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The sellers’ guide to the procurement process
Engaging with procurement can be daunting, even for the most seasoned sales professionals. It can often feel like you’re having to re-sell to procurement, but that’s rarely the case. Once you engage with procurement around a meaningful discussion, you’ve typically been short-listed as the (or one of two) preferred vendors subject to negotiations and contracts. However, unless you understand their processes, systems and objectives, your likelihood of success is low.
Procurement teams in large organisations are trained negotiators, with tools and methods that can be intimidating. The first step to successfully navigating this territory is to take some time to understand the procurement process. Remember, the process is there to drive efficiency, consistency and auditability. Once you know the framework, you’ll be in a stronger position to ensure that not only are you in the final two, you’re blowing the other party out of the water.
In this article, we’ll cover:
- What stages are typically included in a procurement process?
- The difference between public and private sector procurement.
- How to ensure you get beyond the final two or three after an RFP.
- How to protect your profit margins.
You might also enjoy: The Ultimate Guide to Negotiating with Procurement and What Does a Procurement Professional Do?
What is a procurement process and why is it important to sales professionals?
Just like sales teams have a sales process, procurement people have procurement processes (yes, more than one).
As a theme, procurement people tend to be data-driven, rational and process-oriented. They like spreadsheets, processes, assessment criteria, scoring mechanisms, risk management and frameworks. So it follows that they’d have a well-documented process in order to help them source vendors cost-effectively and efficiently.
(Find out more about the psychology of procurement professionals in this post about who they are and how they operate).
Tip: Often, large organisations will publish their procurement policies so you can see the steps to become an approved vendor.
Examples of procurement processes:
- Source-to-Pay (S2P)
This is an end-to-end process, typically used by large companies, that covers sourcing, negotiating, contracting, purchase orders and paying for goods/services. Procurement teams can use S2P software to drive efficiency using advanced tech and big data, e.g. Basware, Ariba, Coupa
- The Seven-Step Strategic Sourcing Process
This is likely the process you’ll be involved with most often as a sales professional:
- Step 1 – Identify Goods or Services Needed.
- Step 2 – Consider a List of Suppliers.
- Step 3 – Negotiate Contract Terms with Selected Supplier.
- Step 4 – Finalise the Purchase Order.
- Step 5 – Receive Invoice and Process Payment.
- Step 6 – Delivery and Audit of the Order.
Source: A T Kearney
3. Savings Delivery Process
Just like sales teams have a sales pipeline, procurement teams have a savings pipeline. This is where they’ll track all the possible savings opportunities that they have identified, and where each opportunity is in the pipeline.
As part of this process, they’ll be analysing spend, reviewing who they’re spending money with, how often, and why.
Tip: If you’ve been identified as a key supplier with significant spend, and your contract hasn’t been tendered or renegotiated for three years, you’ll likely be in the cross-hairs of procurement.
Our advice? Be proactive and engage with procurement ahead of the end of your contract term or notice period (typically 6 months ahead). Think about new commercial models that deliver savings and improvements in quality/efficiency and negotiate a renewal that works for both parties.
Without this intervention, you may be pushed into an RFP process or simply issued with a termination notice.
How does the procurement process differ between private and public sectors?
The procurement process for public and private sectors is broadly the same — but there are differences in how they are funded and regulated.
Private Sector Procurement
Procurement serves a strategic purpose in the private sector, with goals including:
- Improving profitability
- Driving supplier innovation
- Improving output quality
- Focusing on ESG/D&I
- Managing risk and improving auditability
- Improving flexibility/agility
Procurement teams support the business to improve processes, focus on cost-quality management and identifying new/innovative sources of supply. Some businesses opt to have their Chief Procurement Officer (CPO) on the executive board, which underlines procurement’s strategic significance.
Public Sector Procurement
In the public sector, there are no shareholders’ dividends to pay out or publicly declared profit/loss announcements to make. However, spending is under significant scrutiny, due to the obligation to deliver social and economic benefits to the wider public. As a result, the procurement process has to be managed differently and is far more transparent than private sector procurement.
