Procurement Negotiation: How to Overcome the Top 7 Challenges

Procurement Negotiation is a Science, but not Rocket Science

In this article, we put the spotlight on some of the biggest challenges that frustrate salespeople during a Procurement negotiation and uncover tips and strategies that you can use to bring you sales success. This involves countering delay tactics, selling on value when they are hammering you on price and dealing with reverse auctions. Along the way, we touch on the changing face of Procurement and why an understanding of this function matters so much.

Procurement has become a byword for angst and frustration. These buying professionals drive hard bargains and deploy many games, tricks and tactics to help them get what they want. They are good at what they do because they are used to getting high-value products and services for good prices. When it comes to negotiation with Procurement, even the most experienced sales people can feel intimidated.

But what if I told you that Procurement are not the bad guys and that you can build successful working relationships with them? Not only that, but you know how to do this. You already possess the knowledge and natural talent to work well with Procurement, it is just fear and their perceived power that may be holding you back.

Procurement: The Company Superhero

Procurement covers all activities involved in the buying of goods and services and includes a number of steps, such as identifying needs, finding suppliers, value analysis, price negotiation and making the purchase. More than just being a way of helping firms cut costs by securing the best deals, Procurement also involves implementation, measuring success, looking for new business opportunities and much more besides. They add value by buying cheaper, and helping identify true value in suppliers, plus much more to safeguard against risk. It is for this reason that effective Procurement people are viewed as Superheroes by a C-Suite increasingly concerned with a healthy P&L.

Procurement has naturally evolved over the years. Not so long ago, they were simply buyers. Someone in their company would decide what needed to be bought and the buyers would find out where to get it.

But what was once a relatively small back office component has now matured into the mainstream, becoming one of the most important parts of a business. Along the way, its prestige, power, influence and sophistication has increased. Which is why you should respect the function, but not fear it, for reasons we will talk about in this article.

Why Procurement Matters

The real enemy of salespeople is not the Procurement department, it is failing to understand how much Procurement matters to an organisation. If it is important to your prospects then it needs to be important to you. You have to know and understand exactly who you are selling to. You need to know the landscape, the risks, and anticipate the twists and turns.

Despite what some people think, Procurement’s function is not to frustrate the buying process and put the squeeze on suppliers. As we have mentioned, it has a number of important roles beyond just purchasing goods, and its impact on business performance gives it a lot of influence within a company.

They are also tasked with streamlining processes, keeping up-to-date on emerging technologies, ensuring that the supply chain is running smoothly and fulfilling compliance requirements.

But purchasing products and services for a fair price isn’t their only concern. They also have to minimise risks to their company and will therefore look at other factors when selecting suppliers. Among them are a commitment to sustainability, track record, innovation and status within their industry. They want to know that your organisation is healthy and built to last. They are concerned about reputation – it’s no point them buying cheaply, and having to buy twice.

This gives you leverage  – knowing more about Procurement’s active role within an organisation is critical to improving your sales success.

 

Procurement is not the Enemy – but they do play a few games!

It is tempting to think of Procurement as the enemy, trying to outsmart you at every turn. But this is an unhelpful point of view that will prevent you from seeing it for what it really is: a department within an organisation that has its own challenges to face. They have management to answer to and a specific methodology, or way of working. Oh, and they are humans too, with natural career concerns, family dramas and holiday plans!

As with any other sales environment, you must become a trusted partner, someone who can provide solutions to their problems.

In light of this, here are some of the most common challenges that you may face when dealing with Procurement, and advice on how you can overcome them to be in a better position to achieve sales success.

Top 7 Procurement Negotiation Challenges

Challenge 1: Trying to sell value, when procurement cares about price

Yes, they want to drive down costs, and price is often the dominant factor in discussions. After all, it is an easy way for them to compare like with like, and it is one of the main metrics by which they are assessed. Even when you try to talk about value and they rein the conversation back to price, it is a fallacy to believe that this is the only thing they care about.

Procurement will be receptive to value, provided it’s with metrics they can measure. Smart buyers also care about quality, service and other factors. They know that it is potentially counterproductive to purchase something just because it is cheap, and which could cause problems further down the line that could reverse any price savings.

The Solution

Focus your conversations on the value of your offering. Value is anything that your customer believes is valuable. To ascertain what this is, do some research and engage in conversations with Procurement. Do not make assumptions about what you think is valuable to them. As you know, there is no one-size-fits-all when it comes to value. What is valuable to one company may be much lower down on the list of priorities for another.

Without a firm grasp of what a customer is trying to achieve, it is unlikely that you will be able to effectively demonstrate the value of your products and services.

In other words, your research and your conversations will be no different from any other sales negotiations you enter into. Ultimately, it all comes down to preparation and knowing how you can best serve your customers.

