Today’s buyers are hell-bent on cutting cost. However for sellers that need not be all bad news. In this whitepaper you will find out how cost reduction is something that can now unite, rather than divide buyer and seller.

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SELLERS - If You Play Your Cards Right:
The Cost-Cutting Buyer Is Your Ally
Turning the 6 buyer strategies for cost reduction to your advantage.
Today's buyers are hell-bent on cutting cost. However for
sellers that need not be all bad news. Indeed, the latest wave
of buyer cost cutting, with its broader and more strategic “Shaving supplier
focus, has the potential to take buyer-seller relationships to a margins is not the
new level.
only way, or even
Buyers are slowly realizing that shaving supplier margins is not the best way…”
the only way, or even the best way, to achieve sustainable cost
reductions. This presents opportunities for sellers.
This whitepapers shows how sellers can use the buyer's
changing focus on cost reduction to unite, rather than divide.

2. The Traditional Buyer Cost Reduction Strategies
Traditionally, buyers have turned to two strategies in the pursuit of
immediate cost savings:
Strategy 1: The RFx - we are all too familiar with the rise of the
competitive tender and the increased volumes of RFPs (request for
proposal), RFQ's (request for quotation), etc.
Strategy 2: Price Negotiation - the traditional 'jaw-boning' where
buyer and seller go head to head on price reduction.
The bottom line is that the progressive shaving of the supplier's
margin is not the only strategy for cost reduction. For buyers who
have already 'gone to the well' on a number of occasions in pursuit of
supplier margin cuts, that is good news.
In many cases much of the scope for shaving supplier margins may
have already been exploited. Buyers know that there is a point where
it is counter-productive, even risky, to look for another cost reduction:
Suppliers often cut the quality of service in response to a cut in
margins. Their attention turns to more profitable customers.
Competitive tenders and reverse auctions can scare off quality
suppliers, or at least quality tenders.
The obsessive focus on lowest price, can result in higher costs
in the long-run (total lifecycle costs).
Price is only one dimension of cost and cost itself is only one
half of the economic cost-benefit analysis.
The link between cost and quality goes under-appreciated.
So, it is that buyers are exploring other ways of cutting costs too.
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3. New Buyer Strategies For Cost Reduction
Buyers are adopting an increasingly sophisticated approach to the
challenge of cost reduction. This is reflected in the range of strategies
being adopted.
Buyers have moved beyond the more obvious strategies of the
competitive tender (the RFx) and supplier re-negotiation, to adopt a
more integrated, holistic and ultimately more strategic approach. So
buyers are being advised to adopt a number of strategies for cutting
costs:
“Cost reduction
Strategy 3:
Partner With Suppliers To Identify More Creative
becomes a joint
Cost Savings responsibility of
'Ask and you may receive' is the new motto for the progressive buyer,
both buyer and
who has come to see that two heads are better than one when it supplier.”
comes to finding new ways to cut costs. In this way cost reduction
becomes the joint responsibility of both buyer and supplier.
Increasingly, buyers are cautioned to take a holistic view of cost
reduction in working with their suppliers. That means finding new
ways to remove cost, rather than simply hitting supplier's margins.
The focus then shifts to greater innovation, process efficiency and so
on.
This has implications for sellers, as it means that they can co-operate
with buyers in the pursuit of cost savings, without the defensiveness
that the direct assault on supplier margins entails.
Sellers who recognize the inescapable fact that buyers are targeted
with delivering additional savings, year on year, partner with buyers in
finding more innovative win-win ways of cutting costs.
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4. Suppliers who come to their customers with new ideas as to how
costs can be reduced can really distinguish themselves. For example; if
we did it this way, added more of this, or less of that, if you followed
this process, etc. With every dollar, or euro they help the buyer to
save the seller protects, or perhaps even grows, their revenue and
margin.
Tick  If ‘Yes’
 Can you identify ways you can partner with the buying
organization to delivery cost savings through innovation?
Strategy 4:
Managing Demand
Buyers are increasingly focusing their attention on the origin of cost,
addressing the issue of managing demand, or spend for the various
products and services used throughout the organization.
This rather obvious strategy makes total sense. For example, if the
buyer can curtail demand for new software licenses in the
organization by 10%, that is going to deliver up to 10 times more than
a 10% reduction in software license costs from the supplier (which
incidentally will be sought anyhow).
The seller who helps the buyer to manage demand has an advantage
in winning the deal. Although it may result in cannibalizing some sales
in the short term, helping the buyer to buy less can help the seller to
sell more in the long term.
