The relationship between sales and procurement has always been a contentious one, and the idea of a friendship evolving between the two functions is laughable in the minds of many managers I’ve met with. The issue at the core of this tension is the concept of value recognition. Sales account managers accuse procurement of being purely price focused, and not recognizing the components of value. Procurement executives on the other hand complain that sales account managers are always trying to “work around them”, and to make the commercial sale to engineering, operations, clinicians, or other business stakeholders. “Sales people are always trying to raise prices and “design themselves in” to our organization, without being competitively tendered.” But sales people complain that procurement “does not recognize the value we bring to the business, in terms of quality, service, and reducing the total cost of ownership!”
So who is right? We recognize from the outset that these conditions will vary by firm, by industry, and indeed by individual characteristics. This situation does not always accrue – as there are cases where harmonious partnerships exist between sales and procurement. But this is the exception, not the rule. In an effort to better understand this issue, the NC State Supply Chain Resource Cooperative held a one-day executive summit, to discuss these issues in an open forum. We invited eight procurement executives from oil and gas, electronics, business services, industrial manufacturing, chemicals, and healthcare industries, and brought them in to meet with five sales executives from a large third party logistics provider. In this forum, we covered several major questions, and held open debates on these issues. In addition, both groups shared their internal tools and mindsets around customer/supplier segmentation, key issues that define strategic relationships, the effective use of performance measurement, and the types of disagreements that occur around contract negotiations. The outcomes provide a compelling picture of the great misunderstandings and myths that often exist in both sales executives and procurement executives as they approach one another. The lessons learned from this meeting have been encapsulated in a white paper, which will be read by all participants prior to the workshop.
Because sales executives have developed such a fear of procurement, their de facto position has always been to “avoid working with procurement”, as depicted in some of the sales training materials. And yet, this position runs counter to the current trends in which centralized procurement executives are playing a much stronger role in leading commercial discussions with third party outsource providers and suppliers. There is a fundamental need for sales to learn more about understanding how procurement is likely to react to their sales strategy and proposals, and to test the waters with the introduction of sales approaches that are new or which have not yet been pilot tested with new or existing customers. Sales people need to learn that procurement “can be your friend”, and drive engagement and growth in the business, if the dialogue is couched in the framework of reduced total cost of ownership, improved customer service, reduced working capital, productivity improvements, cycle time reduction, or innovative revenue drivers. On the other hand, procurement also needs to better understand the value proposition that sales people bring to the table, particularly in large, complex outsourcing deals where business process integration can directly impact customers.
In a recent workshop I held with a group of sales executives, it became clear through the dialogue and discussion that there continued to be misperceptions about what procurement can offer. Procurement was seen as being purely price-focused, and not understanding the concepts of value. As procurement has moved to a more centralized role, with oversight over all commercial contract relationships, the issue that emerged with these executives was that procurement was now a “necessary evil”. Indeed, when asked to describe procurement in a single word, executives used terms like “difficult”, “barrier”, “PIMA”, and others! Over three days, we were able to demonstrate that it was important for sales to work with procurement to better coach them on how to translate the proposals sales had for them, into tangible dimensions of cost savings. These savings needed to focus not so much on “price”, but on total cost of ownership, derived through improved productivity, reduced consumption, eliminating waste, optimizing freight loads and transportation networks, and other costs that are often “buried” in the balance sheet. By helping procurement to “look good to their boss”, by bringing these potential cost savings opportunities to stakeholders within the business, the possibility of expanding the length of the contract and avoiding a new bid on the contract was much more likely, as the opportunities to improve expanded. It also became clear that sales can “grow their account” with procurement, if they have a demonstrated track record of continuous cost improvements that address other areas of the business, their extended operations, or even the end to end supply chain. As an example, sales could inform procurement that “if you allow us to oversee more of your transportation, we can offer to you the volume discounts that we are able to negotiate with providers because of the size of OUR buy in the transportation space.” These types of scenarios intrigued and excited many of the sales people in the room, and the real possibility of becoming a friend to procurement began to emerge…