The Naked Buyer Everything sales people need to know about procurement Michel van den Broek Download free books at Michel van den Broek The Naked Buyer Everything sales people need to know about procurement Download free eBooks at bookboon.com The Naked Buyer: Everything sales people need to know about procurement 1st edition © 2013 Michel van den Broek & bookboon.com ISBN 978-87-403-0428-2 Download free eBooks at bookboon.com The Naked Buyer Contents Contents Preface What Distinguishes This Book from All those Other Books? The Purchasing Definition The Purchasing Process 11 Three Levels of Purchasing 14 360° thinking 4 Purchasing Methodology: Purchasing Tools 5 Category Segmentation (Kraljic Mapping) Category Plan 19 21 28 360° thinking 360° thinking Discover the truth at www.deloitte.ca/careers © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Deloitte & Touche LLP and affiliated entities © Deloitte & Touche LLP and affiliated entities Discover the truth at www.deloitte.ca/careers Click on the ad to read more Download free eBooks at bookboon.com © Deloitte & Touche LLP and affiliated entities Dis The Naked Buyer Contents 7 A Salesperson’s Role in a Category Plan 36 8 CTQs: What Does the Buyer Really Want? 40 9 Summary: Top Practical Advices 44 10 Epilogue 45 11 Notes 46 Increase your impact with MSM Executive Education For almost 60 years Maastricht School of Management has been enhancing the management capacity of professionals and organizations around the world through state-of-the-art management education Our broad range of Open Enrollment Executive Programs offers you a unique interactive, stimulating and multicultural learning experience Be prepared for tomorrow’s management challenges and apply today For more information, visit www.msm.nl or contact us at +31 43 38 70 808 or via admissions@msm.nl For more information, visit www.msm.nl or contact us at +31 43 38 70 808 the globally networked management school or via admissions@msm.nl Executive Education-170x115-B2.indd 18-08-11 15:13 Download free eBooks at bookboon.com Click on the ad to read more For Mo, Daan and Juul “It is not because things are difficult that we not dare, it is because we not dare that they are difficult” Seneca Download free eBooks at bookboon.com The Naked Buyer Preface Preface Many books have been written about sales, account management, and how to deal with buyers or customers This book is not the next one in line, but instead adds something new It is a book filled with practical instructions rather than theoretical or academic “posturing” Any theories raised, are illustrative of, or a translation into, practice The Naked Buyer: what a strange name for a book! The title is derived from Desmond Morris’s best seller, The Naked Ape (1967), in which he describes human behavior from a zoologist’s point of view In this book, I will describe the (human) behavior of buyers or purchasers (in this book I will refer to them solely as “buyers”) Also, I will go more deeply into the backgrounds and reasons for buyers’ behavior After all, their purchasing behavior is driven by underlying systems and structures In each sales coaching session, workshop and assessment that I held and gave, it became clear to me that, in general, salespeople know little to nothing about purchasing or buyers What is a matrix Kraljic, or a category plan? What are Inco terms? These are all basic purchasing concepts that a sales professional should know about If a salesperson knows that little about the professional opposite him at the table, then that salesperson does not deserve the classification “professional” Take note that in this book I refer to the buyer as “he” and “him” The reader should be aware that I refer to both male and female buyers Download free eBooks at bookboon.com The Naked Buyer What Distinguishes This Book from All those Other Books? What Distinguishes This Book from All those Other Books? This book is written by an experienced purchasing director, who, during his more than twenty years of purchasing experience, has met numerous salespersons in a business-to-business environment, has always been at the opposite side of the table, and is able to give perfect and straightforward feedback This is not a theoretical book, but a practical and no-nonsense translation of the basic elements of the commercial sales process Each sales professional (in sales, farmer, hunter, account manager, sales manager, or anyone who comes into contact with buyers or people who are fulfilling a purchasing role) will find crucial information and advice here that will improve his sales performance If you want to change mediocre into good – or good into outstanding – you will have to start with the basics This book provides you with a look behind the scenes of a business-to-business purchasing environment If you want to communicate with your buyers effectively, you will first have to explore their terrain How does the buyer make his mind up, what are his considerations, how and why does he make certain decisions? Download free eBooks at bookboon.com The Naked Buyer The Purchasing Definition The Purchasing Definition For