Understanding the Professional Buyer

What Every Sales Professional Should Know About How the Modern Buyer Thinks and Behaves

Peter Cheverton, Jan Paul Van Der Velde

• Publisher: Kogan Page
• Year: 2010
• Print ISBN: 9780749461232
• eBook ISBN: 9780749461478
• Edition: 1
• Topic: Business
• Subtopic: Operations
• Index: Business

Understanding the Professional Buyer is a practical guide for sales people, giving them insight into the behaviour and strategies of buyers, so that they are able to deal with them more successfully and regain power in the buyer-seller relationship.

In recent years the balance of power between buyer and seller has swung dramatically in favour of the buyer. Sellers are now faced with more professional, more knowledgeable and more powerful buyers - and the sales techniques used in previous years are no longer working. This book shows how to understand this new breed of buyer, in order to interact with them on a more level playing field. Contents include developments in the industry; purchasing organizations; types of buyers; purchasing analysis; and crucially, buyer-seller relations.

1	Terminology

The purchasing function has developed relatively recently, so some of the terms used in this book need some explanation.

Even simple terms like buyer have evolved over time. As in many professions there is a consistent inflation of titles. We don’t call sales people ‘sellers’ any more, but give them a fancy title like ‘key account and customer relationship executive’. Buyers are competitive by nature, so the same is true for them.

In the context of this book, buyers refers to people who execute strategic processes for acquiring materials and services, irrespective of the title on their business card. These strategic processes include specifying, sourcing, negotiating, contracting and evaluating. In European literature this set of processes is normally referred to as Purchasing. The related operational processes of planning, making, moving, administration and control are frequently referred to in European literature as Procurement. In some companies these two very separate functions, which have quite distinct skill sets, are combined, but in world-class procurement organizations they tend to be split. The operational processes are mostly integrated with the operations function. This is sometimes referred to as the supply chain, but that is not entirely correct, because the strategic processes of purchasing also need to be part of the extended supply chain process.

To make the matter more complicated, in the rest of the world the two terms are frequently reversed, with procurement being used for the strategic functions, and purchasing for the operational ones. We have decided to use the European definitions, but you should keep in mind that our focus is on the strategic processes.

Job titles often found in this strategic area include: strategic sourcing manager, inbound supply chain manager (although this term is also used for the operational processes) and purchasing manager. Add to that the different levels in the organization by changing the word manager for executive, director, (senior) vice-president (SVP/VP) or any other fancy title and we have made a reasonably complete overview of the different job titles used in the purchasing area.

Also for the purpose of this book, we introduce the term ‘item’ to represent both materials and services. At the generic level, in most cases everything that is valid for the purchasing of physical goods, whether they are raw materials to be used in production or operational supplies to be used in running the company (from paperclips to production equipment), is also valid for the procurement of services. ‘Item’ therefore could mean either a tangible good or a service.

The seller’s response …

What can there be to say about definitions? Plenty, and vital stuff too. It matters greatly what you call your buyer, and for the simple reason that buyers have feelings, and ambitions, and pride, just like salespeople.

Perhaps you, as a seller, are not too keen on being referred to as a ‘sales rep’, or worse, a ‘traveller’ – your business card doubtless declares you as something rather grander than that. Well, make sure you don’t cause the same offence by appearing to misjudge the buyer’s task through inappropriate language. Lesson one of handling buyers (whatever they may call themselves): speak their language.

I realize that they do not always reciprocate. I’m sure you would rather that your vitally important ‘value added solution’ was not referred to as an ‘item’, but be patient. If you want them to change how they think about you and your offer, then it is usually best to start on their territory, and the words you use are important in this respect.

Much of the advice given throughout this book will have a common theme: matching. In order to match the buyer’s expectations we must begin by matching their modes of work, including the nature of their analyses. In order to do this we must go back another step and start by matching their language. By doing this the seller begins to enter the world of the buyer, and at that point the clouds begin to clear.

2	Purchasing developments: what has changed

Ever since trade was invented, there have been sellers and buyers, but in contrast to the sales function, it took a long time before purchasing was seen as a real profession with an important strategic side to it, and not just an administrative support role. Even today, while its importance is fully recognized in most companies, many people cannot see that purchasing is at a similar strategic level to for example sales, marketing or product development. As a consequence they do not view purchasing as a real career opportunity.

Now let us look at the major changes in the purchasing function, and consider why salespeople need to be aware of them. Until the late 1980s and early 1990s there tended to be a lack of attention to purchasing in business education and training, but this then started to change, and business schools began to see opportunities in the purchasing process. From an economic logic viewpoint, it is surprising that it took so long. You might think it self-evident that managing buying wisely is critical to running an efficient organization: why did the academic, consultancy and business world not realize that sooner? Clearly in order to manage a sustainable and profitable company, it is not only important to manage the product portfolio, the selling prices and the internal costs, it is also crucial to manage the external spend professionally. Most companies spend a significant proportion of their turnover on directly or indirectly bought-in materials and services. Furthermore, with increased outsourcing and focus on key activities, the percentage of external spend will probably grow further in the future, so the relative importance of managing purchasing will increase.

The interest of the academic world resulted in an increased number of studies on purchasing, and the development of process models and all kinds of toolboxes. The most important ones are outlined in this book.

More recently, the introduction and widespread use of the internet has made a world of a difference to buyers. In the past they were more dependent on input from salespeople, but now they can get just about any information they need on the world wide web. So today’s buyers have better insights into the market, and this puts them in a stronger positions, as knowledge influences the power balance. The internet has also enabled buying groups within the same company to share information more effectively, and this has brought them a better leverage potential. The internet has spelled the end of local and regional pricing, except where there are import restrictions in place. Yet how many companies price their offerings differently in different regions, and then are surprised when global buyers start to take advantage of that?

