Procurement – the Devil’s work?

Thursday, April 21st, 2016

So your biggest client has a new Procurement Director – and your business is looking like part of the collateral damage.

The new PD’s first step is to reduce the size of the approved supplier list (removing you) and to make your best end-user contacts jump through lots more hoops before they can buy your valuable product or service.  At a stroke the PD’s first year bonus is looking closer, with spending down across the board.

Next they introduce value-for-money as the purchasing mantra.  By “value for money” they mean cheapest (which they can measure) and they ignore service (which they can’t measure and doesn’t impact their working life – or their bonus).

So what can you do about this?

  1. Gather evidence of the value for money that you have provided for x years, with client testimony of the benefits of working with you and the (huge) risks of buying cheap;
  2. Evaluate the impact on your business of matching best published price for equipment.  Take lifetime value (service income) into account.  If you don’t get service income now, find a way of adding this to your offering.  In many service businesses the margin on equipment is tiny and it is really a loss-leader to access years of support revenue;
  3. Get in to see the new Procurement Director;
  4. In this meeting you need to nail them down on what value for money means with reference to your product in their business (see benefits and risks from step 1).  Ask them what rating system they will be using for bids in order to ensure value for money;
  5. Ask them what policy they have for supporting local SMEs and how this decision supports that policy;
  6. Ask them what you need to do to get back on the list.  You already know whether price matching is viable for you from step 2;
  7. If you do offer best price matching then you can carefully construct the list of kit and terms of matching.  Thereafter if the kit you are proposing for a particular job is not available online or discounted then price matching will not apply;
  8. Develop favourable or unique relationships with suppliers where you get discounted pricing and/or are the only certified installer and/or they don’t sell online.  Work early with the end user to specify that kit.  This approach applies equally if you don’t get back on the approved supplier list (in fact, as a wider principle, you shouldn’t be bidding if you haven’t helped the user create the spec);
  9. If you cannot get a meeting you could set out a proposal by letter;
  10. Work hard to develop other clients – this is about relative power which in turn is about choice.

I like to think of procurement people as misguided rather than evil.

 

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