MANAGING COMMON CHALLENGES IN NEGOTIATING WITH PROCUREMENT

MANAGING COMMON CHALLENGES IN NEGOTIATING WITH PROCUREMENT By David Chapnick Senior Consultant Michael Kalikow Senior Consultant and Liz Rayer Partner The influence, control and sophistication of procurement organizations over their companies buying processes have been increasing exponentially for years. Whether companies are selling commodity products, new technologies or highly differentiated professional services, sales professionals consistently report that the rise of Procurement has contributed to making their sales more difficult, time consuming and complex. Further, as Procurement has been elevated in importance, end users have been moved farther and farther away from the sale itself. At the same time, pressure on salespeople to meet sales goals has also increased, making each sale that much more important. Sales leaders are simultaneously pressed to keep pace in arming their organizations with the right sales and account management processes, preparation tools, playbooks, data and skills to address the shifting selling environment, while also maintaining consistent pricing across accounts not to mention playing an active role in critical customer negotiations. As salespeople come to terms with this evolving selling paradigm, they are forced to address different challenges from Procurement that will only become more common and pronounced with time. Common challenges when negotiating with Procurement: 1. Procurement as gatekeeper 2. Selling value when Procurement seems only to care about price 3. Negotiating when it feels like Procurement has all the leverage 4. Out to bid: managing Procurement s reliance on the RFP process 5. Dealing with threats, stalling and other hardball tactics Vol. 17 Issue 1 2015 V e l o c i t y 1 9

Challenge #1: Procurement as gatekeeper While end users typically still play a significant role in decision making, more and more corporate policy now requires end users to go through Procurement to make their purchases. This is nothing new, but the role Procurement plays as the intermediary between end users and their sales representatives has increased significantly in recent years. Account managers frequently ask how to get Procurement out of the picture or how to go around them. This goal and, really, the general mindset tends to be counterproductive. Treating Procurement as the enemy quickly makes them your enemy. You will get better results if you accept that working with Procurement is the new reality. After all, they aren t going away any time soon. Procurement serves an important corporate function around cost control and ensuring suppliers deliver the quality and value they ve promised. Therefore, getting into their shoes to help build your relationship with them is essential. There are two primary ways to do this. First, get to know the procurement professionals who are responsible for the product or service you sell, leveraging your relationships with end users as needed. You might suggest that Procurement play an integral role, perhaps as a facilitator or convener in conversations with end users, or just attend meetings you have with them. This helps Procurement fulfill their goal of maintaining some degree of control over the buying process, while simultaneously ensuring that they get to hear firsthand from your end users about the value you provide to their organization. Second, procurement professionals care about satisfying their own customers, i.e., their internal stakeholders, 20 some of whom might resent being forced to work through Procurement just as much as you do. Explore ways to help Procurement become trusted advisors to their end users. For example, you could provide them with an overview of what you are seeing in their industry, share with them what you are hearing from their internal customers or tell them about ways you have been a resource to your other accounts. Treating Procurement as the enemy quickly makes them your enemy. Of course, the degree to which you are able to have these kinds of conversations will vary widely, but the essential shift is to recognize Procurement s legitimate role and to position your own role as an enabler for them. Challenge #2: Selling value when Procurement seems to care only about price One of the biggest complaints we hear from strategic account managers is that the only thing Procurement cares about is price. Whenever account managers try to talk about the value of their products or services quality, customer service, total cost of ownership Procurement redirects the conversation back to price. Price tends to be an easy way for procurement organizations to make apples-to-apples comparisons between competitive suppliers. Additionally, as price and cost savings are often the main metrics by which Procurement is incented, they can obscure Procurement s other interests in quality, time of delivery and providing end users with the products that provide the most overall value. Procurement organizations and their corresponding interests will vary depending on their role within their own companies and their level of sophistication and maturity. For example, while some may only focus on purchase price, others may consider metrics such as total cost of ownership and the broader strategic factors that your products or services bring. Try to engage in conversations with Procurement as well as with end users and other coaches within the organization to better understand what the customer s procurement organization cares about both in general and specific to what you are selling. For instance, you might discuss with them: W hat end do they ultimately hope to achieve, and what impact do quality, convenience, features, service or other differentiators play in the organization s ability to achieve their desired results? T o whom is Procurement accountable, and what are they being asked to deliver? How are they being measured? W hat supply chain risks keep them up at night? A re they open to working together to uncover cost savings, to refine processes and to innovate? EXAMPLE: To meet the interests Procurement described during such a conversation, one technology company s sales team worked closely with their sales operations and marketing counterparts to develop the data that

