Why do business owners and category stakeholders continue to maintain incumbent relationships that are damaging and costly to business operations? Is this resistance to change due to the longevity of the relationship, lack of category expertise, free dinners, or just pure laziness to invest in the market for a better fit solution and supplier engagement?
I once had a customer whose 20+ year long relationship with its marketing firm resulted in 40% higher costs compared to the competitive landscape. My customer did not have the internal resources or knowledge to know this problem existed and never expected their “buddy” to rip them off. It was only after a Procurement lead strategic sourcing initiative that unveiled the truth; where alternative proposals for “like” services showed lower pricing was available in addition to more modernized solutions. When the customer’s CEO confronted the company’s President, the response was simply; “You are right, I have no excuse, we just never adjusted pricing to align with the market”; basically saying they have been over billing for MANY years and probably for other customers as well.
Procurement teams can offer objective support in approaching the market and promote cost savings by identifying innovative services that fulfill and surpass the requirement. These professionals have the subject matter expertise to help navigate contractual best practices and improve supplier relationships to be more strategic and beneficial for all parties versus expensive dinners and friendly conversation. Category leads are typically too in the weeds in order to stay ahead of current market conditions and facilitate up-to-date benchmarking activities. Procurement can coach stakeholders to shift their thinking while letting them focus on their operational responsibilities taking on the burden of keeping suppliers honest for the experts.
At the end of the sourcing initiative, my customer did remain with the incumbent based on the complexity of the services being provided and still holding on to the past too tightly. However, pricing was now aligned with the market, they received a large credit to offset historical cost variances and to build up trust again, while setting ground rules for ongoing business reviews and the ability to test the waters as needed throughout the contract term. This experience also lead to other sourcing activities across many spend areas where the supplier in place had been around for more than 5 years.
Don’t overestimate the value of personal relationships and don’t underestimate the value of what Procurement can offer. It’s business; nothing personal!
I once had a customer whose 20+ year long relationship with its marketing firm resulted in 40% higher costs compared to the competitive landscape. My customer did not have the internal resources or knowledge to know this problem existed and never expected their “buddy” to rip them off. It was only after a Procurement lead strategic sourcing initiative that unveiled the truth; where alternative proposals for “like” services showed lower pricing was available in addition to more modernized solutions. When the customer’s CEO confronted the company’s President, the response was simply; “You are right, I have no excuse, we just never adjusted pricing to align with the market”; basically saying they have been over billing for MANY years and probably for other customers as well.
Procurement teams can offer objective support in approaching the market and promote cost savings by identifying innovative services that fulfill and surpass the requirement. These professionals have the subject matter expertise to help navigate contractual best practices and improve supplier relationships to be more strategic and beneficial for all parties versus expensive dinners and friendly conversation. Category leads are typically too in the weeds in order to stay ahead of current market conditions and facilitate up-to-date benchmarking activities. Procurement can coach stakeholders to shift their thinking while letting them focus on their operational responsibilities taking on the burden of keeping suppliers honest for the experts.
At the end of the sourcing initiative, my customer did remain with the incumbent based on the complexity of the services being provided and still holding on to the past too tightly. However, pricing was now aligned with the market, they received a large credit to offset historical cost variances and to build up trust again, while setting ground rules for ongoing business reviews and the ability to test the waters as needed throughout the contract term. This experience also lead to other sourcing activities across many spend areas where the supplier in place had been around for more than 5 years.
Don’t overestimate the value of personal relationships and don’t underestimate the value of what Procurement can offer. It’s business; nothing personal!
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