17 January 2013 | Helen Gilbert
The current economic environment has put both buyers and sellers under pressure, making collaboration between them increasingly difficult. So how can sales and procurement get back on track? Helen Gilbert offers some relationship advice.
Not long ago, the fragile relationship between sales and procurement appeared to be improving. Collaborative working between the two departments was widely identified as an essential mechanism for delivering the best value for businesses in the long term – but then along came the recession to upset the applecart.
Buyers are under increasing pressure to reduce costs as much as possible, while sales departments are expected to make good margins. So where does this leave the state of the relationship?
On uncertain ground, it would seem. The current economic climate is slowly unpicking the good work both departments have achieved in establishing closer bonds. This is due to a shift of focus on cost rather than value, the latter of which tends to only be seen when the economy is thriving, according to Carlos Mena, a reader in procurement at Cranfield University School of Management.
“It has created a cost focus in procurement teams that’s essentially cascaded down to suppliers, creating more adversarial relationships,” Mena says.
“Suddenly, there’s a mandate for procurement people to reduce costs. They just go back to the old way of beating the supplier and destroy some of the relationships they’ve been building. Trust takes many years to build and in a matter of one phone call, you can destroy the whole thing.”
Indeed, a Huthwaite International survey of 92 global sales executives, published two years into the recession in February 2010, found that more than
75 per cent felt as though they were being treated like a “commodity”, with procurement’s unflinching focus on costs the biggest barrier to building effective relationships with customers.
Until the economic situation improves, Mena fears there is little both sides can do to shift attention back to value. This has also driven changes in behaviour on the sales side.
Andy Preston, a former head of purchasing for a major pharmaceutical firm, has witnessed a worrying increase in the number of salespeople so “desperate” for business they agree to the lowest price possible or, in some circumstances, below cost, which he describes as “ridiculous” because they are then unable to deliver what the purchasing organisation has envisaged for the price that was negotiated.
Preston, founder of sales and negotiation training firm Andy Preston Limited, believes this has, in part, been triggered by an element of “bullying” by procurement departments, which are also under pressure. Even so, he argues that sales professionals should be “more honest and upfront” with purchasing organisations from the outset if they are unable to deliver on a certain price.
“They’re currently scared of doing that because another supplier who is more desperate than them will, in some cases, even move towards outright lying in order to win the business, depending on how desperate they are,” he says.
So what needs to change? “Salespeople need to approach the organisation much earlier in the process and the buying organisation needs to be open to consultation earlier so supplier advice is taken on board and the best specifications are determined,” says Preston.
Mena recommends both disciplines get together in an environment outside of the yearly renegotiation of the contract. “They need to step out of that very confrontational situation, which is renewing a contract and even go on a course or do some activities that don’t involve the day-to-day running of the business.”
Both sides are also encouraged to open their eyes and ears. Mike Inman, a former head of procurement for MGM Resorts International and IAC/InterActiveCorp, maintains procurement can learn good salespeople aren’t out to ‘steal’ from customers and typically know where true cost drivers and value can be found – if procurement would ask them. On the other hand, he says salespeople can learn to listen and develop more comprehensive solutions for the customer, if only they’d stop selling what they already have so hard.
“Other than generically earning the trust of, and being more trusting of each other, the business model of the procurement/sales working relationship could benefit from change,” Inman, now a partner with negotiation training firm TableForce, explains.
Changing the model
“One of our most successful global clients calls it ‘co-managed’ objectives. If the price of a product or service is an issue for the procurement organisation, the seller should be engaged in reducing the total cost, looking at specifications, and so on, and offering alternatives that meet procurement’s needs while still allowing the seller to benefit from the deal. Of all models in the market, SCORE [supplier cost reduction effort] is very sound. Where a procurement organisation sets expectations, if the seller can meet them, they keep the business and if the seller exceeds them, they share in the buyer’s gained value via a longer term deal – more business and higher margins.”
Another advocate of conversation is Guy Allen, a former VP of global procurement at Fujitsu and now managing partner at 4C Associates.
“It is a very good idea for buyers and salespeople to talk because as a buyer you really need to understand how a salesperson’s mind works. Very often in procurement we think the supplier has got all the power and I can tell you that, in many cases, that is not what the salesperson feels. They almost feel exactly the same as the buyer, but in reverse.”
Allen points out that, through talking, purchasers can gather knowledge that catapults them into a different place when it comes to negotiation.
“It’s important to put yourself in the mind of a salesperson to understand the individual’s driver. Even if you’re dealing with a large IT company that you feel you have no sway over, if you talk to the individual sales or account manager you can find that what they need to achieve is where your negotiation lever is, not with the big company. If a guy’s got a sales target to meet for that quarter, he may well be able to give you a discount at a level that you wouldn’t expect, even though you may be a relatively small buyer. It’s really important buyers talk to salespeople to understand how they work.”
Purchasers can also be reassured most UK salespeople are concerned with principles, ethics and accountability. A YouGov survey commissioned by Xactly and published in June found more than half (55 per cent) would leave a job if they had issues with the product or service they were selling. Of the 196 sales professionals polled, almost a third (32 per cent) said they would leave because they felt colleagues were behaving unethically, with women slightly more likely than men to leave a sales job as a result of behaviour they deemed to be unethical.
