Tyrannosaurus Procurement

In the late Recessionary period Procurement is king when it comes to supplier selection for large contracts.

In this evolutionary time, business owners (those who manage the selected supplier) have little to no say in the decision of suppliers. They fear for their own jobs and most often won’t risk pushing back against what they feel may be a bad choice by Procurement.

This is especially puzzling as Procurement doesn’t have to live with their own decision – and business owners should be the most knowledgeable about the service being bid and suppliers’ machinations.

Once upon a time (3-5 years ago) business owners did push back. Several large, national contracts awarded by Procurement had numerous regional exceptions, results of non-acceptance by business owners. However, in the light of the Great Recession this seems as rare as a living T. rex.

Procurement doesn’t eat their own cooking

This is important to say again – Procurement doesn’t live with their own supplier decisions.

They source, vett, analyze the market, and bid out contracts. Once a decision is done and a contract is awarded, Procurement is off to another opportunity. From this position, their take on decision making is definitely skewed. The difference between Procurement of the past and today’s Procurement’s is that their decisions now have far more corporate weight as firms fight to survive.

Unfortunately, Procurement’s choice still often zeroes in on PPV (Purchase Price Variation), which is the difference of the current contracted price from the last. Procurement believes it’s doing the right thing when it focuses on lowest pricing if it’s pre-qualified the bidding suppliers.

The harm to facility services

This means a downward spiral of market price on facility service contracts, even more so on the “soft” services of janitorial, landscaping, etc.

As a result of this evolution, some suppliers are willing to take new business below cost to gain large revenue, and/or flagship accounts. These suppliers feel more pressure to show top line growth for their equity owners, and hope to make bottom line profit through the in-filling of smaller profitable business.

What’s this mean for selling services?

Procurement still makes decisions – they are still buyers. And all buyers, whether Procurement or business owners, base their decisions:

* Externally –> on the information they have, and

* Internally –> how they emotionally feel about the choices available

Service suppliers must now invest more time and effort to develop insight about customers’ Procurement processes and buyers – in addition to understanding the needs and wants of business owners.

Sellers have had to sell to multiple agendas in the past where there were multiple decision makers, i.e. finance, safety, HR, etc. Today, Procurement is just the biggest, baddest decision maker of them all. But for who knows how long? The economy is slowly reviving, and there was an ice age. Welcome to the 21st century.

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Chris “rex” Arlen
President, Revenue-IQ

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