Are you looking through the same lens as your buyer?
By David Lunn, CP APMP, MCIPS
The Covid-19 pandemic has challenged procurement professionals to rethink the way they manage and engage markets, with securing supply chain resilience and continuity high on the agenda.
In his recent thought leadership contribution to Procurement and Supply Australasia (PASA), Australian procurement professional Jonathan Dutton FCIPS draws on his wide industry knowledge to explore seven strategic procurement imperatives arising from the pandemic.
Inevitably, a refocusing of procurement practices will have repercussions for sellers, requiring them to adjust to emerging procurement priorities.
In this article, we outline each of Dutton’s suggested procurement imperatives, the implications these have for sellers, and ultimately how the success of each is founded on greater understanding, clarity and openness from ‘both sides’.
1. Refocusing on securing supply lines and balancing risk
Dutton argues that a renewed focus on building supply chain resilience, given current and emergent continuity and access risks, will require buyers to explore and revisit strategies such as securing multiple sources of supply and increasing inventory holdings.
To make good decisions in this rapidly changing landscape, procurement organisations will likely be much more receptive to new approaches and ideas from the marketplace. As a seller, you should therefore be entering account management and capture planning activities with well-considered solutions for any supply continuity and risk concerns related to your goods and services.
Proactive sellers can start by asking themselves the following questions:
- What are buyers going to be concerned about?
- What risks will buyers be associating with the goods and services I supply?
- What practical mitigation measures are buyers likely to be looking for?
- What value does my risk reduction solution provide?
- How exposed am I to the same sorts of risks buyers are considering?
The sales approach will also depend on whether you are a current supplier or trying to win new business. For example:
- Current suppliers and contractors: Focus on your existing inputs to ensure any increased supply risk can be mitigated and the value articulated.
- Potential sellers: Identify why buyer reliance on current contractors and suppliers might pose risk and then demonstrate how you can reduce
2. Improving procurement responsiveness and agility
The use of Lean and AGILE® methodologies are cross-pollinating into procurement contexts. As Dutton notes, the main driver for this is being able to quickly respond to rapidly changing situations.
No one will argue with procurement organisations wanting to increase the pace of sourcing activities and being more adaptable. Shorter prospective timelines and faster opportunity conversions are also attractive developments. But selling organisations need to understand how this may happen so they can position accordingly. Learning about these methodologies should be considered essential business development activity for those wanting to win new business in tough times.
In a similar vein, BidWrite notes that government agencies around the nation are currently streamlining procurement rules to enhance local business support and ensure rapid progress of economic stimulus measures. Forward thinking sellers, especially those primarily involved in business to business sales, must keep abreast of these changes so they can capitalise accordingly.
3. Managing demand and reducing non-essential spend
Procurement organisations need to manage demand and reduce expenditure in tough trading conditions. And, in all likelihood, post-COVID-19 spending won’t rapidly bounce back to normal either. Dutton argues this cost down process shouldn’t just be about “beating down suppliers’ prices”, although we note it will inevitably have a natural downwards pricing impact.
So, unless your business happens to be in a recession-proof market, now is the perfect time to explore new sales strategies and proof points that help your customers perceive better value. The more value is anchored in your buyer’s mind, the less likely they are to consider your goods and services as discretionary. And who is to say that cost or consumption reductions you identify for your clients can’t also lead to better cash flow and profitability for you?
4. Turning FIXED cost into VARIABLE cost streams
If you were a buying organisation, would you incur a cost if you didn’t have to? Here, Dutton explores how buyers can reduce expenses by converting fixed costs into variable costs.
As a seller, this will require creativity on your part to reimagine sustainable ways of converting some of your fixed pricing elements into variable pricing models.
As well as creativity, this also requires you to build intimacy with your client, so you can demonstrate a clear understanding of their challenges and objectives. The more you know about them, the more likely you are to identify real benefits for their consideration.
While we recognise that accessing this information amidst zealous procurement gatekeeping is often difficult, an intimate understanding of your client has always been an important cornerstone for creating and maintaining ongoing supply relationships.
Fortunately, we contend that procurement organisations now need your help and ideas more than ever, and that the good ones will be looking for it.
5. Increasing spend visibility through eProcurement
One of procurement’s largest challenges is data accuracy. Dutton provides an insight into what the future could look like with better eProcurement systems. As he explains, the inability to obtain the information required to make good sourcing decisions is frustrating to procurement managers.
Compounding this is the fact that, in our view, some sellers haven’t always been motivated to provide better data to buyers. Murky process visibility and dodgy data leaves ‘cracks’ that can exploited, such as off-contract sales, ad-hoc buying processes and deliberate circumvention of expenditure authority levels.
We agree with Dutton’s prediction that the pandemic will further fuel the focus on technologies designed to help procurement organisations obtain and use cleaner data and transact more efficiently. If your selling model relies on working around these systems rather than with them, then a strategy revisit is definitely in order.
6. Re-segmenting the supplier base and harnessing SRM
Dutton is throwing down the gauntlet to buyers and sellers alike by suggesting a post-pandemic ‘essential’ and ‘non-essential’ supplier categorisation, as well as an arguably long-overdue focus on genuine Supplier Relationship Management (SRM).
We have previously written about the value to sellers of the inverted use of the Kraljic Matrix. By having a clear understanding of buyer sourcing relationship drivers, sellers can better appreciate the buyer’s perspective and anticipate their purchase objectives and tactics. You can also gauge how much leverage each party may have in eventual contract negotiations and contract management activities.
If buyers do further orient their practices towards SRM and true relationship-based sourcing models, sellers will need to improve account management, influencing, collaboration and other skills needed to effectively operate inside this framework.
Some markets and industries are more advanced in their use of SRM than others, and for some suppliers the idea will be foreign and uncomfortable. If this latter situation applies to you, then at the very least, you should start turning your mind to the emerging SRM paradigm.
7. Negotiating stronger legal protections and remedies
Dutton observes that the pandemic will prompt sellers to find ways to improve contract management negotiations, primarily to secure better contractual protection for unexpected events.
For years, buyers have been working hard to improve contract management to minimise risk and ensure that the expected value of contracts is achieved. BidWrite sees this issue, and the negotiation of contracts more generally, in a similar context to the SRM observations outlined above: suppliers need to understand the buyer’s perspectives, challenges and opportunities.
Our message to sellers is not to fall into ‘commercial naivety’ trap. Blindly accepting more risk does not necessarily make you a better supplier in the eyes of the buyer. In fact, it may make you a more fragile one. The objective should be risk balance, and if the scales aren’t equally weighted for buyer and seller, you must address this in a measured and dispassionate way.
Greater understanding, clarity and openness leads to procurement success
The core premise behind Dutton’s seven strategic buyer imperatives lies with greater understanding, clarity and openness.
To respond to their ‘new normal’, buying organisations need as much information from the market as possible to help them in their procurement decision-making processes. Importantly, they must also be assured that they are not exposing themselves to unnecessary risk through existing supply chains.
As sellers, this requires you to develop a clear understanding of these challenges and objectives, with subtle persuasion being achieved through curiosity, openness and genuine interaction. Demonstrating a clear understanding of your buyer’s needs will go a long towards building their confidence that you are well placed to deliver what they really want.
Ironically, this has always been the case. Perhaps it has just taken ‘a good crisis’ to remind us of it.