Can buyers create value for customers and reduce costs?
The two main objectives of a buyer in most organizations are:
- Reducing Total Cost of Ownership (TCO) or Life Cycle Costs (LCC)
- Creating value for Intermediate or Final Clients
Reducing Total Cost of Ownership or Life Cycle Costs
Often involves lowering prices, but not always; sometimes to save more you need to spend more on a per item basis. If you buy a razor for $1 and you can use it for 10 shaves, it is 100% more expensive than a razor for $2 that you can use for 40 shaves. This example is simple but true and captures the distinction between price and cost.
Sometimes involves reducing unnecessary or excessive consumption (i.e. waste). If companies roll out a course that trains employees with company cars to drive more economically and ecologically, it is possible to save money. A trained driver whose vehicle only consumes 7 gallons of fuel per 100 miles instead of 7.7 allows the company to reduce their fuel costs by 10% (excluding the costs related to the training, which are to be deducted).
The two cases above are simple, but the reality is often more complex. It is possible to define the total cost of owning a product as all expenses incurred by the user throughout its life starting at the time of acquisition. This includes the cost of the purchase as well as maintenance costs, insurance, storage, disposal, transport, etc.
Creating Value for Intermediate or Final Customers
Value creation (direct or indirect, immediate or delayed) can benefit the organization and / or its customers. More and more organizations are asking buyers to satisfy the needs of both customers simultaneously.
The term ‘Intermediate Customer’ means one or more people in an organization who will use or benefit from the use of a product or service purchased by the in the course of its operations. Intermediate clients are often referred to stakeholders, internal customers, or users.
The term ‘Final Customer’ refers to the company’s customers, for instance a buyer who purchases glass bottles so that the wine maker he/she works for can bottle and sell their product (to individuals, supermarkets, restaurants, etc.)
The Four Types of Buyers
It is possible to classify buyers into four separate categories according to their contribution to client value creation and cost reduction: (the Bureaucrat, the Cost-killer, the Innovator, and the Business Developer):
THE BUREAUCRAT does not effectively reduce costs or generate value for customers.
Profile: The Bureaucrat prefers to work alone rather than cooperating with internal or external contacts, and often waits to be asked to act rather than taking proactive steps on his/her own. This professional has no insight into the company, customers, trends, or innovations and prefers to preserve the status quo rather than embracing change. Ultra-litigious, rules are often used as protection, much like the ‘safe space’ behind his computer using the ERP system. Communication is an intimidating activity to be avoided.
The Bureaucrat Buyer is likely a rare/endangered species, since this person is less and less sought after by organizations. Four solutions are available to address this population of buyers:
- upskill to one of our other types of buyers,
- change jobs,
- retire,
- remain in place without changing until a planned or negotiated departure.
THE COST KILLER achieves significant cost reductions but does not generate value for customers.
Profile: The Cost Killer knows supplier markets, has mastered Excel and relevant software, and can create effective supplier cost models. This buyer is proactive, but can sometimes be brutal and act without enough team consultation. Additional skills include intense benchmarking and efficient negotiation.
There are many Cost Killers, largely corresponding to certain types of enterprises. This kind of buyers is unlikely to disappear, even if they become a shrinking percentage of all buyers in the organization. If you are a Cost Killer, consider acquiring new skills to broaden your value to the organization, especially if you want to evolve professionally. Study the skills associated with Innovative Buyers and Business Developers.
THE INNOVATIVE BUYER generates considerable value for clients and reduces costs but is not his/her top priority.
Profile: The Innovative Buyer is a natural networker (external and internal) and is always looking for new ideas and information. This professional has both ‘sales’ and leadership skills, which he/she uses to bring together colleagues with very different profiles to build, validate, and implement projects. Innovative buyers adapt well to a number of situations, and are diplomatic in their efforts to maintain good relationships with all stakeholders. Additional skills include an ability to deal with crisis situations, interest in identifying and testing futuristic concepts, and an open mind to the ideas and approaches of others.
The population of Innovative Buyers is still relatively small. These purchasers are particularly useful and adapted to the needs of companies where purchases account for a small part of the total turnover of the company (- 50%) and/or in which rapid innovation is a vital necessity. Given that the pressure to innovate is greater in some industries than others, even for global leaders (such as Nokia), the Innovative Buyer is in high demand.
THE BUSINESS DEVELOPER simultaneously creates customer value and cost reduction.
Profile: In addition to having all the qualities of an Innovative Buyer or Cost Killer, this professional also has skills that are not always found in either other desirable type of buyer. He/she is a businessman determined to create value for customers and wealth for the business. The Business Developer is ‘hands on’ and regularly meets with the people who produce, sell, use or benefit from the services, materials, products or services purchased on behalf of the company. This professional likes to communicate in order to establish relationships with people from multiple levels in the company (CEOs, Managers, or Individual contributors) and functions (engineering, sales, finance, legal).
To succeed in his mission, the Business Developer must be emotionally intelligent (i.e. have the ability to adapt to his/her context). As often as possible, this person works in close collaboration with business colleagues and employees. A professional of thoughtful action, proactive and courageous, the Business Developer knows how to define a strategy, how to share it effectively inside and outside of the company. This professional knows how to drive complex projects (in rapidly changing environments with precision and agility, even under pressure. Additional useful human qualities include listening, empathy, humility, availability, humor, persistence, persuasion, intuition, rigor, agility, creativity, resistance to stress, and sociability.
Conclusions:
- Buyers may be selected by managers, inherited from their predecessors, or both.
- It is necessary to help all buyers understand the importance of graduate studies and continuing education.
- The evolution of a leadership culture is probably one of the keys to optimizing the procurement function in all organizations.
- Business Developers are the most desirable buyers since they generate the most customer value and the greatest reduction in TCO.
- In the coming years, organizations will still need several types of buyers: a mix of Innovators, Cost-Killers, and Business Developers. The question remains if Bureaucrats will disappear or if they will become a tiny minority.