Being a raw material supplier, some of the value questions which need to be answered might be down the value chain, which could pose a challenge to estimate the value. Any suggestions how to do that as your immediate customer might be an obstacle?
Great question. Your customer’s customer – the value gets realized further down the value chain. One idea is to have sales and marketing research done with to explain the value that is there. I’ll go back to my world. I created a part that goes to a big OEM, but that big OEM’s machine helps the mine make more money. So I could talk to that OEM and say, “look, your machine’s gonna be better, faster, stronger, but the mine gets the value.” So go to the mine to do the research that says this is worth X to your customer, and then go back to that OEM, “hey, let’s create a marketing one-page sheet that your sales force can use to go to your customer and say that we’ve chosen to add this functionality to our machine or this quality to our machine (or whatever it is). This is what it’s worth to you.” Help them sell your value to their customer.
If I introduce fee at risk, what are some common pushbacks assuming they don’t take the bait?
The first question is whether we are talking about our own company’s internal risk or the customer’s kind of push back, because I get more and more companies that push back. “We can’t do that. We don’t have the processes.” That’s a whole different discussion.
But the customer, what I found most of the time they just say “fine.” Some of the pushbacks might be, “how much time or effort will this take?” or “I don’t have access to the people to get the numbers.” So what I’ve worked with those companies on is to have a structured process.Here’s what it is: We walk the facility on day one. On day two, we sign an NDA. On day three, you share us your KPIs. We do ABC analysis, we come back with four ideas, you get a structured process. What they don’t want is you saying you’re going do this and then run around and take up all their time and effort. They can’t have 50 suppliers doing this all at the same time.
If you have a structured process to do this and you’re bringing a lot of the information to them that seems to minimize time spent, you’re showing them that there’s more value with the fee at risk versus cutting the price. Great. You want 5% price reduction or 10% hard value, now you’re making me make a choice. Sometimes it helps to remember that a lot of customers (and this is from a salesperson and a marketing person), but the people within their business aren’t always fans of their own procurement people. Think about your own company. I’ve gotten to like procurement people, but I used to think of them as the people that try to get me to spend less and not buy what I want. If you can get to those end users – the people that get the value – they’ll help push back.