Take for example a bio waste solutions company that provides onsite
equipment to cut the cost of handling canteen waste by up to 190
euro per tonne. Such a major saving is obviously appealing to the
buyer, but that is not all the company offers.
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5. Equally important for the environmentally conscious buyer, the
supplier also helps the customer to reduce the total tonnage of
canteen waste by up to 25%. It does this through a range of related
activities, including educating canteen customers and staff, backed up
with full system reporting of volumes of waste handled.
Tick  If ‘Yes’
 Can you help the buying organization to curtail
unnecessary spending, or waste in your area?
Although the company charges per tonne of waste handled, it has
determined that helping to cut waste volumes is the best strategy for
long term profitability. The bio waste company's solution has a dual
economic advantage – cutting cost directly through superior
technology, as well as indirectly through helping the buyer to manage
demand.
As this example shows, the seller who helps the customer to spend
less can sell more. Helping the buyer to manage demand can be a win-
win for buyer and seller. It is a means of helping the buyer to cut costs
“…the seller who
without the seller necessarily suffering any margin, or revenue helps the buyer
reduction.
spend less can
For the buyer the starting point for demand management is spend sell more.”
analytics - the process of exposing what the organization spends, how
and where (and more importantly how this can be reduced). This can
present challenges however, with many buyers complaining of limited
visibility of what is spent. Sellers who help provide such visibility, or
illumination of spend can have an advantage.
Tick  If ‘Yes’
 Can you provide the buyer with greater visibility or
understanding of what is spent and what should be spent?
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6. In the bio-waste example, the seller provided the buyer with
increased spend visibility in the following ways:
Information on bio-waste waste volumes based on data from
other customer sites (including key metrics, averages and rules
of thumb). This information enabled the buyer to benchmark
against others.
“...tried & tested
An audit of bio-waste volumes at proposal stage, presenting ways to cut
the buyer with a detailed analysis of volumes and the savings procurement
that could be derived in the form of a business case.
cost and
Weekly and monthly volume reports, detailing the throughput complexity.”
and comparing it with volume reduction goals set and savings
targeted in the business case. The customer is provided with
alerts when volumes processed and spend reaches 60%, 80% of
monthly spend allocation.
The seller can play a role in helping the
buyer in respect of profiling,
understanding and managing demand,
often without suffering any margin, or
revenue reduction.
Strategy 5:
Consolidation Or Aggregation Of
Purchases
The first port of call after the analysis of
spend is typically the consolidation, or
aggregation of purchases.
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7. There are 6 key ways in which buyers approach this challenge:
1. Getting managers, departments and business units to pool
their orders to generate bulk discounts.
2. Framework agreements with selected vendors (covering more
items for a longer period).
3. Reducing supplier numbers, with preferred and approved
vendor lists.
4. SKU (Stock Keeping Unit) consolidation- reducing the number
of individual / unique items purchased (e.g. we purchase 18
different types of ball bearings, lets reduce that to 6).
5. Specification reduction - where specifications are simplified or
reduced so as to open up new / cheaper sourcing options.
6. Category management - that is the focus on particular spend
pools , or categories of purchases.
These 6 strategies are tried and tested ways for buyers to manage and
ultimately cut the procurement complexity and cost. They represent
aspects of procurement best practice and can present either an
opportunity or challenge to the seller, depending on the degree to
which he/she is prepared for them.
Tick  If ‘Yes’
 Do you know what procurement best practice for your area
is and do you help your customer & prospects to apply it?
As consolidation/aggregation strategies are an almost inevitable step
for the buyer, suppliers must be ready.
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8. Some examples of how suppliers can help their customers to
aggregate, or consolidate their buying, are as follows:
'We received 30 individual orders in the past 6 weeks from
various departments in the buying organization… If we
combined orders into weekly delivery schedules that could
reduce transport costs by 30%, while also preventing 'impulse
orders'.
'Based on the sample invoices you provided to us, we see that
there are a total of 15 product substitutions (like for like non-
premium brand alternatives) that could deliver savings of 25%.'
'We will provide your end customers with direct access to our
ordering system through an online catalogue which will show
availability based on budgeted allocations and will require valid
order numbers, or other internal ordering processes that you
may want to follow…'
'We receive orders from 4 different parts of your organization,
each with its own account, rates and terms. If we combined
them all together we could offer better rates to everybody and
one centralized ordering process.'
