In my work of delivering key account management and negotiation programmes, where the focus is on Sales success through the development of close, dependent relationships with customers, the subject of professional procurement frequently arises. Because of my procurement background, I’m often quizzed about how modern-day category managers think, and what is it about their practices that create such tension in customer-supplier relationships.
Although I’m tempted to adapt the famous book title like so….’Salesmen (and women) are from Mars, Buyers are from Venus’…. there is more than a grain of truth underpinning the experience of many; that there’s a gulf in understanding of each profession by the other.
So I though it would be interesting to provide some thoughts on why this might be the case, and how both sides (but particularly Sales) can work towards creating more productive (if not necessarily always harmonious) relationships with their procurement counterparts. So here goes….
Let us be clear from the start. The role of Procurement is to extract the maximum and sustainable value from external business relationships, appropriating value from the supplier (and supply chain) so that his or her organisation gains and sustains its own competitive advantage. This requires that products and services are secured at the lowest cost and price, the highest quality, fastest response and maximum flexibility possible, and a better functional specification than available to competitors at equal or lower cost.
Andrew Cox, formerly professor at the University of Birmingham, summed it up as follows:
“The rational buyer is concerned with obtaining the required level of functionality at the lowest possible cost of ownership; which might be at-cost.”
These are pretty sobering words for the sales profession, and although it may come as no surprise to the seasoned account manager (as the words often reflect the reality of having to sell through Procurement), some relationship-focused sales people still look to the buyer to share responsibility for the success of the supplier business.
From a procurement perspective, buying ‘at-cost’ is a perfectly legitimate aspiration, as long supply risk is effectively managed and the supplier stays in business (indeed by generating a profit from its other customers). But how do some customers, with their procurement set-up, achieve such advantageous terms, and not others? Later, in this series for account managers, we’ll learn through diagnosing our business relationships, how this is not only possible, but is predictable in most circumstances. For the time being, we’ll explore why and how sales people can seek to more deeply understand the customer and its business requirements.
Knowing the underlying and unmet needs of customers is core to the activities of account managers responsible for strategic customer relationships, and sales people generally. The range of possible needs and expectations of customers can be vast, even unique, making every B2B sales situation different, and therefore requiring tailored responses from the supplier.
Nevertheless, there are some common themes that underpin the expectations of the modern procurement practitioner. Let’s first look at the issue of buyer choice.
What should never be in doubt is that for most professional buyers, a choice of suppliers is preferable to having to deal with a one that enjoys a degree of monopoly power. A choice of suppliers allows the comparison of the various value propositions and, of course, provides the competitive tension that buyers consider all but essential for continuous innovation and improving performance.
If you, as the supplier, are operating in a highly contested supply market, then differentiating your company’s value proposition will be a top priority, and your overall company strategy will undoubtedly reflect this. But this also goes to the heart of the sales process. How differentiated does the customer perceive your offering to be? Are you able to convince the customer that your value proposition has unique characteristics that would have the buyers place your product or service in the ‘critical’ box?
What is certain is that failing to create a unique competitive position leaves the supplier vulnerable to regular challenges from competitors, playing right into the hand of those professional buyers, whose use of competitive tendering is routine.
If, on the hand, your company has managed to create an offering that competitors are not easily able to match, then you should understand that is rarely possible to sustain this indefinitely, and so you should consider the risks of the buyer targeting your product or service for possible action. The buyer’s intent is, in most cases, to standardise the specification and encourage other suppliers to compete.
One strategy open to the suppliers aiming to mitigate the risk of the buyer going to tender is to attempt to create a benign atmosphere in the relationship, reducing any negative tension and helping foster an atmosphere of collaboration. This approach can deflect the desire for procurement to investigate alternatives or nurture competition, and can effectively take the negative ‘heat’ out of the relationship.
The reaction of the sales person to these differing circumstances is important and a streetwise sensitivity is required. The acute lack of supplier choice in a given product or service category, can make procurement people feel uncomfortable and challenged (even enraged!) and they will be determined to remove a supplier that displays monopolistic behaviour or overplays its hand.
The lesson? Understand how important, or indeed ‘critical’, your product or service is to the customer organisation, how buyers position your offering, and what their strategy is likely to be. Moreover, an account manager or sales person that engages proactively and reinforces the value the customer perceives the supplier provides, will do much to reduce any frustration the buyer might experience, and may just influence them to put their new sourcing project on ice for a while longer.