Is There Pressure On Your Buyer’s Numbers?
‘What is the pressure on your buyer’s numbers?’ As a salesperson that is an important question for you to ask. It can help you to sell more effectively.
Watch the Video to find out how pressure on the buyer’s numbers presents can present you with sales opportunities. Alternatively, keep on reading.
Everybody Has Pressure On Their Numbers
Just like everybody else in business today, your buyer has pressure on his, or her numbers.
That matters to you because pressure on the buyer’s numbers sooner or later results in pressure on your numbers and in particular pressure on your margins.
So the questions are:
– How can you help the buyer to work out the numbers?
– How can you help the buyer to make the numbers more robust in the face of external scrutiny?
– Can you help the buyer to make his numbers bullet-proof?
– Can you help the buyer to claim credit and get rewarded for his, or her numbers?
To answer these questions let’s take a look at some simple procurement numbers and in particular where they come under pressure.
How Buyer Numbers Come Under Pressure
Let’s take a spend of 10 million on goods and services. Now, of course not all that spend will be under the control of procurement. The figure in many organization is about 60% and that is the figure used here. So 6 of the 10 million is being directly targeted for savings.
The target is for a 10% reducing in spend, which is a target figure of 600,000. Note that procurement in this organization finds it difficult to take credit for anything other than ‘hard savings’.
That puts the focus is on cost savings, not cost avoidance. Unfair though it may be unless the saving can be linked back to an item of spending in last year’s accounts, it cannot be claimed.
Despite procurement’s best efforts, there is still a level of unforeseen or unapproved spending taking place. Indeed, here the level of procurement compliance is put at 70% bringing the level of savings possible down to 420,000.
Examples include where an order is placed in an emergency thereby resulting in higher costs, or where a maverick manager stubbornly places an order with another supplier. In this organization 30% of spending falls into this category, so it is not generating the savings that procurement had anticipated.
In this organization not all the savings planned are realized. This may be the result of poor contract management, where terms agreed are not reviewed to ensure that full discounts or rebates are achieved for example. Or it may be the result poor supplier performance management. The full savings, or other benefits generally don’t happen by themselves, they need to be tracked and managed. The failure to do so results in a leakage of 10% in this company.
So, allowing for spend that procurement can’t control, for purchases that slip between its fingers and savings that are not fully realized, the total saving in our example is 378,000. A disappointing performance when compared with the target figure of 600,000.
Now off course, there is the procurement administration associated with that spend, in this case a few people and office expenses amounting to 300,000, or 5% of spend. These costs could be looked at more broadly however in terms of the procure to pay cycle, from sourcing the product to the payment of suppliers.
So take away procurement related costs and you are left with a relatively modest figure of 78,000
That figure accounts for just one percent of the total spend of 10 million. That is hardly a great victory for procurement and it is likely to be under severe pressure to justify itself and to deliver greater savings.
Rather than being a problem for the seller, pressure on the buyer’s numbers can be an opportunity. That is, if the seller can help the buyer with the numbers.
How Can The Seller Help?
The targeted level of savings is 10%, but is that to come from cutting back on volume levels and in particular unnecessary purchases, or by means of cutting suppliers margins, or by buying in bulk? The supplier can help here. In particular the seller can show the buyer to analyse spend and identify how best to achieve savings.
The seller can help the buyer to make sure that maverick, unforeseen or emergency purchases are made, for example providing greater visibility of spend and helping to get buy-in among internal customers to use the approved suppliers and processes.
The seller can help the buyer to realize more of the promised savings. That includes engaging with the buyer in reviewing contract and supplier performance and putting benefits realisation centre stage.
Tracking and communicating the benefits deliver is also important. Maybe the buyer is under, or overestimating the level of benefits/savings.
The seller can help the buyer to reduce procurement administration and paperwork through the use of technology, for example eCatalogues and eInvoicing. The seller may be able to help the buyer to optimize the Procure To Pay cycle, in other ways such as for example in how re-ordering, delivery and inventory is managed.
How can you help the buyer to work out the numbers?
How can you help the buyer to make the numbers more robust and to be better able to stand over them in the face of external scrutiny?
– Can you help the buyer to make his numbers bullet-proof? Can you help him, or her to track what is being spent and what is being saved with you? Can you help the buyer to benchmark his numbers against industry norms?
– Can you help the buyer to generate numbers that are compelling enough to ensure that the purchase or the project gets internal approval and that it wins out over other competing projects or purchases?
– Can you help the buyer to get the credit for his numbers, bearing in mind that his own personal remuneration may well be linked to being about to achieve those numbers?