Energy & Utilities Services
Buyers: It’s time to take back your power. Here’s how.
Throughout 2022, we wrote and talked about the growing imbalance of power between buyers and sellers in the indirect world, focusing on the gradual erosion of procurement practitioners’ single most essential weapon: the threat of lost business.
As the year wore on, the situation only worsened as an acute inflationary cycle opened the door to margin-grabbing by increasingly emboldened suppliers.
The harsh reality is that at the dawn of 2023, procurement teams and buyers in general are facing an exceptionally challenging landscape, and the grand-scheme question facing these professionals is: “How can we reclaim some of the power we’ve lost?”
It’s a complex and challenging problem, so it should come as no surprise that the answer is also complicated. I like to quote H.L. Mencken:
“For every complex problem, there is a solution that is simple, straightforward, and wrong.”
At Fine Tune, we’re in the business of solving complex problems and the solutions tend to be, well, complex. Expenses are not all created equal—and the same expense at different businesses and in different environments can be radically different.
So, there is no “bumper sticker” answer to the question of how buyers can reclaim lost power and restore marketplace equilibrium. We have come to believe, however, that there are a handful of universal truths in this arena—a short list of essential best practices for trying to attain and maintain optimal cost levels in an extremely challenging environment. More on this below.
First, a bit of good news: since the Great Recession, a whole range of new strategies and innovative solutions has been emerging which can, when properly deployed, help today’s procurement resources actually do the work of two to three people and over time, can help restore some balance of power between buyers and sellers. This solutions arena—including technology-enabled expense management consulting solutions—is a critical weapon for buyers to wield in 2022 and beyond.
As you navigate this arena, seeking ways to augment in-house capabilities and implement new and better expense management strategies, remember a few key priorities:
Category-specific expertise can add immense value in finding what’s optimal with any particular expense. Aligning with highest-level industry insiders who have lived in the “belly of the beast” and understand the supplier P&L can be a game-changer in any category—especially as the categories increase in complexity.
With any complex expense, the list of things even the smartest buyers don’t know that they don’t know is always shockingly long. Even the best procurement generalists are at a huge disadvantage against their suppliers without high-level, industry-specific expertise.
Especially in large organizations, complex expenses cannot be effectively managed without targeted technology to enable efficient analysis and activity. At Fine Tune, our platform eMOATSM—which stands for Expense Management Optimization and Auditing Technology—enables our experts to manage efficiently, homing in on problems and changes to the landscape and separating the signal from the noise.
While no software alone could solve these problems—Fine Tune’s experts must act on the issues identified by eMOATSM, effectively playing “whack-a-mole” in fending off suppliers’ margin-grabbing strategies—even the highest-level experts alone could not solve these problems without the tools to work efficiently.
Continuous Management matters.
The joust over money between buyers and sellers never stops. Whenever I hear a client or prospective client tell me a category is “on auto-pilot” or “running smoothly” or anything along those lines, my immediate thought is that this customer is getting a bad deal. You either find a way—despite resource constraints—to “engage in the joust,” or your P&L suffers.
People come and go. Responsibilities get reshuffled. New, urgent priorities push other projects to the back burner. Any good expense management strategy understands this and protects against a constant cycle of starting over again every 2-3 years, which gives your suppliers the upper hand every time.
People tend to act in their own self-interests, and they tend to solve problems only if they are incentivized to do so. If you’re reading this and you have a voice in drafting your procurement department’s incentive plans, take a look at your existing plan and ask yourself if it’s truly incentivizing you and your team to deliver real and lasting P&L impact. We see far too many procurement departments spending way too much time watching the scoreboard and not nearly enough time playing the game. While they’re getting credited with (and bonused on) projected “savings,” their suppliers are feasting on their bottom lines.
Many other smaller considerations matter, too. Again, there is no “bumper sticker” solution to managing complex expenses in an imbalanced landscape where sellers hold the upper hand.
It is an extremely challenging time for buyers, struggling to regain lost marketplace power.
The very departments companies rely on to hold a grip on power are weakened in numerous ways and are too often not properly aligned with the business’ interests from a bottom-line standpoint. It is a challenging and complex problem, and solving this grand problem is the essence of what is happening at the cutting edge of the expense management consulting arena. With the right mix of expertise, technology, and engagement in the “joust,” it is possible to implement solutions that help reclaim lost power and restore a healthier equilibrium to the marketplace. This is the great challenge facing procurement and buyers in general in the years to come.