The Deal Doctor: Whack-a-Supplier?
This article originally appeared in Outsource magazine Issue #30 Winter 2012
“The client’s procurement team is grinding our sales team into the ground. Should I be concerned?” Supplier Sales Lead, London.
Procurement teams are having a wonderful Great Recession. With spending under ever-closer scrutiny, procurement managers preside over outsourcing negotiations with growing swagger. This has created many better, leaner deals, weeding out most of the bloated and incoherent projects that have previously given outsourcing a bad name. However there are cases where buyers play the “bad cop” role with a little too much verve. Unfortunately for your sensitive sales execs, hard bargaining is part and parcel of doing an outsourcing deal – it is a buyer’s market! Although “robust procurement” rarely ends in tears, brinkmanship in negotiation is often unavoidable.
But there are big risks here for both client and supplier. Excessive positioning can derail or delay the deal (didn’t the client want to conclude this negotiation in five weeks?!). And there comes a point where squeezing more from the supplier becomes counter productive. Procurement might like to play ‘whack-a-mole’ with the terms of a deal, but each blow of the hammer can push up a problem elsewhere. Forcing a final price reduction may be a stroke of genius when it comes to reporting savings, but be paid for with a more junior delivery team.
So although cutting the supplier to the bone may feel good to some buyers, it can be a risky business. The very best deals, and the very best procurement managers, know how to quit while they are ahead. Just don’t expect procurement to give you an easy ride any time soon.