Sales and procurement are two ends of the same activity.
So why, in non-core procurement, are they like the prince and the pauper separated at birth?
Sales and procurement are two integrated and essential business activities. They are opposing forces within the same process. No business can operate without undertaking both. They are doing something incredibly similar – to each other. And yet the history of them is like twins separated at birth.
Sales is the alpha activity that businesses place great focus on and invest in. And procurement has become a back office process driven support function.
The key to this paradox is understanding that the story of procurement is one of two halves – core procurement (or supply chain) and non-core procurement. While both are charged with supply management, over recent decades core procurement has transformed itself and become embedded into the fabric of modern business. Non-core procurement, in contrast, has evolved at a snail’s pace.
Sales has evolved the most – to become the alpha activity in business. The sales team is typically very competent at subverting the deal structured by procurement, particularly in the non-core area, because procurement has to move onto the next thing and rapidly finds its knowledge goes out of date when dealing with the stakeholder. Also, because of sales’ persuasiveness, not only are businesses willing to pay more, they also invest far more in the sales team.
All of this has a significant impact on the relationship between the two functions.
Research published by Supply & Demand Chain Executive into the relationship between sales and non-core procurement found that although there is shared professional respect, there are some stark differences with how they view one another, which may explain how this paradox has come about:
1. Product and service knowledge
According to the research, a significant portion of the procurement respondents believe that their sales counterparts know their products and services inside out. They also acknowledge that the reverse is not the case. Only 22% of sales respondents believe that procurement teams know enough about the products or services in their organisations.
This lack of knowledge is not unexpected. In all but the largest corporations, the typical procurement team is under-invested and under-resourced. Procurement professionals operating within these teams are usually forced to become generalists in various spend areas, bouncing from market to market depending on where business demand is coming from. One day it could be a new IT server, the next a national fleet contract. The responsive nature of these procurement teams means it is nearly impossible to get the level of knowledge required to hold an in-depth discussion with the sales rep with whom they are sitting opposite.
2. Willingness to share information
Willingness to share information as part of the negotiation process was also a major difference between the two functions. The report found that “92% of sales executives were sceptical of procurement’s willingness to share company requirements, business plans, processes and product usage, including information regarding current forecasts/trends.”
Again, due to the responsive nature of many procurement operations – procurement professionals are usually brought in at the very end of the sourcing process to drive out any final cost benefits. The problem, however, is that these same procurement professionals simply do not know enough about their stakeholder’s objectives or, even worse, the wider objectives of the business. They cannot share this information because they simply do not have it. As a result, the conversation between sales rep and procurement professional starts and ends with price.
Focus on price rather than Total Cost of Ownership
The research shows that sales professionals feel strongly (77% of respondents) that procurement is more interested in price than Total Cost of Ownership (TCO) or Total Value. Only 13% believe procurement is interested in proposals that go beyond basic price.
Many sales professionals view relationships with procurement professionals “a matter of time and place rather than the outcome of planned collaboration, where price trumps total cost.”
Driving this point home, business advisory firm Horses for Sources recently released a report addressing how a constant focus on savings can be counter-productive for success. The HfS report underscores the need for procurement to behave less “like robots” and think more strategically about value and business objectives, shifting attentions away from a one-off transaction to more inter-organisation, collaborative partnerships – connecting the supply market with the business objectives.
Entry point into a business
A driving force behind the sales vs procurement battle is where the ‘first point of entry’ happens in regards to initiating a commercial discussion. The research agrees with our own experience that far too often (particularly in respects to non-core or indirect spend areas) a sales rep would rather call the functional stakeholder to initiate a commercial relationship – 62% of sales respondents agree with this approach. This behaviour is simply a result of a culmination of factors outlined above, speed to decision and ability to drive favourable outcomes. The problem this raises for businesses is functional heads begin to also disconnect with procurement and maverick spend begins to increase. The usual response from senior executives is to mandate the use of procurement, who are then brought in (usually at the end of these conversations) to negotiate a contract.
Ultimately, procurement has become a back office process driven support function while sales has become the alpha business leader.
The question is: why?
Sales vs. procurement
Back in 1983, in his Harvard Business Review article, purchasing must become supply management, Dr Peter Kraljic implored business leaders of the time to shift their views of procurement from transactional ‘purchasing’ to strategic ‘supply management’. Kraljic observed that “in many companies, purchasing, perhaps more than any other business function, is wedded to routine. Ignoring or accepting countless economic and political disruptions to their supply of materials, companies continue to negotiate annually with their established networks of suppliers or sources. But many purchasing managers’ skills and outlooks were formed 20 years ago in an era of relative stability, and they haven’t changed.”
In the 31 years since this article, the sales function has risen to become one of the alpha functions within every business – often sitting at the executive board, influencing key business decisions, and driving the growth agenda of corporations.
Sales teams are often more successful at demonstrating their impact around improving margin, than procurement are at defending it. After all, sales are typically paid on actual revenues / margins whilst procurement performance is paid around prospective savings. They are possibly more selfish and financially motivated, and are generally better remunerated for this. The skill set of a typical sales rep is dramatically varied – ranging from hard negotiator, to influencer, to advisor, to peer – and they are typically good communicators. Finally, there are many more sales people than procurement, meaning there is much more talent going into selling than sourcing.
In contrast, core procurement has been through a revolution too (aligning itself to the heart of the business), and is going through another – driven by big data, the internet, other technological advances and globalisation.
However, returning to Kraljic’s vision of supply management, non-core procurement doesn’t seem to have changed much at all – nor does it look to stand a chance to break this paradox – unless something changes…
Why do you think sales is in a better position than non-core procurement? And what are the lessons procurement can take from sales’ evolution?