Those suppliers who proactively help buyers to more effectively
aggregate and consolidate demand begin the transition from supplier
to partner.
Tick  If ‘Yes’
 Can you help the buying organization to consolidate,
categorize, or aggregate what they spend in your area?
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9. Strategy 6:
Re-engineering The Supply Chain
Procurement is increasingly the focus of strategic, or joined up
thinking that sees buying in the context of the total supply chain with
its multiplicity of inputs and outputs, customers, suppliers and
partners. That means procurement is looking for economies and
efficiencies in new areas.
The focus has shifted to total supply chain efficiency and in particular
to leveraging supplier partner innovation in getting their
product/service into the hands of the customer. It has also shifted to
the suppliers of your suppliers (e.g. raw materials) in terms of seeking
cost reduction, or managing supply risk.
Tick  If ‘Yes’
 Can you map your customer’s supply chain and how it is
changing?
When buyers see their business as a supply chain, they quickly begin
to see that certain steps in the supply chain could be done by others.
That may mean out-sourcing the procurement of particular products,
or categories, or it may be the out-sourcing of stages / steps within
the supply chain. This presents opportunities, as well as challenges for
sellers.
In a world where the biggest one time manufacturers don't own
“Sellers need to
factories, or fleets of delivery vehicles, but instead manage supply see themselves
chains, what matters is the end-to-end performance of the business
as links in a
(or supply chain), not who owns the various pieces in between. With
companies focusing on core competence, the trend is towards out- supply chain...”
sourcing everything else and that presents opportunities for suppliers
to become strategic partners.
This new out-sourced business model presents opportunities for
sellers. Buyers are regularly reminded the issue of out-sourcing
requires asking not 'Who is best to do it?', but 'Who is best at doing
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10. it?' Sellers need to see themselves not as suppliers, but as links in a
supply chain. They need to adopt a full customer supply chain focus.
Tick  If ‘Yes’
 Can you help the buyer to optimize their supply chain
efficiency - from raw materials, or inputs to outputs, or
finished products provided to their end customers?
What happens when sellers adopt a supply chain view? Well, here
are some of the opportunities it presents:
Help the customer to optimize their supply chain – starting
with the step that they are presently on, but looking forward to
the end customer and backward to the raw material. This
enables sellers to take cross selling and up selling to a new
level.
Adopt a total solution, or 'total ecosystem' view to more
comprehensively address the buying organization's needs.
See opportunities where one product, or service ends and
another begins. For example the IT solutions vendor whose
system must integrate with a myriad of other supplier systems
in the buying organization partners with those other suppliers
with respect to integration, or the total solution.
Recognize that solutions don't just have internal, but also
external customers. For example the IT vendor whose system
enables self-provisioning by the buying organization's end
customers, as well as its channel intermediaries.
Optimize, develop and re-engineer their own supply chains –
that is their own suppliers and distributors to enhance
competitive advantage in the marketplace.
Tick  If ‘Yes’
 Can you help the buyer to out-source and thereby focus
more on their core competence?
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11. Your Sales Gauge: The Cost-Cutting Buyer Is Your Ally
There are 8 checklist in the article. Use these to gauge how effectively
you are transforming the cost-cutting buyer into an ally.
Tick the ones for which you can answer 'Yes' – that is those that are
presently being addressed, or covered by your sales approach. Pay
particular attention to those that you cannot Tick – they could be
limiting your success.
What Should You Do Next?
Use the checklist above to decide what you want to do next. In
particular, see how many items were you able to tick 'Yes'.
If you ticked most, or all of them then you have the cost-cutting buyer
under control. So, you might like to navigate to some other aspect of
the Orders Stage (i.e. proposals, negotiation and closing), or
elsewhere in the sales process.
If not, this area could be limiting your sales success. You can start
addressing it by tackling those items in the checklist that you could
not tick. For each make a note of specific actions you can take – you
will find space to write earlier in this paper.
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12. The Science Behind This Paper
These insights and tools are based on extensive research under 3
headings:
1. Buyer Research – our ground-breaking research into how modern
buying decisions are made and the implications for sellers.
2. Best Practice Research – Over 1 million pages of best practice sales
case studies, books and research.
3. Common Practice Research – Our peer comparison benchmark of
1,000s of your competitors and peers.
The Sales Engine® and SellerNav are trademarks of The ASG Group.
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Would you like help in tackling your sales challenges? Contact us at:
enquiries@theASGgroup.com
www.theASGgroup.com
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