Procurement Strategy

How to maximise procurement strategy outcomes

By 2nd November 2018 No Comments
maximise procurement strategy

A frequent topic that comes up when we discuss commercial strategy and tactics with business owners is how they can maximise procurement strategy outcomes or general strategic outcomes in their businesses. Procurement is seen by many as a process rather than a method. In our view, this perception needs to change first. No pork, no sausages regardless as to how good the sausage machine is (the procurement process). The second point is that the process will only maximise procurement strategy outcomes if the right team is working to achieve the desired results. A bad process will still achieve some positive results if the right team is working with the right strategy.

What might this mean in the real world when businesses try to maximise procurement strategy outcomes?

How buy / supply dynamics impact on attempts to  maximise procurement strategy

Picture this scenario. A routine commercial transaction is about to take place. The buyer knows what they wants and the supplier knows what it has to offer. There is what economists call near perfect knowledge. How can buyers successfully manoeuvre negotiations so that they strengthen their position, contribute to an efficient procurement sourcing system and avoid the pitfalls of clever salesmanship? It’s a question which many companies face and struggle with. Ensuring staff in these scenarios have access to relevant professional development training is something that many companies learn after costly mistakes. Procurement training can heighten commercial awareness and help to equip key staff with the skills they need to successfully negotiate contracts.

An approach to maximise procurement strategy outcomes

First and foremost, key staff need to be sure of their positions and priorities. Any commercial agreement depends on the respective skills of the buying and selling counterparties involved in the procurement process. Different and evolving sales techniques – new and old – can make the process dynamic and easy to manipulate. Consequently, from a buyer’s perspective, the adoption of a future-oriented strategy is key to identifying and counter-acting enhanced sales techniques.

Some companies win bids and maximise profits by using techniques like “Spin selling’. This technique is particularly prevalent in the sale of complex IT systems and outsourcing solutions. Spin-selling engages human emotions (and the buyer’s vulnerabilities) by personalising the negotiation process in a way which benefits suppliers.

In spin selling, vendors ask about the business before asking about the company’s key issues and the implications of these problems. Eventually, they offer a solution which seems too good to be true [SPOILER ALERT – it probably is]. Discipline in the buying process is key to ensuring the business is not enticed into buying what might politely be called a lemon.

Procurement training can help key staff understand the importance of process and discipline. It can convince the business to stick with the process being used so the right decision is taken for the company. When everyone buys into the process, it is easier to convey a cool, calm persona during negotiations. Buyers should avoid discussing price before a deal has been confirmed and avoid usage of the words like “when” instead of “if”. Where Game theory is used it can help to shake the trees. We have articles elsewhere on this site on the results game theory can produce from suppliers.

 

The positive impact of strong procurement sourcing strategies

Strong brands with a good reputation for positive supplier management maximise the efficiencies they gain from sourcing. Reliability benefits those seeking to supply services or goods as well as buyers seeking to maximise value for money. Salespeople know that tricks and techniques are unlikely to work on businesses known for its commercial acumen. We know this to be the case with, for instance, some public sector bodies who are notoriously tough negotiators.

The earlier a company starts to work on an opportunity, the better their chances of success. This is infinitely preferable to having the rectify issues later from a position of weakness. As they say in politics when you’re explaining you’re losing. Agreeing to a strong negotiating position with key stakeholders upfront is one example of a technique which can be advantageous. This should include red lines and walk away points, before negotiating with suppliers.

Although it is often complex and challenging, procurement is not quantum physics. Procurement means following systems and processes “to identify, source and manage contracts” according to the Crown Commercial Service. This principle particularly holds true when it is crunch time i.e. a deal is about to conclude.

Suppliers can stand out by avoiding these enhanced sales techniques. If suppliers were more aware of the perceptiveness of procurement professionals changes in approach would ensue. Businesses can avoid buying solutions they could have procured for less by spending time on procurement strategy first. A company cannot maximise procurement strategy outcomes without doing this.

 

More ‘Top Tips’ on Procurement Strategy

We have lots of great advice on how to approach tender management however so check out our Procurement Strategy services to see how we can help with tender and bids. Those interested can search for ‘Procurement Strategy‘ articles on our blog.

 

Using game theory in procurement negotiations