Do Procurement Managers Care about Added Value?
I don’t know whether this is a rhetorical question to be honest. Recently, I read a post on LinkedIn that talked about the aspects of the sales process that buyers value. It talked about some of the following;
- They expect salespeople to really know their stuff
- They want sellers to demonstrate business understanding
- They want insights that help them improve
- They want to discuss their business well in advance of making a buying decision
- They want information that is tailored and relevant to them and their situation
- They want to talk to people on their level in their own “language”
- They want to make the buying process easy
- They want to trust
- They don’t want to be oversold
The thing that surprised me most was the absence of price in the whole list, of which the above is only an excerpt. Of course, we’re told that price is actually well down the list in terms of decision-making if they seller has done his or her job in demonstrating value. Yet, price pretty much always rears its head.
Price should be a four letter word
Price should be a dirty word and one that may salespeople don’t want to talk about. However, it occupies the thoughts of most buyers looking to either increase their gross margin or improve what they do at the lowest possible cost.
Is this a legacy from recession? We all had to tighten our belts. We had to fight for profit anywhere we could. New ‘mom and pop’ type businesses grew as people came out of corporate roles allowing skilled individuals to offer services at lower rates than established businesses that carry weighty overheads. Technology has improved to such an extent that small businesses can, in the main, compete with large businesses. The rise of portals such as freelancer.com, Fiver and the like has also driven prices down as brokering services has never been easier. And, of course, businesses are hungry to win business in commodities marketplaces. So, competitive price pressure abounds before we even get to the pressure exerted by procurement teams.
Has procurement driven value out of negotiation?
So, my question is whether the rise and rise of procurement has driven away the need to offer value. Of course, the right solution is the right solution. And, we should all strive to add value even though that’s an overused term.
But, differentiation is a difficult thing to achieve in a commoditised world where the concept of a USP is under threat. There are a huge number of suppliers in every field. Choice is plentiful. Each supplier ‘talks the talk’ so to speak and they can all point to compelling testimonials. So, how do functional buyers evaluate who walks the walk when some suppliers submit to procurement pencil sharpening and others refuse to play ball? And, how do buyers convince procurement that a supplier that’s 25% more expensive is the one to select when, often, bid platforms drive buying decisions at the higher level?
It’s not all about price, or is it?
Of course, procurement buyers will point to the fact that it’s not all about price and that most bids include other parameters and factors. But, the complexity of large company bidding processes threatens to overturn the good that has come out of recession I.e. entrepreneurship and innovation, and greater competition and service coming from small businesses. Increasingly onerous legislation requirements such as GDPR, for all of its good intentions, potentially means that small businesses may struggle to cope with the increased admin burden and the demands of large customers for compliance and swathes of documentation to tick boxes.
What is true value?
Perhaps I’ve gone off topic somewhat but it all adds up to requirements that move away, to some extent, from the point of this blog. Clearly, when a purchase is initiated by a functional buyer, they want to look at how the potential supplier will satisfy their specific needs. Can the supplier alleviate their pain? Can they deliver the necessary improvements or solutions? Do they have the capabilities and credentials? Have they got the necessary resource? There are a whole host of value-led factors that are directly relevant to the buyer needs.
Of course, every buyer needs to compare apples with apples and some standardisation is essential for comparison. But, in many ways large businesses have sanitised the buying process. It’s the same issue with banks. The demise of the branch manager and the increase in automated decision making is much maligned.
Procurement isn’t all bad
Procurement is a specialised function within large businesses that serves an important role for the business. It streamlines the process and ensures that rogue or inappropriate decisions aren’t made based on the whim of a departmental head that might be making a poor decision for the wrong reason. So, this blog isn’t about denigrating procurement as a discipline. One could argue that once procurement levels the playing field, added value is able to become more apparent. I think that there is some merit in that.
However, the more procurement requirements, restrictions and onerous payment terms that are put upon smaller suppliers, the more commoditised the responses will be. What’s more, innovative, nimble and service-oriented companies will be discouraged from adding value and from attempting to supply to large customers. If that happens, there’s a risk that it will end with large suppliers supplying large buyers. And, then it will be a clash that may end in blood.
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