12 Buying Skills You Cannot Outsource

In a world of outsourcing, partnerships, and virtual teams, a company’s activities and operations are increasingly dependent on non-employees. The trend of hiring market providers to perform company functions means that execution is increasing connected to purchasing. As buying replaces doing in many cases, the skills related to buying become increasingly important. 

This article presents twelve buying skills that should reside in-house at every organization, no matter how large or small. Each of the skills addresses key questions throughout the buying process.

 

Skill One: Defining Success for a Project or Purchase

Key Question: Should we even do this, and if so how will we know we are successful?

Every purchase, project, or investment should start with why. Buyers who can’t clearly define their objectives will be overly influenced by persuasive salespeople or market peer pressure. The best buying decisions support clear and measurable outcomes that link directly to company goals.

 

Skill Two: Making a Build-or-Buy Decision

Key Question: Should we do this ourselves, or get help from an outside company?

Just because something is worth doing doesn’t mean it has to be done in-house. The ever-expanding list of company activities that can be outsourced presents company leaders with more strategic decision points:

  • Should we build a customer service organization, or hire a service bureau?
  • Should we hire an accounting team, or use an outsourced service?
  • Should I build my own website?

The right answers depend on context, cost, strategy, and capability. They shape the course of the company, and need to be answered by company leaders.

 Whiteboard-12-Buying-Skills

Skill Three: Researching Solutions & Vendors

Key Question: What are the different models of delivery, and who are the vendors who can help?

Rapid change in nearly every industry means that new solutions are constantly emerging. The simple ‘apples-to-apples’ comparison is harder to find as solutions are nuanced in delivery, service, and features.

  • Would laptops or tablets be best for our sales force?
  • Should we buy installed software, or cloud-based?
  • Do we need a new CMO, or a digital marketing agency, or a PR firm?

In addition to finding qualified vendors, most purchases require exploration into the kinds of solutions that are available.

 

Skill Four: Modeling Costs

Key Question: What are the total costs related to this purchase?

Not every manager needs to be a spreadsheet ninja, but company leaders must be able to understand and forecast the total costs related to purchases and decisions. These projections are more than price comparisons; they require imagination about employee time required, related and implied costs, and impacts revenue. Cost modeling should also account for switching costs (including training), risk, and vendor management.

 

Skill Five: Conducting an RFP or Sourcing Process

Key Question: What are the market offerings and prices?

While companies can hire consultants like me to manage RFPs and advise on major purchases, leaders need a working knowledge of a basic, structured sourcing process. Every company should be able to prepare a simple RFP/RFQ, conduct a parallel process with several suppliers, and manage multiple rounds of communication and negotiation. (If nothing else, they should use that process to hire the procurement consultants!)

 

Skill Six: Reviewing & Negotiating Contracts

Key Question: Are we adequately protected and not overly committed?

For liability, indemnification, and anything that may be unclear, it is important to get a lawyer’s review. But an aversion to legalese is no excuse to avoid mastery of the business terms at the heart of most contracts. Here is a basic list:

  • pricing
  • payment terms
  • representations
  • delivery
  • term of contract
  • cancellation
  • termination fees
  • exclusivity clauses

These should be readily understood and correspond to the conversations and documents in the sales process. Any surprises need to be found before you sign.

 

Skill Seven: Preparing for Negotiations

Key Question: How do we ensure getting the most value?

The strategic skills that lead to consistent success in negotiating are all in the preparation: knowing your objectives and developing your options. For the major negotiations it can be extremely helpful to seek outside perspective to help finalize preparation and coach on tactical communications. But negotiation is too important in business to be feared or avoided; it happens every day, and is a skill that every company can develop with some attention.

 

Skill Eight: Evaluating Vendor Proposals

Key Question: What is the best choice of vendor, product, and configuration?

Any structured sourcing or simple shopping exercise will generate a list of products and prices. From those prices, the buyer has to determine where the greatest value resides. Picking the low bid every time can result in paying far more, so companies must be able to effectively review different proposals from multiple vendors. A scorecard or formalized process can be helpful in this, though there will always be subjective components to vendor evaluation.  

 

Skill Nine: Auditing Invoices

Key Question: Are we paying the right amount?

Most people hate to read bills, but the invoice is usually the best indication of what you are actually paying. A brilliant sourcing and negotiation process can be wasted if no one validates actual charges. While this is another area where an outsider can be helpful, the basics of auditing bills are needed in-house. This tedious, methodical task will occasionally uncover spectacular errors, and the sooner they are found the better.

 

Skill Ten: Firing Vendors

Key Question: How do we get out of the wrong relationship?

If you choose vendors carefully you will have fewer occasions where you need to fire them; that’s obvious. But here’s a counterintuitive truth: if you know how to fire a vendor will also mean you’ll have to do it less often. It starts with the acknowledgement that ending engagements is part of business (rather than a fear of confrontation or an inflated dependence on vendors). Then it’s important to know why, when, and how to let a vendor go. Ask around and you’ll find plenty of horror stories about companies that stuck with the wrong provider longer than they should have, at great cost. Breaking up is hard to do, but less hard when you develop the skill.

 

Skill Eleven: Reviewing Category & Vendor Expenses

Key Question: Where are there opportunities to save?

Whose bank account would you rather inherit: someone who never reviews their credit card statements, or someone who takes a detailed and thorough review every three months and looks for ways to save? The same principle applies at the organizational level. There is some science and technique to ‘spend analysis,’ but the basics are basic and will yield 80% of the results if they are practiced consistently.

 

Skill Twelve: Building a Budget

Key Question: How much should we spend in the different areas of the company?

I’m not sure if there’s a right way to create a budget, but there are certainly some wrong ways. When companies plan spending based on last year’s expenses, sunk costs, political considerations or old price baselines they are making flawed uber-decisions that taint and confine all good decisions that follow.

Budgeting needs to reflect strategy, priorities, and market realities.

 

How are your buying skills?

As you consider these twelve skills at your company, which ones do you do well? Where could you benefit from improvement? These are good questions to ask, because if you are good enough at buying… you don’t really have to be good at anything else.

Throughout this year I will be writing on these twelve skills in the Buying Excellence newsletter. If you are interested, please sign up and you will receive weekly articles. If you have any comments on the skills above, I’d love to hear about it either on this article or by email: Jack@BuyingExcellence.com.

 

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