Managing and driving costs

Solution Buying® – Sourcing for impact

Buying is selling, only reversed

The core focus of procurement has always been costs – managing and driving down external costs, as reflected in the typical KPI for procurement of % annual savings.

Solution Buying® – Sourcing for impact

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This view has evolved from looking purely at the unit costs or purchasing price (e.g., the price of the car), to a more full picture of the inferred costs (e.g., the car and the gas) to Total Cost of Ownership (TCO) covering all costs, direct or related (e.g., the car and the gas and the time it takes to get it to service and pay the bill). However, the driving focus remains the costs of the goods and services procured.

Having achieved a relatively strong position within most organisations, some issues continue to plague procurement departments. Despite having adopted a TCO viewpoint, procurement is continuously blamed for being too narrowly focused on price; we all want those savings, right? Procurement is often involved too late in the buying process where the choices about what to buy and from whom have already been established by the department that has the need, leaving procurement to handle pressing the supplier for a rebate, negotiating the contract signed and paying the supplier.

Buying is selling, only reversed

The typical standard sourcing, or buying, process looks something like: Gather data, specify what needs to be fulfilled, find suppliers (RFI), collect bids (RFQ), negotiate and evaluate bids and choose winner. Very simply put: The process is focused on setting fixed specifications and finding the lowest cost supplier who adequately meets those specifications.

But consider that buying is selling, only reversed which makes perfect intuitive sense. A transaction between two companies is made of a sale and a purchase, one mirroring the other. Consequently, one would expect to find similar processes, focus and core elements on each side of the table. If the sales process is the reversed mirror image of the above process, we would expect it to look something like: wait for RFI, answer RFI, submit bid that meets specifications and be chosen.

Solution buying sourcing for impact

What the other side looks like

Let us examine an actual sales process from an industry-leading sales excellence programme, SPIN®. In this approach to selling, the key focus of the sales process is to develop the needs of the buying organisation (or “account” as the buying organisation is called). This is done by firstly understanding the account by asking Situation questions to understand the account’s current status. Secondly, Problem questions are focused on identifying the core problem of the account (e.g., the scrap rate of our assembly process is too high, system response times are overly long).

After the main problem has been established, Implications are examined. This means looking deeper into what the implications of that problem are, seeking to enlarge the perceived problem (e.g., this is not just a scrap problem, this is a profitability problem of that entire product range!). Finally, “Need-payoff” is analysed looking into what would happen if the problem was to be solved (e.g., total company profitability would increase by x %, productivity would be significantly increased).

Having built the image of a significant need with strong implications and major benefits if solved, the salesman can then provide a solution to the perceived problem, which would realise the benefits co-created with the account. In other words, the account is not buying a product but a solution to an important business need.

The core discrepancy between selling and buying

One thing is immediately obvious from comparing the sales process to the procurement process.

The sales process is focused on the benefits of the purchased product, not on the product specifications themselves. What problems does it solve, what are the implications of that problem and what would the benefits be of having the problem go away? Why this focus on benefits, one might ask? Because it is effective in influencing customer decision making. After all, what primarily drives us to make a purchase is not that the costs are low but rather that we perceive having a need for which that purchase would be an effective solution. Benefits that solve perceived concerns are those that drive behaviour.