Avoid Death-by-Procurement: Four Strategies

I don’t know about you, but at Peppers & Rogers Group I get very anxious whenever a customer sends us to the procurement department. Yes, procurement means we got the business (probably), but it also means we’re about to have our prices shaved and our profits put under the magnifying glass. As a consulting firm specializing in customer-facing issues, most of our clients are large, name-brand companies – companies with a great deal of buying power and negotiating leverage. Companies with powerful procurement departments that make me anxious.

I once interviewed a former executive at a name-brand technology company to get his take on how his former company approached the vendors it bought from. Here’s what he told me (seriously!):

• “[Our company] was always looked upon as the must-win account for every supplier, and we knew that well. So we routinely adopted very tough positions and made stringent demands.”

According to this executive, when dealing with a smaller vendor his company would:

• “work closely with that company, study them, and try to extract as much of the process and knowledge as possible, then fire the supplier and do it ourselves. Overall, being self-sufficient was always a key objective. A few companies managed to avoid this ultimate fate by continually innovating faster than [our company] could absorb, so they maintained the ability to deliver new value each year.”

If you often find yourself trying to avoid the slow, painful death that a tough procurement department can subject you to, then here are four strategies for better managing your relationships with these kinds of demanding and challenging customers. Each involves increasing your own company’s relative power, uniqueness, or indispensability in the relationship:

1. Innovate. As the executive I quoted above suggested, to the extent you can stay ahead of your customer with innovative product or service ideas, you’ll always have something to sell. So your mission should center on being nimbler, more creative, and cost-efficient – all at the same time. The value you bring for the customer, however, is only partially found in the new product or idea itself. The reason the customer will want to keep dealing with you is because of your demonstrated ability to continue to innovate with even more new products and ideas. You have to keep the innovation wheels spinning fast without losing control of costs.
2. Customize. Any customized service or product configuration creates switching costs that increase a customer’s willingness to continue buying from you rather than bidding out a contract at every opportunity. The trick is to ensure that whatever high-end services you develop can only be duplicated by your competitors with great effort, even if they are instructed in advance (and they will be – by your customer!). You want to make it more convenient for the customer to continue dealing with you, rather going to the trouble of re-specifying with a competitor. So, the richer the context of your relationship, the safer it will be.
3. Appeal to a customer’s own end users. A highly desirable brand name, or a product in heavy demand by your customer’s own customers or users, can be very effective at pulling your products through the customer’s organization. The “Intel Inside” advertising campaign creates pull-through for Intel. When Mattel offers Toys-R-Us an exclusive arrangement for particular configurations, or for products with their own consumer brands such as “Barbie” or “Hot Wheels” or “Harry Potter,” it is making itself indispensable to this very tough customer. Any service that saves time or effort for an end user will help, also. Dell’s Web pages for enterprise customers, for example, not only saves money for big customers, but also gives Dell direct, one-to-one relationships with the executives who actually have the Dell computers on their desks (i.e., the end users).
4. Cultivate personal relationships. In the end, businesses are mere legal constructs. They have no brains and make no decisions themselves. Only people make decisions, and people are both rational and emotional by nature. The individuals within your own company need to have personal relationships with the individuals within your customer’s organization. In the high-tech or automotive arena, this might mean developing relationships with the design engineers in a customer’s organization who are responsible for designing your firm’s components into the final product. In the retailing business it could mean developing relationships with the regional merchandising managers who get promoted based on the success of the programs you help organize for them. And this particular strategy is now easier and more useful than it ever has been, because of social networking tools (such as LinkedIn) and the streamlined electronic interactions that mark our interconnected age. So when you find yourself dealing with a tough procurement department, search your executives' LinkedIn contacts, get some introductions to senior executives at your customer, and start making genuine friends. Friends have a hard time beating up on friends.