To fulfil sales plans, to solicit new clients – these are typical challenges for sellers and client advisers. To accomplish these goals, it is often necessary to play a kind of game with the “other side” i.e. with buyers. How to skilfully play it? Are buyers’ goals always different from those of sellers? We will address all these issues in our new series for sellers.
In their work, buyers follow two primary goals – to achieve intended savings and to ensure necessary quality requirements of purchased products or services. Savings are typically divided into two types: price savings and process savings.
Price savings are based on activities that are relatively easy to measure, and have the common aim of minimising the prices of purchased goods. They cover:
- Identifying the best price – includes a comparison of the prices offered by different sellers, taking into account the total cost of ownership (i.e. costs directly related to the purchase and operational costs), negotiating purchase conditions in a competitive environment, i.e. with as many suppliers as possible. In the case of non-standard products, the bargaining power of the seller increases, as there are few other enterprises that offer the same product to compete. It is common for buyers to buy on electronic auctions to get lower prices – from the seller’s perspective, it is advisable to be active on a platform dedicated to suppliers in order to gain access to a large number o auctions.
- Aggregation of demand – this is where buyers try to accumulate the quantity of purchased goods by, among others, standardisation of the product range, collecting requisites from several organisational units or combining different product range categories. The aim of such activities is to benefit from economies of scale and achieve lower prices.
- Globalisation of purchases – buyers try to extend their supply base by taking the opportunity to use services of new suppliers. Additionally, they expect to advantage from global discrepancies between demand and supply. This means that sellers should offer their products and services in as many geographic areas as possible to be able to reach every large group of potential buyers.
Process savings are mainly based on activities that are relatively difficult to measure, such as:
- Restructuring of relations – this includes all activities of a buyer who intends to strengthen the relation and to enter into an alliance or a strategic partnership with a supplier. It is possible, if contacts with the supplier have been fair and dealt with honesty, without any conflicts or disputes. The basis for creating close relations may be past contracts that comprehensively regulated cooperation. From a different point of view, buyers are sometimes interested in outsourcing some areas of their business, e.g. warehouse management that could be handled by a supplier.
- Enhancement of processes – savings from remodelling of the processes shared by the supplier and the buyer, optimisation of the information flow by way of electronic exchange of documents, and shared research and development projects. In this area of savings, an important factor is the seller’s flexibility and willingness to collaborate.
- Improved product specifications – in this area, buyers attempt to reduce and rationalise product specifications so that their technical and quality features allow as many suppliers as possible to supply the products (so that buyers’ bargaining power in negotiations increases). Additionally, sellers should maintain reasonably low costs of use of their products, because many buyers consider such costs (apart from the price) when preparing specifications and selecting the supplier – so called total cost of ownership.
Such activities as consolidation, categorisation and standardisation facilitate savings in purchasing processes.