Daily Archives: November 4, 2010

Procurement Tasks are Not Clear-Cut Regardless of Organizational Size

A recent article on SupplyManagement.com on Making Waves which tries to compare and contrast procurement at SMEs and procurement at large companies seems to suggest, a few pages in, that buyers in large organizations are less willing to sit down face-to-face and negotiate as it’s all about getting the RFP, doing an assessment, and then getting someone in and talking through their proposal while their counterparts in a smaller organization see it as more a case of negotiating face-to-face and you can do two or three of those a day.

It also seems to suggest that procurement at most large organizations is a mature function with a systemized approach to procurement while most smaller organizations have almost no process in place for procurement.

The reality is that the state of procurement is very organizational dependent and that the preferred methodology is very buyer centric. If a buyer is an introvert, doesn’t like face-to-face negotiations and has access to modern e-Sourcing and e-Negotiation tools, then the buyer is going to focus on events. If the buyer is an extrovert, doesn’t believe in new-fangled technology that removes the human element, and believes that the best deal always results from face-to-face negotiations, then the buyer is going to focus on negotiations. Company size be damned in either case.

While the article has some good examples of real-world scenarios faced by procurement professionals, it is dangerous to draw broad conclusions from just a few interviews with a scattering of procurement professionals. It’s never clear-cut.

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Is Now The Time of Niche?

The current trend in sourcing and procurement is to build a bigger, badder, more generic platform that can serve a broader and broader market (and, preferably, get as close to 100% adoption as possible). From a theoretical business perspective, it sounds great — bigger market translates into bigger customer base which, presumably, translates into a bigger bank account. However, from a more practical perspective, this isn’t necessarily the case.

The broader you get, the less your potential customers have in common and the number of features you have to leave out soon surpasses the number of features you put in. Moreover, the more generic the workflow becomes, the less useful it becomes to specialized categories where a lot of customized and/or non-standard functionality, specifications, or interactions are required. For example, the procurement methodology used by an Engineer to buy custom manufactured products differs from the procurement methodology used by HR to buy contingent labour which differs from the procurement methodology used by Marketing to buy creative services. And while the underlying core process might be the same — put out an RFX, evaluate the bids, and make the award(s) — the processes used by each group are in many ways quite different. Engineering will want product and raw material samples, descriptions of quality control processes, and production schedules. HR will want rate sheets, resumes, and references. Marketing will want examples of successful campaigns, estimated budgets, and timelines of personnel availability.

Plus, the deeper you get into certain functions, especially in certain verticals, the more distinct they (think they) are and, whether or not it is justified, the more they believe that they need a specific tool — and this is especially true in the hospitality, healthcare, and legal services industries (for example).

Furthermore, if you look at what’s out there, for any given (e-)sourcing / (e-)procurement / (e-)supply chain function, there are already about a dozen different (on-demand/SaaS/Cloud) generic applications on the market — and you can only get so much easier to use and/or cheaper before it becomes irrelevant or you price yourself out of existence.

When you put it all together, it seems that the only way for a new provider to make an impact, or an old provider to get noticed again, is to go niche. What do you think?

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