I recently attended a summit hosted by a procurement outsourcing firm (also providing online reverse auction services). Many customers shared stories about how the host’s solution had reduced their vendor spend by 30-50 per cent in categories like shrink wrap, private label products, paper and light bulbs.
You may think of your company as more than a vendor/commodity supplier, indeed, you may have differentiated yourself on service and perhaps repeat orders sell themselves. If so, you’re a reliable supplier, but it is here I see many companies becoming vulnerable. Their leaders fool themselves into thinking they cannot be replaced.
When the economy hits a bump in the road, many companies are out to cut cost and reliable suppliers tend to get hit the hardest. This is when firms are willing to take a risk on a smaller, lesser-known company with a few less features and resources. This either squeezes out the reliable supplier or forces it to offer a discount that most likely remains in place for a long time.
At the same event, a progressive, successful and market leading firm’s VP of procurement shared additional areas their company had begun to reverse auction. These were higher value products and services like new store construction, armoured car services, insurance, financial services, legal services, computers, and software services.
Another executive of a large retailer said: “I simply have our team get four to six vendors bidding… and they just beat each other’s brains in. And we end up saving 40 per cent.”
With the savings this approach is yielding, it’s only a matter of time before the category you serve will be evaluated. Unless you want to be swept up in the system where price/cost is the single biggest variable, you must continuously innovate your offering to create an undeniable and unique competency and value for your customers.
The best way to achieve this is to make sure you stay as close as possible to the decision makers and continuously engage them to design your offering, test it, buy it… and then share their experience with their peers.
If $20 million software firm Crown Partners didn’t change how they operated, they would be at risk of being treated like a commodity, and one step closer to on-line auctions status. “We had to move past thinking feature/function. We needed to partner with the executives of targeted customers to help solve their business issues,” shares CEO Richard Hearn. Crown is one of only two software firms to make Inc500s fastest growing companies in the past four years.
For Wells Fargo, success is about relationships. “It’s about how you engage your most important customers at all levels in your planning,” shares Wells Fargo SVP Jeff Tinker. “If you share, listen and act on their needs and desires, they will drive your success.”
Leaders must develop programmes that continuously and meaningfully engage decision makers from their top customers. This is what the great companies do, small, mid and large alike.
* Sean Geehan is CEO of the Geehan Group