The Procurement Push-Pull

You know the drill. You've been working on a deal for months and you finally submit the RFP outlining the perfect solution for your customer. Then the purchasing department gets its hands on the papers and all hell breaks loose. Are some of your components priced too high? Maybe the purchasing agent should shop around a little more.

While purchasing departments and their agents are nothing new, the volume of their input is rising as enterprises--and even large midmarket companies--hand down cost- cutting edicts. And solution providers are feeling the sting.

It's important, though, to understand where procurement agents are coming from; in many cases, their salaries (or at least their bonuses) are tied to their ability to slash costs.

But there are ways to deal with the people holding the purse strings. Some tactics may not be for the faint of heart, but they'll keep you on the right track with your customers and, in turn, boost your margins. In the end, if you can't get a purchasing department to see the value you add, you'll have to call it a day, turn around and not look back.

"The prime goal for the purchasing department is to get a better price than what you've already given them," says Sanjay Prasad, president and CEO of Pompton Plains, N.J.-based Global Business Dimensions (VARBusiness 500 No. 265). "They have a strong directive to reduce cost, and they feel they can do it easily by squeezing the suppliers. But they don't realize that it can hurt them in the long term."

According to our quarterly VARBusiness 500 research, more than half of solution providers are encountering purchasing agents in all or most of the deals they make.

At the same time, almost 75 percent of respondents said that purchasing agents are shopping their bids to competitors, and just about 60 percent said that comparison-shopping translates into lower value and decreased margins.

With that in mind, it becomes abundantly clear that it's crucial to develop a well-thought-out strategy for dealing with purchasing agents--even before you walk through the customer's door. Here are five ways to woo and win over the people whose John Hancocks could make or break you.

1. Develop A Relationship With the Purchasing Agents. Whether or not you like them, establishing a rapport with them will serve you well.

"You have to get to know your purchasing people and educate them on the value that you provide," says Brenda Stallings, president of Jasper, Ind.-based Matrix Integration (No. 434). "It all goes back to the relationship you build. If you have a rapport with the customer, a customer [will] call you and say, 'I'm thinking about wireless,' before they do anything and run it by you--their trusted business adviser. [Those customers] tend to shop [around] less. If you're sitting at your desk all day just quoting prices, that's what they're doing too."

Key to the relationship is educating purchasing agents and emphasizing the long-term benefits of their working with you, the solution provider.

"Get them to understand that you're not going to be working with them just on this one deal, but that it's a long-term technology relationship and that the quality and value-add you provide is vital," Prasad says.

2. Show Off Your Track Record . Another successful tactic, according to Prasad, is touting your company's performance track record to the purchasing agent. Demonstrate your ability to deliver on time, and with the right parts.

"We're ISO 9000-certified, so we can pull our record from the ISO manual and hand it to them," Prasad says. So even if Global Business Dimensions' price is a bit higher than competitors', customers have to realize that they're paying for the right components delivered on time and on budget--something that probably can't be guaranteed by the lowest bidder.

3. Register Your Deals For Price Protection. Solution providers often grumble about deal-registration programs--and all the paperwork that goes with them--but those initiatives can be beneficial when it comes to dealing with purchasing departments.

"We make sure we're connected with the manufacturers that have registration programs to help protect our margin," says Brad Thompson, vice president of sales at San Francisco-based FusionStorm (No. 183). "Those are the vendors we're driving today. If they don't have the protection, you can't get the value you've invested in those sales."

Thompson points to IBM's registration program, which allows only one VAR to get the discount. "The customer can't go to 27 resellers and say, 'Give me a quote on this part of the deal,'" he says. "One person gets the discount on the full order."

Stallings adds that she keeps her vendors and account reps in the loop when she's working a deal. "Get your vendor in and let them know about big deals you know there's an RFP coming out on," she says. "They have a responsibility to protect you as their reseller."

4. Go Around the Purchasing Agent. But proceed with caution; this should be done only in certain situations. If you have a personal relationship with a C-level executive at the customer organization, feel free to use it. But, generally, this isn't advised on a regular basis. After all, once you go around, you might not be able to come back.

5. Walk Away From the Deal. This may hurt, but it's sometimes the best option. If the margin is too slim, and the prospect of dealing with a finagling purchasing agent isn't worth your time and effort, walking away may be your best bet. You want to maintain your solutions-worthy client roster and not think twice about turning your back if the purchasing agent does you wrong.

Stallings says she's used this tactic. So have Prasad and Thompson.

"We can't work at lower margins forever," Prasad says. "If the customer continually insists on lower pricing, let the deal go and let them see what happens when they buy based solely on lower prices and the pressures that can result."