Lone Purchasing Organisation

Given the resource constraints of many mid-tier buyers and the requirement to show that they are purchasing wisely, if I were an indirect supplier, I’d do whatever I could to ensure that I provided my mid-tier clients with whatever information they needed to prove they are buying well when they are buying my products and services.

This is not as straightforward as it sounds because the skill with which one has purchased a product or service can only be judged relative to the price others are willing to pay. However, if I were an incumbent indirect supplier with significant market share, I would use my own customer base to provide the evidence my customers need to justify their decision to re-contract with me for another term and I’d willingly give up my ability to differentially set margins across my similar-margined mid-tier clients in the hope it would derail some of the tenders I’d otherwise be forced to participate in (assuming of course that the bulk of my profit did not arise from differentially pricing similar clients).

To do this, I’d meet with all of my mid-tier clients and, with their permission, talk about my pricing. I’d explain that I very much want to charge them all the same low price but particular idiosyncrasies in their buying patterns mean I can’t. I’d tell each of them what they can do to their own operations to allow me to service them at a lower cost. I’d summarise this in a document for each procurement manager and when she is asked to justify why she is re-contracting with me, I’d recommend that she say to her CFO, “We have been dealing with this supplier for 5 years and currently have no service issues. Our users report that they are happy with the service they are provided. I have met with the procurement managers of 5 of their other mid-tier clients and, given our idiosyncrasies, we are paying the same rates for their services as they are (and one of them took the supplier to market last year). Based on this, I recommend we focus our resources on a spend category we are less confident we are buying well.”

Mid-tier procurement resourcing

In the mid-tier indirect procurement space, we are often not making the best use of our scarce resources, and by that I mean that we are not maximising the addressable spend per dollar spent on procurement. There are two reasons for this:

1. We should be making better use of tendering platforms (which I won’t discuss as there are others in the blogging world who cover this with far more authority) and
2. we far too often take suppliers to tender when we could achieve a similar result with a few rounds of negotiation.

But to negotiate well, we need information. Companies like the The Buying Triangle are on the right track in providing this information to their corporate clients. I predict a bright future for organisations who provide services to boost the negotiating throughput and effectiveness of organisations.

For incumbent indirect suppliers to companies who are not using services such as the Buying Triangle, I believe there is scope for the suppliers to better service their clients by providing relevant, high veracity, purchasing information. Perhaps they can establish a Lone Purchasing Organisation.