would help clarify the value proposition for their products. In this case, it was the performance improvement that their products could drive in the factories of one of their strategic accounts. This information enabled the SAM to justify why the price was what it was, as the superior return on investment would pay for itself. In the end, this data set them apart from their competition (who had not gone to the same lengths) and gave them significant leverage in reaching agreement with Procurement on their (i.e., the supplier s) terms. After that particular deal was complete, the data was incorporated into a Seller s Toolbox and disseminated to the rest of the sales team for use with their own customers. Ultimately, the more you learn about Procurement s role and what they care about, the easier it will be to frame your solutions, your organization and the For example, there is significant power in understanding your customer s portfolio of interests (e.g., quality, price, ease of working with, support, customization), the degree to which your organization can meet them better than your competitors, and being able to explain why your pricing is fair based on clear and widely accepted market standards. curve with a new supplier? Are there costs with a competitor that will lead to increased total cost of ownership that they have not thought through? There might also be services that your organization provides or a hidden uniqueness to your offering. These are all potential sources of negotiation power that are often overlooked. Nevertheless, it certainly feels like Procurement has more power when you need the deal and it seems they don t like when negotiating to renew business with an account your company simply can t afford to lose and while competitors are offering unsustainable pricing to buy the business. Even in these situations, power differentials are often more perception than reality. In fact, Vantage research indicates that more than 75 percent of all sales and procurement respondents studied believe that the other side has more leverage during Such a conversation could come off as threatening or counterproductive, and we have seen account managers overestimate the value their organization truly brings. Therefore, it is critical to engage in such conversations in a humble and tactful manner but not to shy away from them if Procurement is overplaying its hand. Furthermore, conceding on price trains the customer to hold out for price concessions again in future negotiations and sets a market precedent that encourages others to do the same. data they care about from their perspective rather than from your perspective or that of your end users. Challenge #3: Negotiating when it feels like Procurement has all the leverage Salespeople often view negotiation power as a function of who needs the deal most. Since walking away from the deal is rarely a viable option for most salespeople, Procurement is perceived to have the power. However, this definition of power is narrow and selflimiting; sources of negotiating power are more multifaceted and situational. negotiations than they do.1 When we feel that we can t walk away and that losing the business would be devastating for us, we quickly forget that losing the deal may be equally unpalatable to the other side. For instance, there may be hidden costs in moving to a competitor that are not front-of-mind for a procurement buyer comparing proposals. For example, how long will it take for end users to get up to speed on a different supplier s technology or get used to working with a different service provider? What risks to their supply chain are posed by a switch that doesn t work out or moving down the learning Challenge #4: Out to bid: managing Procurement s reliance on the RFP process RFPs are tools in Procurement s arsenal with which SAMs are all too familiar. It is no surprise that sales professionals find RFPs challenging and view the process as bureaucratic and frustrating. If you have built trusting relationships with end users and Procurement alike, then you may at least know a request for proposal is 21

