Friday, October 21, 2011

Do Procurement or Contracts Groups Have "Brands"

In selling companies spend millions of dollars creating and protecting their company’s brand(s).
A brand is promise of value to customers. With a well-established brand, when a company introduces a new product or service using that brand they want the potential customers to expect that new product will have attributes that are similar to other products of the same brand. For example Tide™ laundry detergent is a brand of Proctor & Gamble. Proctor & Gamble sells many different products with the Tide™ brand.They want buyers to consider those products as having the same basic quality and attributes as the original Tide product. The Apple “Ipod, Itunes, Iphone and Ipad are all brands that Apple wants customers to see as having slick designs and leading edge technology.

Procurement is involved with brands in two ways. First, their sourcing decisions can either support or severely harm a company’s brand image. For example sourcing a product that has quality problems causing major customer dissatisfaction with a product can almost destroy a brand. When Ford Explorer SUV;s with Firestone Tire Company tires experienced roll-overs and injuries and deaths,think about the impact that had on their brand images.

How a procurement or contracts organization conducts their business with suppliers will also create their own reputation that forms a type of “brand” for the group. I wrote a little suppliers qualifying buyers before determining whether to bid or provide a proposal. (See Jan 3, 2011 post) but I wanted to add to that from a brand perspective.

Your group’s “brand identity” is formed by a number factors in addition to those listed in that post. You will be viewed and your “brand image” or reputation will be based upon:

The quality of your procurement documents, specifications etc.

How you negotiate and whether you use dirty tricks.

Whether you consistently negotiate after bid or proposal.

How reasonable you are at listening and working to solve problems in negotiations.

Whether you use multiple levels of negotiation.

How frequently you come back to the supplier after the negotiation to further reduce cost.

How good your estimates of volume and forecasts are.

The amount of expedited activities that occur from shortages.

How well you manage to any volume splits you promised.

The frequency and magnitude of any changes you make to the work.

How you respond when there are problems.

How you manage them.

How well you meet your commitments during performance.

When you come back to them for credits or reductions for performance issues – is it every issue or just major issues.

What your administrative requirements are and how cumbersome they are to meet.

What reporting requirements you have and the cost of those.

Whether you consistently pay as promised.

How reasonable you are when disputes arise.

Etc., etc., etc.

Once your “procurement brand” is formed current suppliers know how to deal with you and potential supplier will quickly try to discover your “brand” or reputation before they negotiate with you. What they learn about your brand will impact how they price things, the costs or contingencies they include and how they will negotiate. You may beat a supplier once, but they will remember that for the next negotiation.

There is one last point, when you establish your “brand”, that’s how the supplier will expect you will operate and their response will be according to that image. For example if you frequently come back to suppliers to reduce cost and they know that, the initial cost they give you won’t be their best. They will hold back to provide you with that cost reduction you will be looking for later. While the cost reduction will look good towards meeting the metrics of reducing cost, it really isn’t a savings. If they knew that you won’t come back to them to later reduce cost you may have been able to have those savings from the beginning. Instead they won but not giving it earlier and they have buyers thinking they won because they met their cost reduction goal.

If you learned from this post, think about how much more you could learn from the book.
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