Six months ago, CIPS and the Institute of Sales & Marketing Management, the UK’s largest association for sales professionals, agreed a partnership designed to enable buyers and sellers to engage with and learn more about each other. CEO David Noble said: “Sales and procurement are often perceived to be at loggerheads. This is a great opportunity to understand the pressures and challenges from ‘the other side’.”
The partnership offers events around the country as well as reciprocal discounted membership.
Adrian Turner, European head of corporate procurement at Apple Europe, believes it is no accident purchasing professionals who rise to the top are ones who share the skills that come naturally to sales executives – such as an ability to communicate, persuade and influence. Any procurement function that plans to operate at the commercial heart of the business must be able to sell itself internally and have the tools, techniques and mechanisms to be able to do that, he says.
“Some people are more able to sell and communicate,” Turner explains. “They can connect a dot in a business without it having to be process-orientated. You can put these conversations in front of procurement people: ‘What do I need to do [to take it to] the next level?’ and they say yes, but fundamentally never get round to making it part of who they are as a person. Should we do it? Yes. Can we do it? I’m not entirely certain some people can.”
Allen, on the other hand, is not a fan of procurement selling itself to internal customers.
“You should start with the stance that people will use you,” he says. “That’s not to say you don’t talk to people. It might come across as arrogant, but I’m very concerned about overselling – it implies they’ve got a choice. You need to establish your positioning.”
Elsewhere, the issue of each discipline attempting to out-tactic the other still remains. Inman cites a common purchasing tactic as letting the seller see they have competition by calling in a preferred supplier last for negotiations with all the other competitors signing a guest book prior to their arrival.
“If a seller is paying attention and is smart and disciplined in their approach, they would think: ‘Wait, the buyer has already spoken to my competition. If they’re so great, why is the buyer bothering to talk to me?’ Or: ‘Wow the buyer is working very hard to create leverage for themselves. They must really have to do a deal with me.’ The buyer’s tactic of threatening competition can backfire and actually serve to give the seller the confidence the tactic was supposed to take away.”
Interestingly, new research has been done investigating this subject, among other things. The joint study, by BayGroup International and ES Research Group (ESR), questioned global sales executives and procurement professionals to find out what they really think about their counterparts’ approaches, strategies and tactics.
The report compares the perspectives of both buying and selling professionals in three areas: the current pressures having the most impact on negotiation results; negotiating strategies, which ones are most used and which ones work best from the point of view of both sales and purchasing professionals; and negotiation training, how much is being delivered and how effective is it in the eyes of those who take it.
Dave Stein, founder and CEO of ESR, says: “There were significant differences in the degree to which the parties agreed, but there is clearly more mind share between buyers and sellers than expected.”
The survey, conducted in October and November last year among 637 business professionals across 59 industries, found:
● Validation that the balance of power has shifted to the buyer.
● Buyers and sellers agree that complexity of terms and conditions is the most significant obstacle to successful collaborative negotiation.
● Two areas were seen as opportunities for improvement by both parties: leveraging technology and systems to reinforce negotiation training; and implementing effective post-negotiation debriefing processes.
Might 2013 be the year to finally get the buyer/sales relationship back on track?
● Ask great questions of each other, answer honestly and really listen to the other side.
● Procurement knows a lot about its specific immediate situation; the blind spot tends to be around what else is happening in the marketplace at the time and in the future. Sales can share its knowledge and help procurement help the company to be a leader in whatever field it is in.
● Procurement to seller: what are your leading customers doing with your solution and why? How is my organisation going to have the lowest cost/highest value solution over an X-year time span? What’s the worst thing about doing business with our organisation?
● Sales should engage with procurement earlier in the buying process, particularly around non-commodity item areas such as language translation services and training consultancy, to ensure procurement technically understands what it is buying.
● Seller to procurement: what are you trying to accomplish with our product/service? What else are you procuring in our portfolio that might be able to help produce a 1+1=3 effect? What are your expectations of this product/service beyond the initial RFP?
● Both parties should arrange secondments/work shadowing placements to help gain an insight into the pressures faced by the other side. Away days can also help build relationships.
Case study: Fujitsu
Guy Allen, managing partner at procurement consultancy 4C Associates, talks about an initiative he set up when VP of global procurement at Fujitsu.
“I realised we talked to IT people and a few finance people in terms of selling and getting on bid lists, but didn’t talk to any of the procurement people in our potential customers. My proposal was to use my network to open up that channel of communication. We ran three networking events a year where we invited CPOs for dinner and we’d stick four to six salespeople in the room just to talk to them and build a relationship. There were up to 30 people in total at each event. We definitely got on a number of bid lists and started a number of relationships because of it. If you’ve got a good salesperson and you put them in contact with the people who are decision makers, they’ll make the most of it. It was giving them a forum and was an audience we’d not attacked before. We picked interesting venues and we opted for business people – such as Nick Hewer from The Apprentice and former chairman of The John Lewis Partnership Sir Stuart Hampson – to speak at our events rather than procurement people, just to give our potential audience a different reason for coming.”