I’ve had two conversations with clients around procurement in recent times which I wanted to share with you. The first one included a remark from a client which struck me to such a degree that I wrote it down precisely. ‘Our procurement process actively discriminates against smaller firms because of the perception that they offer limited services’ were his precise words. The second was with a procurement professional who told me that his brief was simple…to buy services at the best possible price. When I asked him about quality, his comment was equally simple…’that aspect is not part of my brief.’
It’s hard to form an argument on the basis of two interactions and you would be right to question its validity. However there are some trends around procurement which I want to explore in this blog:
- For most larger multinationals, the procurement function has been established for at least 10 years now. In many cases, the function started as a data gathering activity to understand the spend of the organisation. Since then it has evolved to act as a layer of good corporate governance, protecting the organisation from perceived poor or even illegal buying behaviours. That remains its primary function.
- For many businesses, procurement has started to become a source of value creation…the ability to use spending power as a point of negotiation around price is becoming mainstream.
- The second driver for the function would appear to be greater efficiency…which roughly translates as reducing the ‘tail’ of suppliers who are ‘procurable’. This, by its very nature, leads to an orientation to ‘one stop shopping’.
Its the latter which causes me some issues. Much as our personal buying decisions in the west and to some extent in Asia are increasingly oriented to provenance, ie an understanding of the source beyond the supermarket / retailer whom we choose to visit, the ‘source’ in a consulting sense is quite simple…it’s people, their experience and their ability to operate within your environment.
As an old buyer from the retail world once told me most memorably, ‘ we’re going to beat the hell out of the big ones and encourage the little ones…that results in the best deal and the best quality…one without the other is entirely pointless’.
In no part of our buying lives do we look at price in the absence of quality. Lets not start in the world of work.
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Categories: Consulting, Economics, Functional Leadership, Management Information, Procurement
Tags: Analysis, Business, business process, consulting, Organisational structure, Performance, Procurement, selling
Is quality, like beauty, in the eye of the beholder? Is the core impediment to your thesis that of the challenge to turn determination of quality from subjective to objective?
Hi John, thanks for your comment, much appreciated. At the very highest level, you’re right of course. However I’d make two points in my defence!
1) I’m not talking about a qualitative judgement of potential performance. I’m looking at an evidence based analysis of the people who are going to deliver the work (deliver rather than sell, mind!) as a key benchmark against which to make a buying decision. It may surprise you but it seems to me that this does not appear to be part of the procurement brief, nor is there any sort of rigour around QA’ing those in the business in terms of this process.
2) The second concern I have is that even as a purely cost efficiency play, the process of reducing supplier numbers is counter intuitive…particularly with regard to the larger players. Maintaining a high level of competition here seems to be the right thing to do!
Ben, you reminded me of this guiding principle that applies to project management, but could equally apply to procurement decisions…..
Good, fast and cheap… you can pick any two.
• You can have good and fast, but it won’t be cheap.
• You can have good and cheap, but it won’t be fast.
• You can have fast and cheap, but it won’t be good.
In the end, I think you get what you pay for…. Greg