While they appear to be at different ends

of the business spectrum, both Sales and

Procurement face the same issue: Total

Cost of Ownership

Sales and

Procurement

Should be

Close Allies Leveraging Spend to Reduce

Your Sell Price

David Hilcher

Sales and Procurement Should be Closest Allies. SShhhhh!

For many that work in sales, price is an issue they deal with every day.

How that price is created is cost + margin expressed in the most simplistic of terms.

Managing those costs is the responsibility of the entire organisation, especially internal costs, which

why, back in the industrial revolution, some smart folks came up with the idea of cost accounting.

But (and depending on your organisation) a portion of your costs relate to the products and services

you buy in to either add value to production, or to support your business.

Those bits you buy in affect the total cost of ownership, which in turn raises the price. Back to the

sales setting where sales people have a customer and they are dealing with price.

Total cost of ownership relates NOT just to the price you paid for the product or service. The

American Productivity and Quality Center (APQC) published the following graphic on their website

showing the difference in the cost of buying stuff ranged from $60 to $132 depending on your

business maturity.

Image: APQC Open Standards Benchmarking Procurement

Now $132 is for median performers, join APQC and see the results for the bottom dwellers, it will

shock the boots of you.

The cost of buying stuff is not just related to the price you paid. In fact, in most cases that is least of

your problems, especially if you buying stuff close to the cost of producing a purchase order. The

real cost is how much it costs to manage the relationship with that supplier.

Do they participate in eProcurement?

Will they send invoices back electronically?

Will they always put on the purchase order number so accounts payable matching is

automatic?

Do you constantly have to dispute the invoice amount?

All this back office activity is affecting your sales price. So how can you stop the rot?

1. Have all of your business units create a business model canvas

2. Align and alter the canvas to avoid duplication and ensure there is coverage

3. Create value chains to capture the current state (the actual current state, not as the current

state should be)

4. Create a set of target state value chains

5. Create business processes and assign accountability and responsibility for ownership of the

processes

A greater understanding can be gained when Sales participate in the value model process. This helps

them to understand that they too play an important role in keeping the cost of ownership under

control. Rarely do consultants ever bother to involve sales, but the administrative overhead

associated with gathering requirements for things that need to be sourced is part of every

operational and sales environment. This typically is an enlightenment to the organisation and assists

when you have to educate the business that while in one particular case one vendor might be less

expensive, there are greater savings potential in the long run by looking at the bigger picture.

I would love to hear your comments and please share this blog

© Copyright 2014 David Hilcher

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