There are clear principles about the way in which procurement award contracts including:
- Strong governance
- The Most Economically Advantageous Tender (MEAT)
Post-Brexit in the UK, Public Sector Procurement is going through a significant review process.
What’s the difference between indirect and direct procurement?
- Direct procurement refers to purchasing any part of a product/service that is purchased or consumed by the end-customer. These costs sit between Sales and Gross Profit in the P&L (often called Cost of Goods Sold). For example, bricks for a house, fabric for garments, ingredients for recipes, promotional items/rewards. Direct materials are easy to identify, measure, and are directly linked to the cost of production/sale.
- Indirect procurement involves purchasing anything — goods and services — that isn’t for resale (GNFR). These purchases are necessary to support the business’ day-to-day operations. Examples here include marketing services, office supplies, IT equipment, etc.
One of the big differences between buying goods and services is quality control and delivery. It’s much easier to audit the integrity of a supply chain with physical goods.
In services procurement, there needs to be a multilayered QA process, often involving answering these questions:
- Have all the services been delivered? (Cross-check with SoW)
- Were the outputs delivered on time?
- Were the outputs to the agreed quality?
Procurement Process Flow
There are two types of big-picture procurement processes typically:
- Source to contract (more strategic): This is where procurement (or sourcers as they’re often called) work with the business to appoint suppliers (existing or new) to deliver against targets.
- Procure to pay (more tactical): This is where procurement manages the flow of requisitions through to supplier payment. A lot of this is often embedded in systems and automated workflows.
The buying stages of procurement
Back in 2001, A T Kearney developed the seven-step sourcing model. To this day, procurement people still refer to it as their model for Source-to-Contract processes.
When do procurement use RFPs?
You’ll generally find that stakeholders in bigger brands (e.g. £300m+ revenues) will engage the procurement category lead when the budget is material: e.g. 100k+ per annum to run a formal tendering process. There are a number of reasons for this:
- The increasing need for strong governance: i.e. an objective and controlled way of selecting and managing suppliers.
- The adoption of a rigorous process, with an audit trail to ensure money is being spent wisely and professionally. This is especially important for PLCs, public sector bodies and charities.
- Because sourcing, negotiation and savings delivery are specialist disciplines (just like marketing, IT and HR are for example).
RFPs are a procurement tool that encompasses a process and a template. It’s a way of enabling procurement to consolidate all the client’s requirements and specifications into one document and run a consistent and, hopefully, fair process. The RFP document is distributed to several potential suppliers and a rigorous process is run to get from longlisted providers to the final selected supplier via a negotiation.
Tip: Before you fill in any RFP, you must score your likelihood of winning. This can save hundreds of person-hours (literally) writing tender submissions. Score your RFP here with our handy tool.
Reminder: procurement’s typical objectives
- Increase savings. There are very specific definitions of savings from a procurement and finance perspective.
- Maximise ROI for the business. They need to get the best outcome at the optimal price.
- Supply chain innovation is key to driving profitable growth.
- Quality and reliability of product/service delivery is critical.
- Supply chain diversity, inclusion and ESG are all now key priorities for procurement.
- Reduce risks, increase flexibility and improve auditability. Note: risk comes in many different forms, e.g. reputational, operational, financial, etc.
Actions to take to make the shortlist (or keep your contract)
- Check an organisation’s procurement policies
- Take time to understand procurements’ needs and goals
- Prepare thoroughly. 80% of your success will depend on your preparation
- Align your services to procurement goals
- Proactively engage procurement before the end of your contract
- Score your likelihood of winning an RFP
Beyond the shortlist
So you’ve made the shortlist. Hooray! But now is where the real negotiation begins… prepare by reading our Ultimate Guide to Negotiating with Procurement.
About the Author: Mike Lander
Mike Lander is a successful entrepreneur and expert negotiator, with a proven track record of buying, growing, and selling businesses for seven-figure sums.
He has a uniquely valuable perspective on negotiating commercial deals, having worked on both sides of the table as a Procurement Director and an entrepreneur.
He now uses his specialist knowledge and experience negotiating hundreds of deals worth £400m+ to empower leaders and sales teams to negotiate more profitable deals with procurement.