The role of sales in procurement
Among procurement professionals, there is a stigma against sales people. And yet, today we keep hearing that we need to sell our services to our internal customers.
I strongly believe that each procurement professional must become a rigorous advocate for the service he/she is providing, which, in effect, means to “sell” it. If we don’t, the organization will lose out.
Some procurement professionals were born lucky and get their contract usage through uploading pricing into their Enterprise Resource Planning system, or usage is enforced through an executive mandate. Others of us work in decentralized or mixed (centralized/decentralized) environments, and our internal customers have a choice to “shop around.”
Many of us have seen times when a perfectly good, maybe even great, contract with millions of dollars in projected savings ends up being grossly underutilized, and never realizes its true potential. Why? Because our customers never knew about it, did not know its value or felt they could do better.
By not selling our services and our products, we undermine our efforts. In this case, selling means to proactively encourage the use of a contract by creating awareness of it, showing its value and closely managing it to ensure that the value is realized. It’s like running a marathon and stopping short of the finish line; which, in this case, is when our customers use the contract and save money.
The fact is, the organization loses money when we don’t sell our services. Let’s look at a few examples.
Total cost of ownership. Joe Smith bypassed an available industrial gases contract for a lower quote from a competing supplier. At the end of the year, Joe realizes he has paid 20 percent more than he would have by using the contract. What happened? Joe focused on a price of gas alone, assuming that, as in the contract, the quoted price included everything else. But it didn’t include the rent of cylinders and delivery fees.
Labor cost. Barry, an IT manager, spent five hours shopping for the best price on a Dell laptop and saved $100. Did Barry save money, or did he cost the organization money? Barry’s job is to manage the IT support group, and his pay for five hours is $205. While shopping, his immediate duties were ignored, which cost $105 in productivity, after deducting the $100 saved.
Price disparity. Connie has recently negotiated a contract with Wild Pony Machinery (WPM) for widgets. The negotiated price is the lowest for the office at $15 per unit compared to the $17 per unit on a previous contract. However, there are three more locations with their own procurement staff, and all three are buying these widgets from the same supplier. Suzie Q, from the north location, was able to negotiate a price of $14.40 per unit with WPM, for the same delivery time frame and nearly the same volume. Connie did extremely well for her location, but the organization as a whole ended up losing 60 cents per unit on her contract. Not only that, duplication was also costly.
The above examples happen almost everywhere. These are not isolated incidents, but rather the reality of today, which can be multiplied by a factor of 1,000 to approximate the true total costs. Lucky for us, we can alleviate a lot of them by simply “selling” contracts, not just creating them.
Here are a few simple solutions to start:
Total cost of ownership. Develop an easy-to-understand contract benefit chart that approaches the cost of doing business from the perspective of Total Cost of Ownership. Make these benefits easily accessible and communicate them to your customers regularly and through multiple channels.
Labor cost. As part of your chart for contract benefits, identify “soft costs” (costs other than the direct costs of receiving products/services) and emphasize the impact of each employee’s job on productivity and the “bottom line.”
Price disparity. The ultimate solution, as many of us know, would be strategic sourcing. But if we want a quick start, try enterprise contracting. Get to know your peers within the organization and start talking about future acquisitions. Identify what items all of you will be buying, aggregate your spend and use the previously established contracts (pricing and terms) to negotiate the best overall deal from suppliers.
“Selling” your services is extremely important. It’s important because our job is to save money. No longer can we say that “if we build them, they will come,” because the truth of the matter is, sales people always get their way. Buying becomes easier and easier for our “internal customers.” Sales people are personable, accommodating and eager to please, all to sell their products directly to our internal customers. In the end, who would you rather deal with: a grumpy “gate keeper,” as we are sometimes perceived to be, or a personable and pleasant sales person? I think the answer is obvious.
About the author
Alex Belov, MBA, C.P.M., CPIM, is a procurement expert with more than 10 years of experience, ranging from contracting to consulting to developing and leading procurement professionals. He is currently manager of Purchasing Operation at the University of Washington.