In yesterday’s post, I told you that this was going to be a leaner, meaner year on Sourcing Innovation. I meant it — and, as you probably guessed from yesterday’s other post, it starts right now!
To kick it off, I’m going to address a question that’s been burning me for quite some time now. For a while, I was thorougly confused as to why your not-so-enlightened peers (who aren’t the smart and sexy leaders and innovators that you are, as they don’t constantly educate themselves and read industry leading blogs like this one) buy stupid products. While there are a number of great products out there, which I attempt to profile here on Sourcing Innovation as often as circumstances permit, there are also a number of bad products out there (which fall into the “products I don’t cover” bucket, which, to be fair, also contains “products of vendors who still think new media is a fad not worth spending time on”). This mix includes some really bad (installed) products that, year after year for reasons that escape me, keep selling, often for obscene amounts of money — especially when you consider what these products actually do compared to what newer, leaner, meaner, SaaS products do for a fraction of the price.
After a few enlightening conversations with some old pros and highly intelligent consultants (who shall forever remain nameless to protect the innocent), I have realized it is either because
- the buyers are timid field mice afraid to make a mistake;
- the buyers are lazy and inept, they know it, and they don’t want anyone to find out; or
- the buyers are yes-men and work for managers who are morons and
- way too easily impressed by flash without substance; or
- way too easily impressed by name dropping; or
- (real) good buddies with (a member of) the vendor management team (who they just happen to be sharing a hotel room with on a regular basis)
In the first case, the buyers often look for the biggest vendor in the space who currently has the “best” reputation and simply use the “Well, no one ever got fired for buying IBM” excuse, replacing IBM with the “big” vendor of the day (and probably buy Oracle, SAP, Ariba, Emptoris, Bravo, or Hubwoo). This isn’t always bad, as some of the current “big” vendors do have some pretty darn good solutions, but it often is a bad choice because not all products in their “big” vendor solution suite are equal, and, most importantly, even the best product the “big” vendor has might not be appropriate to a particular company’s situation. An MRP won’t solve your problem if what you really need is an on-line RFX and e-Auction tool.
In the second case, the 9-to-5 buyers — who give intelligent, hard-working, and successful procurement professionals like you a bad name — are pretty sure that a good product would quickly uncover the millions of dollars of waste from unmanaged or non-compliant spend, or quickly uncover the lack of process that allows maverick spend to run unchalllenged, or quickly uncover the sheer amount of work they are not doing but should be (like managing spend, sending out RFPs, doing post-bid briefings, etc.) and want to do everything in their power to make sure that they get a solution that is as inept and inefficient as they are.
In the third case, even if the yes-men identify, and want, a good solution, Maury the Management Moron steps in and strongly recommends the worst solution identified (and indicates the buyer’s job could very well depend on making the “right” choice) because:
a) it has a nice flash interface with (useless) dashboards and colorful graphics-rich reports that make his under-developed brain go “ooh” and “aah” (while failing to tell you anything that you didn’t know already, like you spent 800M and your top 10 suppliers included 8 of the suppliers you regularly send million-dollar purchase orders to)
b) the company has a lot of “big-name” competitors as customers and / or a number of “big-name” companies your CXO really admires and, therefore, must know what they’re doing and be the right choice (even if they haven’t upgraded their solution in 5 years).
c) the company “obviously has a superior product” even though the real reason is that the company has one or more senior managers that are your boss’ golf buddies and/or hotel room buddies.
And sometimes, it is a combination of these reasons. The buyer knows he is lazy and/or inept, isn’t overly concerned with improving himself, but desperately wants to keep his job (which pays very well considering the amount of effort he actually puts in). He also knows he works for Maury the Management Moron who is easily impressed by flashy dashboards and pretty reports and so chooses a solution that will simultaneously make Maury’s mouth moisten while failing to uncover anything that could be embarassing and jeopardize his job in any way.
For example, for our timid buyer with Maury the Management Moron for a boss, it would be really bad if he acquired a modern contract compliance system when he recently spent Millions on the current EIPP system two years ago and just found out it contains a big gaping hole, that a few of his suppliers have been exploiting since it was installed, that allows the supplier to charge whatever they want on substitutions and holds, regardless of what contract pricing is in place. For example, he just found out that if:
- he punches out for a SKU and
- the vendor is out of stock and
- the vendor places the order in the “on hold” queue because they don’t want to reject the order then
- when the SKU arrives and
- the vendor brings up the “on hold” order to “fill” it
- the price field isn’t carried forward to the “active” queue so
- the vendor can enter any price it likes, which is usually “list” and
- the system doesn’t do an invoice-price-vs-contract-price comparison, allows the “list” price, and doesn’t even flag it as pricing that violates the contract.
So, because he thought a few million would buy him perfect software (and didn’t do his homework), he just assumed everything was wonderful, paid what the vendors asked, and lost millions over the last couple of years. He’s not entirely sure how many millions, but is fairly certain that 15% to 20% of purchases were made off of contract pricing. He can’t let the boss find out! (Even though there are specialist consultancies out there who are great at finding these overcharges and helping their clients recover their money.)
Finally, he knows that his boss, easily impressed by flash, is too dumb to realize that dashboards, static reports and “real time alerts” are — when you really think about it — incredibly stupid ideas at the core. For example, so what if the boss can instantly see that 90% of shipments are on time. All that tells you is that 10% of the shipments are not on time. It doesn’t tell you what shipments, to whom, why, and more importantly, what to do to fix the situation. A report that you spend 10M with Wesley’s Widgets isn’t very useful. If that’s all I have, here’s how the negotiation is going to go. “We demand a 10% discount because we spent 10M last year.” ‘So? The price of steel went up 20% … you should be thankful we only raised prices by 15%!‘ “Uhm … erm …” If I don’t know what % was on steel parts, and what % of cost was steel in those parts, I can’t negotiate anything meaningful. And how useful is a “real time alert” at 3 am in the morning that tells you that your container is stranded 500 miles from port because the 3PL forgot to transmit the manifest 48 hours in advance and the carrrier isn’t allowed to enter American waters. Not! You need a system that tells you what you have to do before the order is shipped.
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