This also requires a slight shift in the way you view your relationship with your prospects, from being a mere supplier to a trusted business partner.

Therefore, you need to possess a more complete picture of the organisation you are selling to. One way you can do this is by talking to them and asking questions. Among the questions you might want to ask are: What do you hope to achieve? What are your pain points and frustrations? How are you measured? Who are you accountable to in your organisation? Exactly how do my products and services impact your business results?

Challenge 2: delaying tactics

Procurement knows that you are under pressure to close a deal. They fully understand that time is the enemy, that the clock is ticking and that you may be sweating toward the end of the month or quarter. Pressure from management to close the deal, or self-imposed pressure to hit a particular sales target intensifies. None of this means a jot to Procurement who may delay the process to try and drive the price down.

The Solution

Play them at their own game. Sure, this is going to feel very uncomfortable, but remember, more often than not a delaying tactic is a trick designed to get you to blink first. Procurement people have their own pressures and may be just as anxious as you are, wondering if their delaying gambit will pay off. They answer to a management structure that is putting pressure on them to keep the supply chain intact and the product pipeline filled.

Occasionally, there may be a legitimate reason for a delay, in which case the customer normally provides an explanation out of courtesy. If one is not forthcoming, the delay may be a tactic. One way to deal with this is to deploy your own delaying tactics and delay more than them. If they want to schedule a meeting for tomorrow, put it off until the following week. Yes this is going to feel strange as you want to rush to close the deal, but you have to maintain your margins and not give in to their tactics. If they really want you, they will stop playing the delay game and sign on the dotted line. After all, there are people from other departments who may see your solution as business critical wanting this to happen too. You may be able to ask them to help you get the deal through by having a word with Procurement and their delaying tactics.

Challenge 3: Reverse Auctions

We can hear some of you howling in agony at the mere mention of the words Reverse Auction. These can be an effective tool for Procurement, because the process is designed to get the lowest possible price for products and services.

A reverse action is a fixed duration bidding event where unlike traditional auctions in which the price goes up, the cost goes down until the specified deadline. The practice was first adopted by buyers in the automotive and aerospace industries, but is now used by organisations large and small to buy everything from stationery to health and safety courses.

Here’s how it works: After a qualifying process, which may include interviews and a preliminary bid, several vendors are invited to log onto a secure web portal to participate. Vendors’ identities are unknown to each other, although their bid prices are disclosed.

You are given a pre-determined time (perhaps hours or a day) as you sit with your team watching the screen as the price keeps falling down, with bidders decreasing prices. You discuss whether you can submit a lower bid without eating too much into your profit margin. After you make your submission, the price can plummet even further until it gets to the point where it might actually cost you money if you were awarded the deal.

Furthermore, the buyer will not necessarily go with the lowest bid; they might select the second or third lowest bidder.

The Solution

There are a number of options if you want to survive with your margins intact. One is to ignore reverse auctions completely,  especially if you are already a trusted supplier. You are calling the company’s bluff and this could result in the auction being withdrawn because they intended to go with you all along. Obviously, this can be a high-risk strategy. Another option is to do your homework.

Try and find out who you are bidding against. The more you know about them the better able you are to tailor your pitch.

For example, if you know that one of the bidders is a trusted supplier, you are probably going to have to beat them on price to stand any chance of success. If you discover that another bidder is a low-margin supplier with a poor reputation for quality, you will have no need to bid lower than them because it is highly unlikely they will be awarded the contract.

You can also look deeply at your own company and supply chain. Is there any room for cost cutting without damaging quality? Study all your variables so that you are sure of the impact of every change that you may need to make during the reverse auction process. And before you take part in the auction, know what your walk-away price will be.

Sometimes, the best deal is no deal at all.

Challenge 4: when it seems they have all the power

When it comes to negotiating, many salespeople tend to believe that Procurement hold all the power in the relationship. That they the money and the power to sign contracts, while the salesperson just has the product or service the company needs, and is one among several. The fear that stalks salespeople is that at any moment Procurement could say “no, thank you” and move on to a competitor. Yet, the subject of power in negotiations is a much more complicated beast.

The Solution

There are two types of power: actual power and perceived power. Yes, Procurement has actual power within its company, but salespeople tends to undermine their own efforts by crediting buying professionals with more power than they actually have. Again, this comes from a lack of understanding.

You may feel that the other side has more leverage, but this isn’t always the case. Procurement might also be afraid of losing the deal with you for a number of reasons. There could be a risk to the supply chain by working with a different provider, as well as the costs of moving to one of your competitors.

Other concerns for Procurement might be the time it would take for a new vendor to become familiar with the way they do things. There could also be something unique about your offering that your client doesn’t really want to lose.

