Prices so transparent they’ll spell the end of negotiation

Sales transparency.jpgE-sourcing, global trading networks, online communities and procurement’s scrutiny into still-cloaked categories may force market pricing for goods and services to become so transparent that negotiation would be a lost art in the future, envisions a report on Ideas for Procurement in 2020, the outcome of a dialogue between Ariba and leading procurement practitioners.

“We spend so much time today trying to obtain fair prices for the goods and services we purchase,” says Roy Anderson, Vice President of Procurement Services with Metasys Technologies. “That has to go away because it is such a small piece of the whole effort and it is a piece that can be driven by the marketplace.

“The value proposition,” says Debbie Manos-McHenry, Chief Sourcing Officer with Huntington National Bank, “will be much more about speed-to-market, exclusivity, innovation and gainsharing in supplier relationships than about harvesting 3-5% savings from contracts coming up for renewal.”

Replacing the old price negotiation focus will be much greater emphasis on:
• Assembling the correct portfolios of suppliers.
• Rapidly extracting innovation and other value from supplier bases.
• Building exclusive commercial relationships with leading suppliers that share both risks and rewards.

“The cloud,” predicts Anderson, “will force price transparency. Savings will be tied to things like discounts and rebates for reaching certain volumes or paying early. Meanwhile, in services categories, such as consulting, we will continue to gain visibility into things like labour and overhead costs, so transparency will come to those categories and we will be able to shift the conversation to how suppliers create value for us.

“We need to get more focused on making sure we have the right supplier portfolios to bring innovation and value to our companies, which has a tenfold improvement over getting another dollar off their unit price.”

Maersk Vice President of Procurement Henrik Larsen suggests that transparent, open-book trading relationships will be the key that empowers procurement to move beyond the “very tedious” things that procurement does to add value today. “Transparency will enable us to get our teams interacting with suppliers’ teams and working to find bright new ways of delivering competitive advantage to both sides.”

The information in this article was sourced from the report ‘VISION 2020 Ideas for Procurement in 2020 by Industry-Leading Procurement Executives’.

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