over twenty years I have interacted with salespersons in countless sessions, either to clarify the buyer’s company needs, or for informative talks or negotiations The thing that surprised me most during those sessions, was that salespeople have no, or insufficient, understanding of buyers In this book I will give you a tour behind the scenes Enter the buyer’s “Holy Grail” Take the example of a hunter who goes hunting large and dangerous animals Suppose what happens if he does not prepare himself adequately on the hunting environment? Suppose what happens if he is not wearing the right clothes, does not carry appropriate weapons and does not know if he is carrying enough ammunition? A huge amount of purchasing theory is available and in the following pages I will translate that theory into practical, pragmatic and comprehensive material I will confine myself to the basics Many books have been, and still are being, written about purchasing, procurement, buying, sourcing, supply chain – but always remember that the basics, more than anything else, are the key to success Two definitions of purchasing should be kept in mind at all times: Purchasing is: 1) Everything for which a third party sends an invoice in return for the provision of services or goods; 2) Making available and retaining, against lowest “Total Cost of Ownership (TCO)”, the right goods or services, at the right price, at the right quality, in the right quantity, at the right place from the right supplier, at the right time for both the short and the long term Regardless of these definitions, a buyer must never forget that he is able to supply his products or services at all times – even if the other criteria (such as price, or specifications) are not “right” as stated in the second definition If a buyer is unable to supply, this may result in the company’s loss of business or a weakening of its reliability The concept of TCO (Total Cost of Ownership) will be addressed in one of the following chapters Download free eBooks at bookboon.com The Naked Buyer The Purchasing Definition So, please remember for the rest of your “sales life”, that, for a buyer, the notion of “right” is crucial In workshops and sessions with salespeople, I always ask the following simple question: what is the definition of purchasing? So far, only a few managed to give the right answer Most answers can be grouped into one phrase: Buying the best quality products or services against the lowest costs This is not correct, as buyers should buy the right products at the right quality for the right price and against all other right criteria A simple definition, but one that is crucial for a proper understanding of the chapters on CTQ (Critical to Quality) and for recognizing customer needs GOT-THE-ENERGY-TO-LEAD.COM We believe that energy suppliers should be renewable, too We are therefore looking for enthusiastic new colleagues with plenty of ideas who want to join RWE in changing the world Visit us online to find out what we are offering and how we are working together to ensure the energy of the future 10 Download free eBooks at bookboon.com Click on the ad to read more The Naked Buyer Category Plan Chapter 3: Internal Analysis 3.1 Category SWOT analysis 3.2 Key business drivers: which internally driven areas can be identified and which drivers affect the category? 3.3 TCO model  Supplier’s Total Price: Direct materials, direct labor costs, sales costs, overhead and profit + Landed Costs: Transportation, insurances, interests, duty costs, transportation costs + Life Cycle Costs: Administration, maintenance and service costs, spare parts, etc 3.4 Category Risk Control Risk assessment: What is the impact, which solutions, which people are responsible? 3.5 SIMPLE/CTQs determination: Format and matrix to find out the CTQs (Critical to Quality) and most important criteria from the internal stakeholders A checklist as a communication document in which criteria such as Specifications, Innovation, Measurables, Price, Logistics, and Efficiency are determined and committed Fig 13: Example TCO Model 33 Download free eBooks at bookboon.com The Naked Buyer Category Plan Fig 14: Example of SIMPLE/CTQ Determination Chapter 4: Strategy 4.1 Category objectives in the medium and long term: Identification of possible initiatives that can add value to the category; Purchase of strategies which are applied to this category: (E-)auctions, strategic procurement projects, continuous improvement projects, suppliers integration projects, innovation projects, risk management projects, etc Several of these purchasing strategies can simultaneously be included in a category plan Planning of the various purchasing strategies 4.2 Suppliers strategies: Which strategies the supply base (different suppliers) have at their disposal for this category of products or services in the short, medium and long term, and are these strategies in line with the purchasing category strategies? 