Daily Archives: June 20, 2016

Why Good Procurement Goes Bad. Part I.

Most poor-performing Procurement departments don’t start out bad. They start out with the intentions of doing a good job, at least as good as any other department in the organization (although not necessarily a better one), but somewhere along the way, they stumble, and sometimes fall. And since there are not enough best-in-class Procurement organizations, (8% is a small number), and since there are theoretically more good people out there, we have to ask: why does good Procurement go bad?

Strategic Blinders

The first thing a new(ly formed) or re-staffed Procurement organization does is try to get organized. As they have not yet acquired a Procurement tool, been given budget for a Procurement tool, or even know the right tool exists, they turn to the tool they know — the spreadsheet. Spreadsheets really limit a Procurement professional’s view of what can be done with modern technology — how efficient Procurement can be, how effective they can be in their negotiations with correct and properly weighted bid and survey data, and how complete they can be in their supplier evaluations (as they don’t have to rely on one size tis all surveys for each supplier, which easy supplies different products and services). Spreadsheets are a Technological Damnation, often result in 20 Million in the scrap-heap, and sometimes cost you billions. There’s no such thing as good spreadsheets. The strategic technology choice to get started is often the technology choice that ends it all.

Efficiency over Effectiveness

Process is good, often very good. It increases efficiency, creates operational standards, and provides a repeatable baseline for junior buyers to follow. And no organization should be without processes. But sometimes, in their haste to be the best, Procurement departments wanting to do as much as they can as fast as they can often rush to get as many processes as they can in place to be as efficient as possible. But not all processes, even best-practice processes, are right for the organization. Adopting the wrong process and running with it can hinder Procurement’s effectiveness beyond no process at all. Having a process that all spend between 20K and 200K goes to an auction, while efficient, will be very ineffective if the wrong categories are put to auction.

Another process that blinds Procurement departments trying to get spend under control is the classic 3-bids and a buy. It is better than no bids at all, but there right number of bids is not always 3. For some events it’s 30 — as many supplier who can supply satisfactory non strategic products. For some events it’s two — because the strategic nature of the custom-manufactured nature means that only a couple of suppliers are up to snuff to start producing today.

And even if the process was good in the beginning, a process that goes unchanged for years and becomes an unquestioned routine can miss new opportunities. Gathering the same old, same old intelligence from the same old, same old sources can miss new intelligence from new sources that could identify new, innovative suppliers and products that could be game changers.

These are just a few reasons good Procurement goes bad, but not the only reasons. In Part II, we will explore more.