Daily Archives: January 14, 2016

You Might Be Getting the Basics Right, but That’s Not Enough

Last November, the public defender ran a great post over on Spend Matters UK on how Procurement [is] Still Not Getting the Basics Right – and it’s Happening Too Often and that’s not only why Procurement is often getting a bad rap, but why Procurement is getting a bad deal.

Case in point, the example given by the public defender where a recent tender used a complex scoring mechanism that scored “price” and “discount” separately and, even worse, weighted early payment discount higher. As a result, a tender of 100 with a 3% early payment discount got weighted higher than a tender of 95 with a 1% early payment discount! In other words, a best case cost of $97 was preferred over a best case cost of $94.05 — an overspend of almost 3%! That’s outrageous.

Another case is point, suppliers of complex services get invited to participate in electronic sourcing events with no prior engagement, and a tick-bock procurement process with no scope to include references, case studies, or suggest site visits for creative discussion. How should such a supplier expect to be judged, if they even expect to be judged at all? This is the well-known classic three-bids and a buy when you already have the bid you plan to accept. A smart supplier will not bid.

Now, as a regular reader of SI, that’s not the common practice in your Procurement department, but it doesn’t mean the common practice is good enough. Just because you know to weight all price factors in unison, that doesn’t mean that the weighting is right. If quality, reliability, delivery time, guaranteed delivery of supply, or another factor is critical, it needs to be weighted as highly. No point getting a 3% unit discount if you lose out on 20% of sales due to late shipments and stock outs. All of the critical factors need to be included and weighted, and, just as importantly, the suppliers must be made aware of the criticality of each factor so they can determine whether or not they even want to bid. If you need 15 days delivery, and a supplier can’t guarantee less than 21, the supplier needs to know that up front. Otherwise, they will get upset that they wasted time bidding on a tender they could not win.

Similarly, it’s not enough to do a proper, verbal, invitation over the phone, give the supplier a chance to include references, case studies, and suggest alternative proposals, if you know that one of the critical requirements of the bid or organizational preference (or prejudice) would preclude the supplier from getting the award. It’s not professional to invite the supplier unless you believe the supplier has an honest chance.

It’s not enough to do the process right if you want to be the BEST Procurement organization. To be the BEST Procurement organization you need the best process and the best ethics. You need to be known as the honest buyer who only invites suppliers who will be evaluated fairly and have a fair shot of winning the business if they are willing to tighten the belt buckle and make an honest effort of putting the best proposal forward. Then, when you make the award, no matter who gets it, chances are, you will be among the customers of choice from day one because you wanted to be both the best Procurement organization and the best customer.

So get the basics right. And then do one better.