Effective strategies for dealing with procurement
Are you struggling to sell value when procurement focuses solely on price?
Published June 2008
Your account strategy was flawless. You identified and developed customer needs. You tailored your solution to address the business problems. You even presented to the board of directors. But right at the end of the sales process, procurement pulled out its benchmarking report, said you are 20% above the market price and demanded a discount. All of the value you created with the stakeholders was destroyed.
So why do sales professionals avoid dealing with procurement until absolutely necessary? Is it because they believe that procurement professionals are only interested in the cheapest price? This certainly seems to be the common perception.
However, our recent research determined that even when faced with the most aggressive of procurement tools, the reverse e-auction, 93% of incumbent suppliers that retained contracts did not bid the lowest price on the day of the auction. Indeed, the most common auction position for successful incumbents was third place.
The new procurement environment:
Unfortunately, the rise of procurement and its newfound status creates an uncomfortable selling landscape and has a powerful conditioning effect on suppliers. During the course of our research, many dominant, market leading companies revealed that they feel powerless and nervous when approaching unfamiliar sourcing tools and processes. Unsure how to act, they follow procurement's rules slavishly and get bogged down in the mechanics of cost proposals, without stepping back and looking at how they can effectively engage with procurement and influence the outcome.
However, not all procurement departments are created equal; some have a high level of internal recognition whilst others are still perceived, within their company, as administrative, back office staff and may not be as powerful as you think. To compound matters, in some cases, sellers have no client contact at all and deal exclusively with third party procurement consultants that are rewarded on the cost savings they deliver.
Understandably, selling organisations are struggling with a standardised approach and there is no consensus on how to act. One global outsourcing service provider advises its business development team to: "Avoid procurement at all costs until absolutely necessary." At the other end of the spectrum, the strategy of a leading facilities management organisation is to "engage with procurement and demonstrate added value."
So how should selling organisations effectively navigate the new procurement environment?
Successful organisations map the power of procurement, identify the real level of internal influence and act accordingly.
Our research shows that the most critical success factor is proactively engaging with procurement early in the decision cycle, before the RFP is written, when there is an opportunity to shape and refine decision guidelines. To ensure their offering is not commoditised, world-class sales professionals build a persuasive case and quantify their added value in metrics that are meaningful to procurement.
Planning a strategy to influence all the decision-makers is crucial to winning major sales. But as illustrated, if procurement professionals are only involved during the final negotiations, they will pull out their market price benchmarking report, demand a 20% discount and destroy any value created with the stakeholders.
Thus, the importance of early engagement with procurement cannot be over stated. Failing to engage early with procurement is the easiest route to commoditisation.
Want to learn more?
For organisations facing difficulties specifically with reverse auctions, our research reduces the cost of the learning curve. It identifies the common pitfalls for suppliers, highlights the effective auction strategies and suggests a ‘best practice’ approach for planning and participation. (Click here to download the full white paper).
For organisations that struggle to influence procurement and want to learn more about effective account navigation in the new procurement environment, please contact Huthwaite, by email or alternatively by phone on +44 (0) 1709 710 081.