Different industry sectors have adopted new purchasing techniques and tools at different rates. Industries with a relatively high percentage of external spend or with significant margin challenges, such as expensive consumer goods (cars, electronics and so on) were the front-runners in improving their purchasing processes. Companies like Toyota and Honda of America are regularly quoted as the leaders. The well-known purchasing initiatives at General Motors/Volkswagen (under the leadership of Jose Ignacio Lopez) are also seen as a landmark in the trend to pay increased attention to the function, even though the jury is still out on whether these destroyed or created value, but without doubt they created enough attention to start a change process.

Companies in most industries have now carried out purchasing initiatives, sometimes quite publicly, with quarterly updates on their progress as part of their shareholder communications; others have taken similar initiatives in a more low-key manner, although this did not mean they were less well supported by general management. As purchasing leverage and synergies clearly became hot topics in boardrooms, most consultancy firms developed purchasing and sourcing excellence programmes, and a number of purchasing benchmarks are now available.

Probably the most recent buyers to start adopting new purchasing techniques are those in the public sector. These include buyers for a wide range of publicly funded activities, including physical infrastructure, education and healthcare. Although they have adopted the types of strategy outlined in this book, they have several additional challenges, not least a wider range of key stakeholders, including politicians, who tend to make the buying decision more difficult by making public statements and adding demands to the specifications. Further, the numerous rules that governments put in place on how to grant major contracts also limit the full buying potential. However, those rules are arguably a logical trade-off against transparency, which affects a government organization in a different way than it does a public or private company. In this book we do not focus specifically on these additional challenges facing government organizations, but clearly external influences on the buying decision in a government organization can be significantly greater than in a private or public company.

Following the increased interest in the academic and consultancy worlds in the purchasing function, a new breed of purchasing professionals started to emerge. Most national purchasing associations, which were traditionally responsible for the training of purchasing professionals, increased their efforts by upgrading their training programmes and bringing in more experts; this was the case, for example, with the Chartered Institute of Purchasing and Supply (CIPS) in the United Kingdom, and the Institute for Supply Management (ISM) in the United States (all linked by the International Federation of Purchasing and Supply Management (IFPSM): for details of all national purchase organizations see www.ifpmm.org). A number of the associations also started to sponsor academic purchasing programmes, resulting in further functional developments. Now there are respected MBAs with a key focus on purchasing all around the world.

While it could still be argued that the purchasing function is under-represented at senior level in many organizations and that the tools and techniques are not yet shared in more general management programmes, it is clear that the function has gone through an enormous, irreversible development process, and that it is here to stay. On the other hand it must be said that senior executives in most executive management teams still underestimate the value that good buyers can deliver, not just in reducing overheads, but also by contributing to margin management, the innovation agenda, low-cost operation, in- and outsourcing, and more generically to developing effective and efficient supply chains. Not infrequently in internal reviews, operations and establishment costs are reviewed to the nth degree and then there is just one short paragraph on developments in raw material costs, even though the costs of raw materials could be four or five times higher than the operational costs.

The new buyers are no longer ‘administrators’ who convert an internal requisition into an external purchase order and perhaps do some price bargaining in between the administrative processes. They are developing to be well-trained strong individuals, who can communicate at all levels of management and think cross-functionally. They have the ability to understand the dynamics of the markets in which they operate, and have a good general knowledge of the products and service they buy. They understand internal and external stakeholders, and are capable of developing well-articulated sourcing strategies. In an increasing number of companies, purchasing has been upgraded to board level, with a chief purchasing officer (CPO), or operates just under the board in the key operational management teams.

With all these changes happening over a time span of two decades, it is clear that a purchasing revolution has taken place. Clearly this means that purchasing makes a major contribution to managing a sustainable profitable company. Purchasing is too important to leave to ‘willing amateurs’ or administrators. This should therefore also mean that the way that sales processes were run 20 years ago and the way they should be run now should be quite different.

Surprisingly, however, it looks as if the sales side has not noticed the upgrade of the purchasing function, or at least has not taken sufficient action to adapt to the new situation. In order to be successful it is critical that salespeople understand the new situation and can ‘read’ the minds of their commercial counterparts, so that they can work with buyers and ensure that they are using the right selling strategies and tactics.

This book tries to fill part of that knowledge gap by describing in a simple way the processes, analyses, toolboxes and purchasing themes currently used by buying professionals. It also provides some hints, tips and tricks for improving the offering of products to customers via professional buyers.

The seller’s response …

The message is clear: sellers need to catch up, and this book is written as a wake-up call. It is true that the buyer’s world has changed more dramatically than that of the seller, and that this has caused something of a tilt to the once level (though it might never have seemed so!) playing field.

In many cases this imbalance has led to suppliers seeing their value eroded, even denied, and in the most dramatic of cases they have suffered what we might call a complete value meltdown. There will have been many and various reasons for this, but a significant one, and an...

Table of contents

• Cover page
• Title page
• Copyright
• Table of Contents
• Preface
• About the authors
• Acknowledgements
• 1. Terminology
• 2. Purchasing developments: what has changed
• 3. The importance of purchasing for a company
• 4. Purchasing processes
• 5. Purchasing strategy
• 6. Purchasing organizations
• 7. Buyers: types, motivations and rewards
• 8. Purchasing analysis
• 9. The negotiation game
• 10. Price management: managing the buyer
• 11. The purchasing agenda
• 12. Buying and selling relationships
• 13. Summary and conclusions
• 14. Getting further help
• Index