Buyers are in the driver’s seat. The data was quite clear on this fact. Procurement might have been concerned with having a seat at the table pre-COVID; but now is their moment to shine.
For example, look at the degree of control we observe in the purchasing process:
- Procurement is involved in ALL purchases in 30% of organizations,
- In the remaining organizations, the median purchase price above which procurement becomes involved is a VERY LOW $5,000. The use of new purchasing technologies makes it possible to control and monitor even small, one-time purchases.
- 54% of all purchasing happens through PRE-APPROVED vendors (pre-structured contracts or catalogs). This requires a two-step process for sellers: first, getting vendor approval, and second, influencing end-user purchase.
- 38% of new purchases REQUIRE an RFP or some other formal, competitive submission. Winning new business involves a high bar that sellers have to meet.
In normal times, much of procurement policy is aspirational and more a statement of what people would like to happen, rather than what necessarily happens. COVID, we believe, has both elevated the role of procurement and given them the opportunity to exert a due diligence pressure they have always wanted. The opportunity comes from a common mandate to reduce 2020 expenditures by an average of 25%. Reducing expenditures to this degree is a tall order. Companies in our survey have done this by taking the following steps:
The implications of the first four alone are profound for salespeople trying to get deals done. In any transaction, it’s highly likely they’ll have the deal thoroughly reviewed, budget re-prioritized or frozen, additional information requested, or a combination of these. A newly empowered procurement team is willing and able to restart the purchasing process from scratch.
Looking back at the recession of 2008/09, relatively sudden process changes in purchasing made for real tough going, though it wasn’t always obvious what was happening. With that hindsight as a backdrop, next week’s release will look at some of those changes as they play out today.
By mid-March of this year, when most of the world was sent to work from home, it was clear that B2B selling had suddenly, and radically, changed. At Challenger, we have been reporting on the changes as experienced by sellers. This edition of our pulse survey takes the buyer’s perspective, asking them what changes they have observed since the shape of the economy was transformed by COVID-19.
110 individuals from larger companies who spend an average of 60% of their time on purchasing-related activities responded to this survey (52% work at companies with 500 or more employees) conducted July 20-27. This is the first chapter of the findings; subsequent chapters will be released on Fridays.