Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Ask any twelve buyers to define ‘Best Value’ and you will likely hear a dozen muddy descriptions.  In today’s performance metrics, numbers driven environment, we need to speak the buyer’s language.  The successful seller specifies ‘Best Value’ by expressing it in quantifiable terms favorable to its sales strategy. 

The purchasing definition of Best Value’ is the lowest Total Cost of Ownership (TCO).  Simply stated, TCO is the sum of its four elements of Cost: Quality, Service, Delivery and Price (QSDP).  Isolating and measuring each element of Cost gives the seller a whole new slate of options, and, helps the buyer to attain what it wants.

Put values on all the elements of Cost, not just Price

Align your sales negotiation with the elements of costs that the buyer values.  For a few examples, Delivery is more important to the Just-in-Time buyer than is Service, Quality is more important than Price in the medical industry, and Service matters more than Delivery to a high tech customer. 

Buyers reside in a cost-centered world.  Purchasing magazine notes that 69% of purchasing departments have a system (formal or informal) for rating supplier performance, and Price is rated highest by only 12%!  Even the most unsophisticated buyer has seen the illusion of low price explode into disaster.  So, how do we bring buyer and seller into TCO harmony?

Express your sales presentation in terms of Costs

Do not confuse Price with Cost.  Each of Quality, Service and Delivery have a far more significant impact on the TCO than do Price.  By the numbers, a $500 unit that lasts one year costs more than a $750 alternative that lasts for two years.  The $1000 price for two years (2 @ $500) of inferior quality costs a premium 33% over the higher priced ($750 for 2 years) unit!

Sell your (Cost) strengths

Rank the Buyer’s Cost concerns by asking strategic questions designed to expose the underlying cost motivations.  Do not ask, for instance, “Of Quality, Service, Delivery, and Price, which is most important to you?”  The buyer will roar back, “They are all equally important.”  Instead, approach this from a consultative viewpoint by asking qualitative and quantitative and questions such as these:

Quality            “What sort of quality measurements is acceptable?”  If the buyer answers, “We are a zero defects company”, then we know to stress quality.  If the reply is “What is the discount for off-spec goods” then we know that Price matters more.

Service            “Is the incumbent’s service acceptable?”  If she answers, “With our workforce, we do not need or want to pay for service”, then we know that Service is a lower priority than Price. 

TCO is an ally in the opposing camp because it relieves the natural pressure on price and stresses the impact of other elements of cost.  Will price sometimes be the most important factor?  Of course but far less often than you might think.