A current trend is for greater involvement by Procurement in service contracts of all sizes.
In the past Procurement had always run large bids. Now it seems they’re running many smaller ones too.
These smaller contract decisions used to be made by the business owner (customer’s manager) alone. Now, Procurement has their hands all over it.
For service contractors, Procurement is not the enemy. They just have a different purpose and agenda, so it’s worth taking a moment to consider their perspective.
Avoiding Negatives to the Organization
As an organizational gatekeeper, Procurement’s agenda is relatively simple – to mitigate risk from purchases.
It does this by avoiding:
- Disruptions in the supply chain
(think what would happen to a Boeing assembly line waiting on a supplier’s parts to arrive)
- Negative Public Relations from bad buying decisions
(such as a Wall Street Journal article pointing out a firm bought their logo’ed baseball caps from a supplier using child labor)
- Litigation from from a bad buy that caused injury, illness or death to customers or employees
(remember recent salmonella outbreaks from peanuts?)
- Overpaying
At the end of the day, Procurement’s actions indicate one of it’s major goals is to produce Purchase Price Variance (PPV). In other words, pay a lower purchase price this time compared to the last purchase price. For more about the dark side on PPV, read Reversing into Darkness.
And in contract services we know that’s only part of the total cost of ownership (TCO). For more about TCO, read Contract Governance: The Movie.
Avoiding Negatives to Procurement
As the firm’s “buyer”, Procurement is also looking to protect its reputation inside the organization.
Not that it would be eliminated, but poor performance and lack of organizational confidence in Procurement can minimizes its budget, headcount and internal prestige.
As a department it has to justify its job too, just as marketing, safety and support services must.
This means part of the Procurement agenda is to avoid blame and finger-pointing from unhappy business owners who feel they they were stuck with a bad buy.
Adding Value to Buying
Procurement also seeks to add value from its existence. But in practice this contribution seems secondary to mitigating risk, and in some organizations is rarely seen.
Procurement adds value by:
- Imposing buying disciplines, which translates into consistently good purchases
(a common process is A.T. Kearney’s 7-Step Strategic Sourcing, here’s a link for Information Products but you’ll get the idea)
- Bringing negotiation expertise to lower purchase pricing
(service contractors may not like it, but this is one of Procurement’s roles)
- Selecting the best supplier to deliver a contract service
(in many instances this is Procurement lip-service to show a more politically correct face within its organization)
The Selling Part
There are two times when service contractors need to sell Procurement.
#1 Getting on the RFP bid list
#2 Participating in the RFP process
#1 Getting on the RFP bid list
Vetting potential service suppliers is only one of Procurement’s many responsibilities. They’re busy, and unless they’re looking for your service at the moment you’re not likely to get much of their time.
A strategy that came to light in the Procurement Talks: Interviews with Microsoft and Expedia was for service contractors to get the business owner to bring them to Procurement and make sure they’re (contractor) on the bid list.
According to the interviews, this seemed most successful when contractors were seen as experts by the business owner.
Procurement at both Microsoft and Expedia mentioned contractors being added to their bid lists because the business owner heard them speak at an industry trade show, seminar or training session.
That’s the recommended startegy: Become known as an expert in your service by speaking at tradeshows, holding seminars, etc.
And it won’t hurt to contact Procurement directly and respectfully follow their process for getting on bid lists.
#2 Participating in the RFP process
“No one ever got fired buying (fill in: IBM, Microsoft, etc.)”
Unless you are the IBM or Microsoft of your service, this is your initial struggle with Procurement.
Because their focus is mitigating risk (to their org & themselves) they’re not in a risk taking mood when selecting contractors.
But Procurement does value expertise. And they are looking for value and performance. They’re just a little more sceptical than many business owners.
Here are several strategies to use once you’re in an RFP process with the 800 pound Procurement gorilla:
- Present as many 3rd party certifications of your capabilities as you can (i.e. ISO 14001, Homeland Security SAFETY designation, etc.). Plaster them all over your proposal, make them conspicuous.
- Present quantitative benchmarking results from your business showing your improvements across customer businesses, and more specifically within the industry you’re bidding(it’d be wise to protect yourself with confidentiality clauses). Not only does this demonstrate your improvements, but it show Procurement your data-based and driven. And a good ally when Procurement needs to justify their decisions upstairs.
- Present case studies, ideally with the subject’s name and quantitative specifics in cost savings and value delivery spelled out. Again, the more concrete the better.
Obviously these aren’t all the strategies, but you can see they reference outside one’s own marketing claims.
If your job was to mitigate risk from bad buys, what proof would you look for in an RFP bid process?
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Chris Arlen
President, Revenue-IQ
