Price is what you pay, value is what you get

I had the pleasure of attending and speaking at the 6^th CIPS Australasia National Conference for the procurement profession the other week. It was my third invitation to speak at a CIPSA event in my capacity as a professional representing the sales profession. The theme for this conference was ‘managing volatility”. A key message I gleaned from the conference was value management rather than the narrow bandwidth of cost management. 

Don’t get me wrong, the procurement profession is still interested in cost, however there was a distinct awareness about ‘cheap being a false economy’. While it was important they look to secure supply and at the same time reduce total supply cost, they were not after ‘cheap’.

At the ‘Pricing Insight’ session, one of the many sessions I attended over the two days, it was stated that:

“Price is what you pay… Value is what you get.”

Many of the procurement professionals is the ‘Pricing Insight’ session commented on the stupid pricing games played by sales people and their companies. They still found that too many sales people were product fixated not business oriented, defaulting to unnecessary price wars at the expense of developing real value propositions. When something was offered up as very cheap the procurement professionals were concerned about the guarantee of supply and quality of the offering. They did not want to buy ‘cheap’.

Contrary to the popular myth that all procurement people want to negotiate down to the lowest price, the procurement profession is far more sophisticated than most sales people give them credit for. Our sales profession is doing ourselves a disservice if we pitch the ‘us versus them’ scenario when it comes to dealing with procurement.

The procurement profession is learning its lessons too. We cannot deny that there has been a climate in the past of procurement focusing on cost management only, and maybe some lingering effects still exist in some industries, however they are learning that supply and demand are inextricably linked, and not managing these issues well can cause greater costs and harm to their organisations and industries.

Take for example the European auto manufacturing industry. Prof Dr Nicolas Reinecke, a world expert on procurement, cited how recently the major European car manufacturers had to bail out the world’s largest manufacturer of bumper bars to the tune of $100 million because a climate of reducing prices by 1-2% every year finally sent the business into bankruptcy. What that auto industry had to learn was that they nearly killed off the only major quality supplier by being short sighted and self centred as their own cost management behaviours had made it near impossible for other equivalent auto suppliers to exist.  Bailing out this bumper bar business cost the industry much more than if they had worked in a sustainable partnership model that allowed all parties to continue trading in healthy manner.

David Noble, Chief Executive of CIPS worldwide says that the volatile environment is the new norm and being near-sighted about cost management only will harm everyone. The key differentiator, he states, is the supply chain as it touches all corners of the organisation and is the face of the enterprise. He commented that value add is increasingly generated externally to the enterprise and that strong supply chains need to be fast, flexible and robust with the ability to control risk and environment.

The supply chain efficiency is increasingly seen as the key differentiator in business with the majority of value add in an enterprise coming from outside the organisation’s boundaries.

Sixty per cent of major corporations now have procurement and supply at the top table with the world environment globalisation, recessions and environment all sit squarely in the procurement space. David states that the spotlight is on their profession with volatility at the heart of supply chain management.  Controlling volatility and managing value gives an organisation a huge competitive edge.

We are witnessing a quickening of the development, thinking and sophistication in the procurement profession – they are definitely on the front foot. They realise that they do not have to make negotiation a part of every sale – it is not about being adversarial for the sake of it.

The procurement profession has access to more information than ever before. Most clients know what they are after even if they don’t know how to articulate it. Today, clients expect to communicate and deal with a real professional who knows their own business and how they can best serve their clients’ needs with creative solutions and fresh ideas.

As a sales profession we need to be keeping pace with the procurement profession and rather than working against procurement we need to work with them in a spirit of cooperation where we can manage value together.

Remember, everybody lives by selling something.

Sue Barrett practices as a coach, advisor, speaker, facilitator, consultant and writer and works across all market segments with her skilful team at BARRETT. Sue and her team take the guess work out of selling and help people from many different careers become aware of their sales capabilities and enable them to take the steps to becoming effective and productive when it comes to selling, sales coaching or sales leadership.To hone your sales skills or learn how to sell go to www.barrett.com.au.