthcare, Healthcare Value Selling.