4.3 Internal stakeholders A buyer has mostly dealings with external contacts It is, however, very important to make sure that the internal contacts (production/marketing, R&D, engineering, etc.) relate to the purchasing category plan as well Summary of internal stake holders; 34 Download free eBooks at bookboon.com The Naked Buyer Category Plan The involvement of the internal stakeholders needed for this category: support, commitment; In what way are the internal stakeholders affected by this category plan?; Which actions are vital in order to get the internal stakeholders on board’? 35 Download free eBooks at bookboon.com Click on the ad to read more The Naked Buyer A Salesperson’s Role in a Category Plan 7 A Salesperson’s Role in a Category Plan Okay, now you, the salesperson, know how a buyer puts together a category plan But how can you benefit from that knowledge? Usually, a buyer has a lot of trouble providing the various building blocks for such a category plan The problems start as early as Chapter of the category plan: The spend analysis It is my experience that the buyer’s misery begins here It is very difficult, of course depending on the size of the organization, for buyers to retrieve the actual costs per category or supplier from the internal systems You can help your buyer by communicating, preferably proactively, the spend (the purchasing value) of your contract to him Your buyer will be grateful Surprise him with further insight into the spend For example, offer him an overview of the classification of various products or services Offer him a top or top 5, and mark the hard runners, as well as the slow movers (products or services that are hardly ever ordered) Make subdivisions per location or country, business unit, or department It would be even better if you did this for the previous two or three years as well If possible, embellish the information with some graphics I have encountered quite a few salespeople who did have that information available, but did not offer it to their customers It is best to provide such information proactively, and not only after the buyer’s request In this way, you help him construct the category plan Moreover, it provides the buyer with good ideas (for example hard runners versus slow movers), so he can take steps and make a good impression in his organization Chapter of the category plan brings the buyer a lot of worries as well: The market analysis Collecting information about the supply base market proves to be difficult All too often, buyers gather information through business associations or simply by using search engines on the Internet This is very time-consuming No doubt, you, the supplier of such a market, are in possession of most of the information about your own market You know the turnover of the market, including its subdivisions You know the top to players You know the number of suppliers out there You know the price driving factors You know about important events, such as mergers or bankruptcies 36 Download free eBooks at bookboon.com The Naked Buyer A Salesperson’s Role in a Category Plan The key question remains: why not share your information with your buyer? And proactively, preferably Similar to your knowledge of the spend, you should make use of your knowledge, turn your knowledge into a service product Mind you, make sure your information is correct, and not too biased by your own point of view Honesty is the best policy Transparency is one of the principal characteristics, and a buyer will certainly appreciate it It so happens that the opposite may occur if your information turns out to be incorrect: You might find your buyer against you Chapter of the category plan also accommodates a number of elements about which you can provide your buyer valuable information One example is the TCO (Total Cost of Ownership) approach, risk management and the CTQs (Critical to Quality) The CTQs are of vital importance to your buyer I remind you once again of Chapter of this book: the purchasing process and the purchasing steps As indicated, the first step (specifying) is the most important one The CTQs are a useful tool for the buyer, but for the sales professional it is an extremely important tool as well A separate chapter will be dedicated to the CTQs Back to the TCO and risk management TCO: This is always a hot issue for salespersons, since there are (at least according to me) still some misconceptions about the transparency of costs I have seen both suppliers who share this information liberally, and suppliers who act as if it were the best guarded secret after the Coca Cola recipe Nonsense! Your buyers will appreciate you even better if you freely share the TCO (Total Cost of Ownership) to them You will NEVER be shown appreciation if you insist on not giving openness on your costs Indeed, in the current purchasing environment it will increasingly be interpreted as a matter of suspicion, as if you had something to hide Discard the hesitation, and provide more insight Some insight It is not necessary to share all the nittygritty details, but a build-up of your costs in five to seven “buckets” is the very least Any additional information, of course, will be appreciated even more 37 Download free eBooks at bookboon.com The Naked Buyer A Salesperson’s Role in a Category Plan However, TCO is