The relationship between sales and procurement has always been a contentious one. 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. We will be working on continued research to document these findings, and offer solutions for helping to improve the nature of the sales-procurement relationship over time.
Putting People into a Box: Segmentation Approaches
One of the first topics identified in the workshop is that both procurement and sales put one another into a “box”, through their segmentation analysis. Procurement uses a set of strategic segmentation tools that commonly look at a number of criteria. As shown below, procurement will focus on creating category or “market sector” strategy teams, that seek to create an overall strategy for a given classification of spending (e.g. castings, professional services, logistics services, insurance, etc.) The first ‘cut’ is to examine the business impact of the overall category and the value to be derived, in terms of importance to stakeholders and potential for savings. Next, a “supplier preference” classification attempts to target suppliers that deem the customer a “core” or “developmental” high potential target. The next segmentation looks at the level of power in the relationship, and buyers prefer to be in a position of high power to drive a relationship. Finally, the degree to which results can be achieved are highlighted, with difficult complex, low value opportunities receiving less priority. This “filtering” process results in less than 1 percent of the supplier population within a market sector being a true target for closer relationship meriting performance management reviews and strategic aligned planning.
In our discussions, sales executives were astonished at this framework. Many noted that “we had no idea we were being viewed in this manner!” They also noted that the portfolio approach could vary depending on if it was applied across the enterprise, or at the local business level. For instance, someone mentioned hat “at the business unit level, they don’t broadly about which quadrant we are in. But at the enterprise level, they are much more aware of this. The business person will state that “I want this player to serve me”, and won’t think in terms of the portfolio view.
On the other hand, sales also establishes sales targets using the criteira of “value” and “winnability”. A process known as an Opportunity Risk Assessment seeks to answer a series of questions about the following issues:
• Are we seen as strategic to this customer?
• Is it something we are good at?
• Can we differentiate ourselves in a discrete opportunity?
• How actionable is the data?
These questions can help influence the sales organization’s view of competitiveness, and determine if different commercial strategies are needed for this customer. But there is a long way to go yet to even begin the relationship….