In fact, Vantage research indicates that more than 75 percent of all sales and procurement respondents studied believe that the other side has more leverage during negotiations than they do. coming. You may even be able to get in front of it and help shape the request by initiating a dialogue with your customer about some appropriate criteria to use when making buying decisions around your product or service, or by sharing market intelligence you have. Though it may be counterintuitive, helping Procurement with the RFP, by more deeply integrating your expertise into the RFP itself, can increase your chances of success. That said, even the most well established salespeople encounter RFPs from time to time. There is an easy way to frustrate Procurement in a response: by submitting standard or canned information, answering questions that you preferred were asked versus ones that actually were, or, even worse, submitting endless, disorganized marketing materials that were not requested. It is important to consider the actual questions and make sure these are answered directly. Keep in mind that Procurement has structured the request in a way that made sense to them and that illuminates what they are looking for. Paying attention to what is being asked will provide valuable intelligence about Procurement s interests and the key criteria they are using to evaluate proposals, and your responses should be framed accordingly. EXAMPLE: When a hospital system s procurement organization looked to consolidate spend, they put a major medical device company out to bid. As an entrenched incumbent, the supplier company truly had everything to lose to their competition and little to gain from the exercise in a very competitive market. The account team developed a fit-for-purpose response that spoke exactly to the interests Procurement laid out in the RFP, almost bullet by bullet. This included a targeted executive summary that laid out all the key pieces of their bid package and spoke directly to the extraordinary savings and benefits their customer would achieve by maintaining the business. In the end, not only did the strength of their response win the team the business, but the customer shifted significant spend to them from their competitors. To further codify the best practice, account team leadership distributed the submission widely across the sales organization as a template response for other teams facing similar situations. Challenge #5: Dealing with threats, stalling and other tough tactics We often hear from SAMs and other salespeople that Procurement engages in some of the toughest negotiation tactics they face: threatening to put the business out to bid, insisting on excessive or unreasonable demands, misrepresenting the facts, getting angry or emotional, and even making personal attacks. Essentially, these tactics are all intended to throw you off your game, intimidate you and get you to cave in to concessions. Responding in kind to the game they are playing can prove self-destructive, resulting in damaged relationships and lost deals. To counter these tactics effectively, do your homework, be well prepared and have justification for what you are proposing and why. The trick in responding to the difficult tactics themselves is, first, to not react. Then, remain firm and constructive. All too often, the supplier simply gives in and makes concessions in order to close the deal. This can be very costly in terms of revenue, time and reputation. For instance, if a customer threatens to buy from a competitor if you don t drop your price by 20 percent, and then you agree to meet the demand without a clear reason for doing so ( because Procurement asked doesn t count), you set a dangerous precedent. Research from has shown that making such exceptions can lead to a precipitous drop in average selling prices (ASPs) for all customers 2 2 V e l o c i t y Vol. 17 Issue 1 2015

over time. Within one year of granting a pricing exception, approximately 45 percent of companies see a drop in overall ASPs to the concession price 2. Furthermore, conceding on price trains the customer to hold out for price concessions again in future negotiations and sets a market precedent that encourages others to do the same. Rather than making concessions, consider what arguments you can offer to defend what you are proposing. For instance, to justify your price in the above example, you might demonstrate that their request is inconsistent with the market, or that the pricing is consistent with what you have granted to similar customers. In addition, you should evaluate how well your competitors can meet the full set of this customer s interests at the price they are offering. For instance, is the competitor s price so low that they will possibly sacrifice service quality on implementation of the contract so that they can actually make a profit? Ultimately, you should not grant a price concession on its face without connecting it to something you are getting in return, or to something they are now not going to get, to justify the decrease. That might mean re-scoping, changing volumes, extending timelines or decreasing add-on services. EX AMPLE: Rather than leave it up to individual account managers and salespeople, some companies have opted to build a true organizational capability around addressing such hard-nosed negotiation tactics. After repeatedly facing some downright difficult Procurement tactics (such as should-costing, unrelenting insistence on unjustified discounts and constant disingenuous threats to move spend to competitors), a major tech hardware supplier developed a Tough Tactics playbook and trained its entire salesforce in how to employ it in their negotiations. The playbook gave teams processes to follow and even language to use when Procurement began acting combative. Perhaps most helpful, the playbook also outlined specific bestpractice account management strategies such as developing a value scorecard and engaging in co-discovery with the customer, which served to preempt difficult Procurement tactics and prevent them from trying to commoditize their products in the first place. People persist in using well-worn tactics, whether consciously or unconsciously, because they have had good results employing them in the past. Above all, when responding to difficult tactics, be persistent in holding your ground and be relentless in your commitment to finding a constructive and fair outcome to the negotiation. CONCLUSION For the foreseeable future, Procurement will continue to expand its role in the buying and negotiation process. Getting into Procurement s shoes and developing skill in negotiating with them are essential competencies for every account manager working today. Likewise, all sales leaders need to equip their teams with the data, processes, preparation and tools they will need in order to standardize engagement with Procurement and ensure that positive outcomes are not just possible but repeatable. Rule #1: Don t treat Procurement as your enemy. Rule #2: Learn what your Procurement counterparts care about most. Rule #3: Be well prepared to explain and defend the merits of your proposal. Done well, these approaches will form the foundation for a strategy that will help overcome the challenges of working with Procurement. 1, Customer-Supplier Negotiation, 2009 2 The Value of Pricing Discipline: A Vantage Partners Sales Study on the Impact of Pricing Exceptions, 2014 brings established relationship management techniques to corporations worldwide. Based on their work and affiliation with the Harvard Negotiation Project, Vantage Partners is a recognized world leader in helping companies build lasting capabilities in the areas of negotiation and relationship management. Find them at https://www.vantagepartners.com. 23