Professional Engineering

After the bite of the recession, many companies are having to do more with less. Many are working in a tougher market with fewer staff and fewer resources. The drive to be lean has seen many processes stripped back and some, including procurement, centralised. Adapting to the economic climate has meant that every negotiation counts. But research into the negotiation processes in place within manufacturing companies has revealed that surprisingly few give the area much attention. For the study, Huthwaite International and the International Association for Contract and Commercial Management collected information from more than 120 companies, including General Motors, Honeywell and Johnson Controls.

The researchers ranked each company according to their negotiation processes on a five-point scale. Companies that had no negotiation processes in place saw net incomes plummet 63% between 2007 and 2008. Those that scored highest on this scale saw net incomes improve by 25% over the same period. 

The results suggest that many companies are ignoring, neglecting or ineffectively addressing the need to improve staff negotiation skills. Steve Thurlow, business director of manufacturing at Huthwaite International, says: “Fewer than one in five global corporates have any formalised structured planning tools for negotiation.”

He goes on: “Critically, the report shows that all the best-performing companies have re-engineered their organisational negotiation capabilities. As a result, they have significantly improved their bottom-line performance.” These companies have done this by transforming negotiation from an individual competency into an organisational capability.

Over the past few years, many manufacturing and engineering companies have changed their strategies for buying. They want procurement teams to get involved in deals far earlier than before. In the past, a factory manager and user of the product to be purchased would typically approach procurement with the name of one supplier with which to negotiate. But the arrival of professional buyers on the scene means that it has become more common to play several suppliers off against each other. In addition, salespeople are getting less time with clients.

This change in dynamic may pose a problem for some in engineer sales roles, explains Thurlow. Traditionally, selling within manufacturing has relied on the technical properties of the product or service. 

These specifications would be described by the sales engineer selling the item to a production engineer. “They have probably got the same degree – they might have gone to the same university – and they talk technology to each other. For a long time that was enough,” says Thurlow.

But now the person buying the product may not be technically-minded and often will not use the product or service every day. This means that the sale will often rely on demonstrating the value that the product or service offers the customer rather than the technical details. 

The fact that the product has a better tolerance or it operates at a higher temperature might not always be the primary factor. “The fact that it gives you a longer-term lower cost of ownership or that it saves money somewhere else – that is what professional buyers want to hear,” explains Thurlow.

He goes on: “It’s taking those facts and extending them one stage further into the commercial pay-off rather than the technical pay-off. Getting people to talk about the bigger picture, which traditionally sales people in industrial companies haven’t done because they tend to have engineering rather than commercial backgrounds.” 

To address this, salespeople should start by understanding what the customer needs and what they really value – that is a fundamental part of it, according to Thurlow. Getting to grips with how the product or service for sale can fit into the customer’s value creation will also help. 

Use this knowledge to build as much differentiation into the product as early as possible in the sales cycle so that the user can verbalise this to their procurement team, he advises. Effectively selling to people working in procurement involves talking about lifecycle management and total cost of ownership rather than unit price. Procurement staff need to know if a product costs 20% more but lasts 40% longer than those of competitors because the outcome of these teams is measured on cash savings. 

Once the sales force are confident talking about the wider commercial context of the product or service, companies should work to improve employees’ negotiating skills to help keep more of the margin on the sale. “One thing professional buyers are good at is telling you that you are too expensive, and wanting to negotiate,” says Thurlow.

This trend has already hit many sectors of the economy. Thurlow believes that engineering is about 10 years behind the most forward-thinking sector in this area, IT. This is partly because, in a manufacturing environment, the products changing hands are two or three times removed from the final user of the end product. 

Thurlow explains: “It’s very removed so the pressure to move to that mindset has been less. Whereas with IT, it is a lot more visible. The minute someone brought out something as obvious as Windows it was easy to sell the concept right through the production chain.”