How can sales determine what is important to procurement when selling to them?
I am working on a new book focused on the sales and procurement relationship in supply chains with my friend Howard Richman, who has a wealth of experience working for companies like Merck, Citrix, and others. I am publishing a snippet from one of our chapters – to give you a taste for what’s in store!
In addressing this question, it is important for the sales team to be able to quantify the elements of value and in this case, educate the customer. In some cases, the procurement organization may not have a full level of understanding regarding the different forms of performance and value that a third party outsourced provider is delivering to their business. In every case, Safety is the pre-eminent concern, and is the foundation for all elements of third party logistics provider performance. But there are five other elements that come into play that should be explored and defined specifically with the customer in the context of the current and targeted business.
- Cost – What are the elements of not just the price of the service, but the total cost associated with operating the logistics channel?
- Serviceability – What are the elements of delivery, warehouse operations, and transportation performance? This will impact factors such as the degree of expediting, the size of the warehouse, the number of carriers, etc.
- Quality/Safety – How is quality defined? What are the key safety performance issues that are unique to this situation?
- Innovation – What are the proposed ideas to drive improved outcomes across all of these other factors?
- Contract Compliance – What is the track record in terms of invoicing, payment, and all contractual terms and conditions defined in the contract?
- Sustainability – Don’t forget about this! This criteria is becoming much more important in evaluating supplier capabilities, particularly if you are offering innovative new technologies that reduce carbon emissions. Companies are increasingly focused on their Scope 3 emissions, and if you get the business, you become part of that! Any reductions in emissions will be a bonus in addition to the elements noted above.
What about other types of outsourced services, such as Creative Agencies, or professional services such as Legal Services, Management Consulting or HR Benefits suppliers? The Procurement “touch” in these categories is often very light, as they have historically been like touching the “third rail” in the subway (and you don’t want to do that unless you know what you are doing, or don’t mind 50,000 volts of electricity shooting through your body). When Procurement does get involved, as it should, you need to get educated first and do your homework before engaging your internal stakeholders in the process. Not surprisingly, many of the contracts with these service providers are severely lacking in performance measures that are tracked and monitored, and used to guide the desired outcomes. In Legal Services, good luck in even finding a contract with law firms – they often operate on “Engagement Letters” because nobody wants to get into a battle of the forms on the T&Cs. The performance criteria, therefore are based on the subjective judgment of the user or budget holder on whether they did a good job or not. Why? Because it keeps the power of the relationship in the hands of the budget holder, where one could argue it should be in the first place. The only way that Procurement can share in that ownership is be educated in the category, present performance criteria that make sense to the business and the supplier for determining success or failure, and through doing so earn a seat at the table with shared ownership interest in the supplier relationship.
These elements may need to be reviewed and defined in specific terms at the beginning of the RFQ process, so that the appropriate set of responses can be appropriately defined in the proposal. Each of these elements will have a different impact on cost drivers that will ultimately impact the proposed cost.
Procurement may use a form of scorecard to not only evaluate potential suppliers of services during the RFQ process, but also to manage the on-going relationship after the contract is awarded. Scorecards can be built after the contract is awarded but also defined in more detail in the RFQ response. The weighting of the different factors is also important, and understanding this weighting is fundamental to how the response is crafted.
The RFQ may also include other questions relative to past performance which the sales team should be ready to respond to:
- How long have you performed this type of activity?
- Who have you done it for?
- What is the capability you possess to deliver a solution that meets our needs?
- What are the capabilities and quality of the people who will be assigned to perform this work?
In turn, it is essential that a dialogue be established PRIOR to the RFQ response process for sales to engage procurement and understand the drivers behind the outsourcing initiative. Procurement may not be able to answer questions unless written and responded to by everyone on the RFP – which is not always the best way to obtain information!
- What is the business outcome you are striving to achieve? What is driving the need for this outcome?
- Why are you asking suppliers to provide solutions for these outcomes? What is the driver?
- What is the reason you are engaged in the outsourcing exercise?
- What is the level of continuous improvement you are expecting after the award is made?
- What are the transformation costs, including the switch-out costs (if there is an incumbent) that need to be considered in this proposal?
- What is the level of pre-and post-award contract savings you are expecting to deliver on the current state?
In many cases, the sales team may not know the exact weights assigned to these criteria. However, these questions can help facilitate an “estimation” of the weights and can help deliver a more focused and coherent proposal. Asking the above questions during customer reviews can help the team to better understand the expectation.
In some cases, the procurement team running the RFQ may not be fully cognizant of the different criteria that need to be considered. This is often the case especially with a “price-conscious” procurement team that is only rewarded for price savings over the current state. The cost of change is a significant factor that should also be well-understood and communicated in these discussions. This could also span the “political” costs, particularly when the incumbent is favored over any new party by local constituents. In many cases, an incumbent to the contract will try to sell the statement that “you can’t do without me, and I’m the only one who knows how to serve you,” while the potential competitor will sell the point that “changing over to our system is easy and will be seamless.” Neither statement is true. This is the opportunity that you are looking for – building a transition plan (or a renewal plan if you’re the incumbent) is critical to include as part of your pitch.