more than just a build-up or breakdown of the costs Also, try and give an indication of how the product or service costs relate to other cost components, which you may or may not present at the same time By providing this insight, the cost components of, for example, licenses, maintenance or so-called landed costs, become clear These are the costs for supplies and transportation, but also import duties or insurances Try to give your buyer a clear picture of the total costs (the Total Cost of Ownership) Really dive into this matter, so that the costs of your products or services can be viewed in perspective and in relation to other – larger or more expensive – components In this way you can demonstrate to your buyer that he would well, for example, to cut down on services and maintenance instead on the costs of the product that you supply It has been said before: Provide a more comprehensive service than you would normally Risk Management: For this subject I refer to Chapter 1: The Purchasing Definition Doubtless, you still remember that the most important objective for a buyer is to be able to deliver his products and services at anytime Even if this – temporarily – cannot be done against the right conditions, such as price, specifications or quality itself DO YOU WANT TO KNOW: What your staff really want? The top issues troubling them? How to retain your top staff FIND OUT NOW FOR FREE How to make staff assessments work for you & them, painlessly? Get your free trial Because happy staff get more done 38 Download free eBooks at bookboon.com Click on the ad to read more The Naked Buyer A Salesperson’s Role in a Category Plan Make sure that you – again proactively – provide insight on the risk management concerning your products or services Contact your buyer to explain to him how you will guarantee continuity, for example, by indicating that there are multiple production locations, or fallback options It is also wise to look at fallback options well in advance, using variations on specifications If necessary, offer to some tests, so that the alternative specifications can be validated by, for example, marketing or R&D 39 Download free eBooks at bookboon.com The Naked Buyer CTQs: What Does the Buyer Really Want 8 CTQs: What Does the Buyer Really Want? One of the basic objectives for a salesperson, is to find out what his customer/buyer really wants The days that salespeople visited their buyers and showed them catalogues of products from which they could choose, are over Having said that, I know from my own experience that some sales professionals still use this outdated sales technique In this chapter, I will go deeper into the so-called CTQs, focusing on the way these criteria can be brought to the surface Fig 15: CTQ-analysis CTQs are defined as a physical description of the concept of “right” in the Purchasing Definition, as outlined in Chapter The right product (or service) at the right price / cost, at the right quality, 40 Download free eBooks at bookboon.com The Naked Buyer CTQs: What Does the Buyer Really Want in the right quantity, at the right place, from the correct supplier, at the right time On the basis of my purchasing experience, I have always taught buyers to enter into an internal dialogue with the stakeholders, as described in chapter of the category plan, and to make the criteria more tangible by using the SIMPLE methodology I will inform you on this specific methodology or tool further on in this chapter If a buyer is able to find out the CTQs from the internal stakeholders, this should work for salespeople as well, I think In all cases, the buyers should translate the internal CTQs to the outside world (the suppliers) If a buyer refrains from his translating job, then be prepared to ask for these CTQs It is, therefore, crucial to know the customer’s CTQs Sometimes you will find them neatly lined up in the RFQ (Request for Quotation) Then again, sometimes you will find them scattered through the RFQ And then again you will not find them at all in the RFQ In that case you simply have to ask for them 41 Download free eBooks at bookboon.com Click on the ad to read more The Naked Buyer CTQs: What Does the Buyer Really Want It is my experience that salespeople rarely ask for CTQs I should also indicate here that buyers are not always aware of their own CTQs By asking for the CTQs, you radiate professionalism Surprise your customer! The SIMPLE methodology: The acronym SIMPLE stands for a number of specifications and criteria that are important for the products or services that will be purchased On the next pages you will find an example of a checklist for a dialogue with a customer (internal customers for the buyers; the buyer for salespersons) It goes without saying that the questions should be adjusted to the specific properties in each field By systematically going through the various fields of the SIMPLE tool, you will get a clear picture This, therefore, is the translation of the concept of “right” in the purchasing definition Specifications / Quality • Current specifications versus right specifications • Customer satisfaction with specifications • Quality requirements • Environmental requirements • Security requirements • …… Innovation / Technology • Innovations / new developments • Being unique / IP / patents needed • Technologies / Lifecycle requirements • Requirements of end customers • …… Measurables / Terms • KPI Measurements • SLA (Service Level Agreements) • Continuous improvement programs • Global Supplier Guidelines • …… 42 Download free eBooks at bookboon.com The Naked Buyer CTQs: What Does the Buyer Really Want Price / Total Cost of Ownership • Communicate TCO principle to the customer • Buy or lease • Pricing Model for International DDP • Europe pricing • …… Logistics / Timing • Delivery / JIT / Build to Order • Flexibility / Consignment Stock • Capacity Flexibility / Forecasting / Central Ordering • Communication / Status / Progress transparency • …… Efficient Processes • Lean Principles • Aligned Processes with the customer • Self Billing • VMI / EDI solutions • Market places / Customer Website The idea, therefore, is to ask your customer a lot of questions How does he think about… against quality? What does he find important, this or that…? Which margins are accepted in millimeters, time, etc.? Regard the CTQ list as a checklist for a dialogue with your buyer 43 Download free eBooks at bookboon.com The Naked Buyer Summary: Top Practical Advices 9 Summary: Top Practical Advices As indicated in the chapter on CTQs, these can often be found scattered through the RFQ This also applies to the practical guidance and advice in this book It goes without saying that this book is intended to get the reflection process going Confucius once said that it is “better to travel a mile, than to read a thousand books” And my biggest advice to all salespeople is to simply start by asking your buyer questions Enter into that dialogue, and keep practicing Of course, I appreciate that it is very difficult for you to remember every detail in this book all at once At the risk of being incomplete, I will give my Top advices and suggestions and things to really remember on the following page My top things to remember: Ask your buyer how he sees your product or service with respect to segmentation Know your position in the matrix, and draw up your plan, for example, if you want to go from the leverage to the strategic segment Ask your buyer how you can assist or support him in writing the category plan: proactively communicate your spend, KPI’s / fallback position, market analysis, etc Try to bring out your buyer’s CTQs Use the SIMPLE methodology Remember that the CTQs are the key to understanding the term “right” in the purchasing definition Proactively provide your buyer with alternative and innovative products, services or concepts Innovation is a buzz word in the purchasing community Use the TCO methodology to make the cost advantages transparent for your buyer Be open and transparent, not only about the costs, but about everything pertaining to your communication with the buyer 44 Download free eBooks at bookboon.com The Naked Buyer Epilogue 10 Epilogue It was an absolute pleasure to write this book for you My CTQ would be, that I would be very pleased if I had managed to bring about a number of aha-experiences or to give some insights With my advices, you should be able to improve your sales! It was never my intention to write a highly academic book The bulk of this book comes from my more than twenty years of intensive experience as a purchasing professional Instead, regard this book as a bridge between purchasing theory and the reality of doing business with purchasing professionals Please, look forward to parts and of The Naked Buyer series These will tackle subjects on how to make the best quotations, and how you can `make the best out of face-to-face communication with a buyer If you want to receive a more detailed background or get a deeper understanding of the buyer’s world, not hesitate to contact me by e-mail or telephone: Michel van den Broek Boomerang Salescoach Kraaijenbergsestraat 39 4851 RG Ulvenhout The Netherlands telephone +31 634132242 e-mail michel@boomerang-procurement.com website www.boomerang-procurement.com 45 Download free eBooks at bookboon.com The Naked Buyer Notes 11 Notes Challenge the way we run EXPERIENCE THE POWER OF FULL ENGAGEMENT… RUN FASTER RUN LONGER RUN EASIER… READ MORE & PRE-ORDER TODAY WWW.GAITEYE.COM 1349906_A6_4+0.indd 22-08-2014 12:56:57 46 Download free eBooks at bookboon.com Click on the ad to read more The Naked Buyer Notes 47 Download free eBooks at bookboon.com ... in the chart on page 28, the categories are classified on the basis of two dimensions: On the one hand, the influence of the purchasing category on the profit, and on the other, the impact on the. .. extensively in other books in The Naked Buyer series The collaboration with the internal stakeholders is getting better and the suppliers are becoming more involved in the purchasing processes The communication... right quality, in the right quantity, at the right place from the right supplier, at the right time for both the short and the long term Regardless of these definitions, a buyer must never forget