Today’s post is being pre-empted with a request to go and check out two great posts published yesterday over on SpendMatters UK that:
- echo a point that SI has been screaming for years and
- echo another point that has been pointing out for years to anyone who would ask
Post 1: The True Cost of Screwing Your Supplier
In The True Cost of Delayed Supplier Payments, Nancy clearly explains just how much money you will save by extending supplier payments by 30 days on £1.2M annual spend against how much opportunity cost you will lose. An organization might think it will save a very pretty penny on the cost of capital by doing this, but the reality is that all it will save are a few copper pennies that the average CFO wouldn’t even bother to bend over and pick up if they were all dropped in front of him in a platinum-lined wicker basket.
The post works through the savings calculation in detail and the net result (with a cost of capital of 5%) is a whopping annual savings of £417! That’s right, over the course of a year you won’t even save enough to pay the consultant who forced this hare-brained scheme upon you. (Heck, you won’t even have enough to cover the executive lunches where the consultant pitched this hare-brained scheme upon you.) On the other hand, the organization loses a £60,000 benefit they could have gained from SRM (as well as any benefits they were getting as a customer-of-choice, as you’re no longer a customer-of-choice once you screw a supplier like this for no reason).
Post 2: “Made in X” – Legalized Piracy!
In “Made in Nigeria” Public Procurement Policy Will Simply Lead to More Corruption, Peter clearly explains how this new “anti-corruption” policy is just going to lead to more piracy at home (as if there isn’t enough piracy on the seas and over the internet as it is). You see, with the insistence that the government must buy local, and especially where there’s only a handful of suppliers, you’re just going to see cartels forming among the local suppliers for the purposes of colluding to double and even triple prices.
And this is the problem with any “Made in X” public procurement policy that insists that the government always buy local – for any category where the supply base is small enough, unless the product is a commodity that is sold in a local office supplies chain or store where public pricing can be easily tracked and monitored AND the government has a law that says the public sector cannot be charged more than the private sector MSRP or something similar, the public sector price is going to be significantly more than the price on the open market.
SI strongly recommends you check both of these posts out as both of these posts were, literally, between the posts.