Article originally shared in our Procurement People LinkedIn Group
Today, in corporations throughout the world, armies of procurement specialists wage war on costs, doing everything in their power, like modern day super heroes, to shave even the smallest of percentages from the costs of their company, just like the Egyptians did in days of yore. This is where everyone reading thinks, “OK, Mark must be a frustrated procurement person”, but no, you couldn’t be farther from the truth. Honestly, I’ve never been any good at negotiating…I actually dated someone once that would make the best of the hagglers at an Arab market, cry. Yet, even with this mentor to train me and guide me, I would more often than not, pay way too much. But even to an average Joe like me, it is clear to me that procurement is in dire need of innovation.
Here I don’t speak of some new technology or XXXXX that will magically change the status quo and allow procurement departments world-wide save their companies whole percentage points of savings. Innovation does not always mean something that is available through a new-fangled gadget, often innovation is just a new way of doing things…nothing fancy, nothing space-aged, just new. Now, just thinking-out-loud, how do you suppose we could “innovate” procurement?
The key is to find a way to break through that basic issue of the seller saying, “I can’t cut my prices anymore, because I need to make money too” and you, the buyer, saying “but, I need something…just find a way to give me a little better price.” Ok, so let’s say for a second, that we could cut the expenses for the Supplier first. Wouldn’t that mean that they could offer you a better price without sacrificing their own margins? Sounds simple right? And now, let’s take it a step further and say, “Mr. Supplier, what if I could double, triple, or even quadruple your business, would it be worth some sort of volume discount to you?” I think we would be hard pressed to find a supplier that would turn away business. Most suppliers are doing everything they can to gain as much business as possible. They have lists of companies that would wish, hope and even cajole to buy from them, yet those companies are either too happy with their current supplier, or not in a position at the moment, for any number of reasons, to buy from that supplier. In fact, on a grand average, it is said that built into the price of the average product from the average company, 10% of that price goes to “cost of sales”. Of that 10%, 9 out of 10 approaches to new clients, in the best case scenario, are not successful. So you, the buyer, are paying 9% too much for the product, because 9 other companies are not buying. Now that is not your fault as a buyer. At the same time, you can’t help but pay this 9%, because otherwise your supplier would go bankrupt due to the high cost of sales. Now, imagine if you will another dimension of space and time…sorry, wrong program….imagine if your supplier could SAVE that 9%? That means you; the buyer could pay less, and not jeopardize the business of your supplier, right?