Live by the price, die by the price

Today’s guest blogger is my colleague James Baehr, who in addition to his broad experience with Strategic Sourcing, heads up the IT Strategic Sourcing practice at Greybeard Advisors LLC. Jim has had management roles in IT sales, IT operations, and IT procurement at major firms, before joining Greybeard. Jim can be reached at [email protected].

As the economy slowly recovers, Procurement professionals are wise to be cautious on pushing for additional price reductions. The down economy of the past few years has conditioned buyers to ask for reductions in price and not much else. Senior management reinforced this behavior by setting the bar and then moving it each time price reductions were delivered. In many cases, there was little, if any discussion of addressing Total Cost of Ownership (TCO). Price has been the order of the day.

A few thoughts – price increases are, in some cases already here and can be expected to be part of the near term landscape. Many forecasts confirm an expectation of continuing price increases. With margins compressed sellers are looking to make up for concessions made since 2008. A recently witnessed exchange:

Buyer – “These prices are higher than the last quote.”
Seller – “Yes they are.”
Buyer – “You’ll have to cut the price.”
Seller – “The answer is ‘no’. The price is the price. Your choice!”

In fairness Sales professionals have long memories. Many will tell you that when the economic downturn started they worked diligently to convince buyers that price cuts alone weren’t the answer and literally pleaded to have their customers look at Total Cost and Total Value rather than just price.

The message of this piece is simple – many Procurement professionals have reverted to a “price only” mindset. And, why not, it’s much easier (and faster) to push for price concessions than to do all the work associated with developing a TCO focused strategic plan. On the flip side it’s much easier (and faster) for a Sales professional to say “the price is the price”. For Procurement organizations that have lost their strategic compass it may be time to refocus, retrain and refresh some neglected and essential skills.

For related stories click here.

SC
MR