Why Procurement Professionals Need To Stop Being So Focused On Price

Written by EO Executives on Jun 11, 2015

Over the last 11 years I have been privileged to have spent time with some of the best thought leaders in Procurement, discussing current trends, challenges and new thinking. In this guest post by Paul Vincent, he echoes the thoughts of a number of CPOs and Heads of Procurement I have met with recently with regards to the attitudes procurement professionals need to take when dealing with internal stakeholders.

Paul writes:

During my career I have been fortunate to experience a 360 degree view of procurement. I have seen things from within (in various global category management positions), as a budget holder (as a product/commercial/change manager) and as a supplier (coaching a raft of different organisations through sourcing exercises and providing consultancy services myself).

This all round perspective has made a big difference in how I go about developing relationships with senior stakeholders and gaining credibility in supply markets. It has proved invaluable in pretty much every category I have worked with but none more so than in professional services where requirements are discretionary, not always predictable and can often be highly politicised.

From the inside looking out I can truly empathise with the challenges that procurement people face in being respected, involved and recognised in this area of spend. However from the outside looking in I can fully understand why procurement people are so often misinterpreted, excluded and marginalised!

This Is Nothing New

Of course the desire for procurement functions to have more influence over professional services expenditure is nothing new.  Over the past 20+ years there have been numerous articles which highlight the problem and diagnose the underlying issues. Yet rarely has anything been written which offers a practical solution.  Why is that?

Having experienced professional services from so many different viewpoints I believe that most of the suggested solutions completely miss the point.  They concentrate far too much on the need for procurement people to learn new skills and behaviours.  But this is wrong…..the answer lies not in learning new skills and behaviours…instead it is all about ’unlearning’ the approaches and habits which add little or no value to the buying process. 

If your procurement function really does want to make a positive difference in the way your organisation buys professional services then the big daddy of all the things to unlearn is what I call ‘price-itus’. 

This hugely debilitating condition causes procurement functions to believe that their organisational value is only ever measured by the numbers on a suppliers invoice. It means they are ruled by the fear that unless they have played a noticeable part in ‘commercial discussions’ they will be perceived as invisible in the buying process and organisationally worthless. As a result their focus becomes centred about the pricing axis.

So How Can Procurement Be Seen As Adding More Value Internally?

Here is an everyday example to illustrate my point. Imagine that one of your good friends wants to buy a new car. They know how much they can afford to pay but are finding it hard to decide what sort of make and model they prefer. They also don’t know which car dealerships they can trust.  They ask for your advice.

In Scenario 1 you don’t know much about cars yourself but you know people that do. You ask around and identify a couple of dealerships which come highly recommended.  You also line up someone to talk to your friend about the merits of different makes and models and the corresponding market prices/financing options. 

In Scenario 2 you know all the above yourself.  As well as passing on this knowledge to your friend you offer to accompany them to the dealerships and help them to work through their thinking and make a final buying decision.  

In Scenario 3 you concentrate on their budget.  You imply that they would be mad to buy a new car because it will depreciate as soon as they get it home.  You emphasise how much money they could save by getting a good second hand car instead. You advise them to negotiate hard on price, refuse point blank to pay for any ‘add-ons’ and to ask for all manner of ‘extras’.  In fact if they are really lucky you might offer to do the negotiation for them.  

In Scenarios 1 and 2 you are offering your friend real insight and value. They will be delighted with your help and will find it incredibly beneficial.  They will inevitably end up with a car that best suits their needs and armed with up to date market intelligence they will also believe they have got great value from the budget they had in mind. 

In Scenario 3 ‘price-itus’ becomes all too apparent.  In this scenario your friend will still end up with a car but they will have paid way below their original budget.  You will savour how skilfully you managed to tie the salesperson up in knots, how you managed to strip out all the unnecessary add-ons in the price and how many extras you managed to get thrown in.  On the surface your friend will seem delighted……and they will remain so until the first time the car shows signs of a problem….

The relevance of this story to professional services is hopefully obvious.  In Scenarios 1 and 2 your friend (or the internal client/budget holder) will fully appreciate the benefits of your involvement. In Scenario 3 your friend (or the internal client/budget holder) could well end up blaming you for buying a dud car or for risking a successful business outcome….and they will probably have a point!!

Don't Underestimate The Effects Of 'Price-itus'! 

I know from first-hand experience that ‘price-itus’, more than anything else, is the primary reason why internal stakeholders can be so wary of procurement involvement when it comes to professional services.  Value should never be subservient to price and if we imply, even slightly, that we can spend someone else’s money better than they can themselves then we are merely sowing our own seeds of exclusion and marginalisation. 

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About Paul Vincent

paul_vincentPaul is an accomplished procurement leader. He has had over 25 years business experience in a variety of operational, consultancy and training roles and he specialises in helping organisations become more effective in how they buy or sell business services.

Paul is hosting a free to attend event on 11th June with the theme being “Consulting Excellence” where he and a panel of guest speakers we will be providing some key insights for buyers

The Consultancy Buyers Forum (CBF) is a networking group that enables buyers of consulting services (whatever role they may play in their organisations purchasing decisions) to share their personal knowledge and experience and to learn from the good practice of others

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