Did you say TCO?

halifax consulting Published by Halifax Consulting – 14 December 2023

Purchasing departments, and buyers in general, have become relatively unavoidable in most large companies. Often feared (or avoided) by salespeople, it’s actually useful to understand them so as to approach them more effectively. What are their specific concerns? How can we turn them into allies?

The 3 main concerns or “levers” of a buyer can be stated simply:

  • “Buy Less”: One simple way to save money is to consume less, to cut down on waste. Do we really need to buy this or that product? Do we really need it in such quantities? 
  • “Buy Better”: It’s more complicated here, because we’re going to have to change the habits of internal users, to do things differently. Typically, when we digitalize processes or implement innovations.
  • And, of course, “Buy Cheaper”: buy cheaper and negotiate better with suppliers.  The most visible and often caricatured part of the buyer’s job.

Of course, it’s always in the supplier’s best interest to lead his purchasing customer into the Buy Less and Buy Better arena and find an objective alliance with the purchasing department, rather than sticking with Buy cheaper and getting …fleeced!

In all cases, it’s a good idea to rationalize decisions across the 3 levers, and use the TCO (total cost of ownership) technique to shift the discussion away from pricing. Or LCC (Life Cycle Cost), which studies the impact of a solution over time.  Over and above visible costs (price, delivery, installation, testing, inspection), there are other, less visible costs that are just as essential to the successful integration of the purchase (storage, after-sales service, training, security, updating costs, lead times, etc.).

Thus, helping the buyer to reduce, better control or optimize his indirect costs, as well as his hidden costs, will be one of the first sources of value creation on the part of the value seller. It’s therefore a good idea to discuss these points with the buyer as early as the prospecting discussions, to establish credibility and, above all, differentiation.

Knowing how to argue the financial case will also improve your chances of cooperating better with other company functions, for example if the buyer operates in a silo and doesn’t want to open the discussion on other costs that are not within his purchasing budget.  

Today, TCO is taking on critical importance in all risk-related discussions, particularly in terms of how to integrate the hidden costs of poor performance according to ESG criteria. It’s a key challenge for many sales forces to know how to better engage their customers in “Sustainable Value Selling“, see our training courses on this subject!

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