Procurement Can Play an Important Role in Sales

It strikes me that we look at the comparisons and battleground between Procurement and Finance to try to find how the two functions should more closely align, yet we don’t make as much noise about Procurement and Sales. You don’t have to philosophise too deeply to know that Procurement and Sales are two sides of the same coin or natural opposites -- one buys, one sells -- or too deeply to try to make sure that what you buy is cheaper than what you sell.

Yet how often do Procurement and Sales actually sit in the same meeting?

How often do Sales folk consult Procurement on material forecasts?

How often does Procurement feel empowered to advise on Sales pricing or sales proposals to ensure risk mitigation clauses are baked in?

Having been around Procurement functions a lot, and Sales quite a bit too, I really haven’t seen much interaction between the two; their office desk space tends not to reside on the same floor, calls and important meetings rarely include Sales and Procurement in the same forum. That seems odd to me.

Looking back to the demise of Carillion and several other struggling construction and Facilities Management companies, they operate to such hairline profits that the slightest shift in an operating cost can make the difference between green or red. Multiply that big time on the size and duration of some of the mammoth contracts out there, and it’s astonishing that such contracts are signed in the first place.

I believe there are many contracts that have multiple years’ duration: construction contracts with significant material price fluctuations. The price of winning a contract at 2% margin can mean sucking up the risk of large fluctuations in prices of metals, energy, timber and other commodities.  Now, often the fluctuation can be passed on or shared as a client/supplier contract agreement, but if steel structures represent a huge portion of your costs, you have five similar contracts and the Sales function hasn’t sufficiently mitigated material price increases into the customer contract, the company could be in big trouble. You’d want to build in price fluctuation mechanisms into the price to the customer and stand behind those clauses.

Nobody in an organisation should know more about the purchase pricing than the category experts in Procurement, yet somehow forecasting gets filtered up through a spreadsheet process then back down to Sales without Procurement uttering one statement about cost impacts or asking to see what protective clauses are in the Sales proposal documents or contracts to ensure long-term risk mitigation is built in.

While we know that some of the best CPOs do have involvement in the sales process, it’s not a common practice in most organisations. We’d like to see more from them, and the CFOs and Sales Directors, making the case for Procurement’s skills, knowledge and experience to be used in the sales process (and maybe not just in forecasting and planning), and for category managers to be consulted by those who write and sign customer contracts. Procurement can play a part in effective contracting on both sides of the coin and should hold its rightful position in the profitability, not just the cost control, of the company.

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