Selling to the Internal Customer
Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant
Professional purchasing’s ability to persuade coworkers and management of the profit power of purchasing is a constant obligation.
The Rodney Dangerfield affect
One constant in business is the under appreciation for purchasing’s profit power. Were you to ask how purchasing contributes to profitability, the responses might be a blank stare. Call it the Rodney Dangerfield affect; purchasing just gets no respect.
The image problem
In the eyes of the typical coworker, purchasing is a support function. This chart shows the impact on profitability for a company earning 10% on sales of $1,000,000.
|
|
Base Sales $1,000,000 |
Sales UP 10% $1,100,000 |
Costs DOWN 10% $1,000,000 |
|
Material |
$450,000 |
$495,000 |
$405,000 |
|
Labor |
$450,000 |
$495,000 |
$405,000 |
|
Total Cost |
$900,000 |
$990,000 |
$810,000 |
|
Profit Effect |
$100,000 Base |
$110,000 Plus 10% |
$190,000 Plus 90% |
There are only two paths to increased profitability, raise sales or reduce costs. When sales are increased by 10%, the costs increase by 10%, and the profit increases proportionally, by 10%. Contrast this to the alternative of decreasing costs by 10%. The result is a 90% increase in profitability. This simple demonstration of economics proves that purchasing is truly the most efficient generator of profitability in all of business.
Click here for Bob's book and CDs
“We know our suppliers better”
In some organizations, each department buys individually; sales, IT, marketing, facilities, operations, etc all have their own suppliers. The overlap among common purchases like office supplies, travel, and many others, goes unconsolidated, thereby depriving the buying company of consolidation leverage.
Nevertheless, these decentralized, often part time buyers believe that they know their suppliers better than purchasing could. Since these well intentioned and often dedicated employees are largely ignorant of purchasing best practices, they believe they are doing a great job of buying.
What can purchasing do?
Purchasing sells its value, expertise, and profit contribution. Coworkers and management may know little about Total Cost of Ownership. Show how the low price is worthless if the supplier does not provide the quality level we need on the schedule we demand and an acceptable service level. Sourcing and qualifying suppliers is a foreign concept to those who only required a pulse and a price to do business.
Help the individual departments in their negotiations. Explain how professional purchasing helps get the best deal. Purchasing should negotiate the deal, but the department should execute the daily transactions. Purchasing can keep the process on track by measuring and reviewing performance along the way.
This advice may seem basic, but selling our worth is a constant, some times up hill battle. Victories are the best ally. As the record for obtaining cost reductions and improving supplier performance spreads, coworkers and management will view purchasing more as a profit center and less as a cost center.
Help doubters through education to understand how professional purchasing achieves better results and profitability. They may be doubters now, but when they are calling for help because they have heard from others what purchasing can do, that Rodney Dangerfield image will fade away.