 

Challenge 5: dealing with RFPs

During the search for big procurement contracts that could potentially change your company’s fortunes, you will undoubtedly come across RFPs (Request for Proposals). These bureaucratic tools are part of Procurement’s due diligence as they evaluate products and services from potential suppliers. They are an attempt to compare ‘apples with apples’. This is particularly challenging if you are selling on value, because often the common denominator for like by like comparisons is price.

Usually, RFPs come with a long list of requirements that your solutions must meet, and therefore completing them is a big drain on time. But there are ways to make the process easier.

The Solution

You may not like RFPs or the hurdles they make you leap over, but for the time being at least they are here to stay. Procurement structures them in a way that makes absolute sense to them, so if you want the contract you have to follow all their rules, guidelines and timelines and compose your responses accordingly.

Be proactive and start negotiations before the RFPs are issued. Ask questions and listen for how your products or services solve each prospect’s unique set of problems. This will make filling in the paperwork a lot easier.

To increase your chances of success, include real-world case studies to demonstrate the value of your product, and get all the basics right such as using consistent fonts and spelling the recipients’ names correctly.

Also, you don’t have to answer every RFP. Companies send them out often, and if you don’t already have a relationship with the issuing organisation then the chances of you winning the job are quite low. Just because an RFP has landed in your inbox, it doesn’t mean to say that a company is looking to change a provider. Sometimes, they’re sent out to put the squeeze on current suppliers. Or simply a virtual way of ‘window shopping’ or ‘tyre kicking’.

Your time may be better spent looking down other avenues for new clients.

Challenge 6: Discounting

“Your competitor is selling us the same thing for 20% less. If you don’t lower your price, you are out of the picture!” Has this threat happened to you? This type of margin-draining intimidation tactic is part and parcel of the procurement game. The threats may be real or a bluff. The company could really want your solutions, but are hoping for a lower price.

The story of vendors settling for deals that do them few favours is all too common, even when it seemed that at one stage the procurement process was running smoothly for them. It may have started out well, but at the last minute the person actually responsible for the purchasing decision decided that the deal wouldn’t be concluded until concessions and discounts were made.

The Solution

In this hugely competitive marketplace, you need to keep onto as much of your profits as you can. Discounting eats into this, and hoping you can make up the shortfall with a higher sales volume can be a risky move.

When you start discounting you are often entering dangerous ground, because once you drop your prices it is very difficult to go back. Your prospect will expect to see the same thing next time. And although they may rub their hands with glee that they’ve got your goods at a rock bottom price, they may lose their confidence in you at the same time. Lowering your price may suggest that you don’t believe enough in your product’s value or worth.

The last thing you want is a conversation solely based on price, so you must put all your efforts into finding out your prospect’s needs and business challenges. Then it is a case of demonstrating how your company is best placed to provide them with the perfect solution.

Challenge 7: Hardball Negotiation Tactics

Some negotiations can be downright tough where hardball tactics are deployed, such as unreasonable demands, attacks on the reputation of your business or threatening never to work with you under any circumstances. All are designed to weaken your resolve, to get you to flinch. Do not fall for intimidation techniques or make concessions at the first hint that the discussions may not be going your way.

The Solution

Your anger and frustration levels may well be rising, but listen patiently and don’t reply in haste. When it comes to your turn to respond, do so forcefully but politely. If you have done your homework and are sure about the quality of your product and its ability to solve the prospect’s needs, then counter with constructive explanations of what you are proposing and why. Provide arguments that are a sound defence of what you can do. Procurement uses hardball tactics because they have worked for them in the past, but stand your ground and don’t be afraid of the aggressive tone coming from the other side of the negotiation table. The tone to go for is assertiveness, with warmth.

The Bottom Line

Many sales professionals want to know how they can avoid Procurement altogether, especially if they are not the sole decision makers and just serve as intermediaries between you and an internal customer. But doing so can be counterproductive, creating an unnecessary enemy and fostering a “them versus us” mindset. This is not a good attitude to hold on to. It is far better to deal with reality and accept that Procurement is often highly valued by organisations and therefore isn’t going away anytime soon. Here’s an image that may help: imagine you are playing tennis, but not in singles against each other. Imagine instead that it’s doubles, that you are on the same side of the net as procurement playing against their challenges, concerns and competitors.

Some of the biggest problems Procurement face is with their own company. They must satisfy internal stakeholders, some of whom share something in common with many salespeople; they don’t necessarily like dealing through Procurement either because they may delay the buying process.

The key to working with Procurement is developing relationships with them long before negotiations start. Fortunately, great salespeople excel at building strong relationships. Partnering and relationship building will help you to enjoy a higher success rate with Procurement and achieve your sales goals. Good luck!

If you are looking at how your sales team can sell and negotiate more effectively with Procurement, our Secrets of Selling to Procurement programme is a great place to start. We can tailor the programme to your exact needs.