In our last post we explained that the Busch-Lamoureux Exact Purchasing Model not only puts you on the path to Category Intelligence (which it requires, and which you need to get to, even though you likely haven’t even adopted Category Management), but it helps you define what you need in your technology platforms so that you can go to market knowing what you need and not get sucked into vendor BS.

But it goes beyond just laying out the path to category intelligence and platform selection, it helps you understand the real Procurement reality that faces your organization, which is not only different by category, but vastly different by product and supplier once you dig into your high complexity, high risk, and high impact categories.

Let’s start with the low complexity, low risk, high impact continual transaction monitoring category where energy, RAM, and custom FPGAs will live for engineering firms and where fertilizer, tractor parts, and greenhouse panels will live for agricultural operations. Most of the time, this category is quickly and easily sourced since you bid out the contract in a deregulated energy market and the energy keeps flowing, DRAM is DRAM is DRAM, a number of suppliers exist that make customized FPGAs, greenhouse panels are pretty interchangeable, you don’t care who supplies your fertilizer (as long as it doesn’t sale on the Saskatchewan River, and tractor parts are made in bulk and almost always in the local shop.

But, sometimes, an energy production plant fails and then your energy provider files chapter 11, the once-a-decade plant fire happens and takes one of the few large RAM production factories offline (causing major RAM shortages), or your factory gets cut off by a border or port closure and then you need a replacement – fast. Similarly, global supply chain disruptions can cause tractor part shortages (as the major US manufacturers offshored production of some parts to China and Mexico — COVID proved this), you need your greenhouse panel replacements to be the right size and thickness (among other things), and you need that fertilizer (which all of a sudden becomes scarce, if not unavailable, if the shipping lane that sees up to half of the global supply of key chemical components cut off.

As you explore this category in detail you note that, most of the time, you can just send out an RFQ, get the bids, award the lowest bidder, and keep on truckin’ without a second thought. It’s only when an event happens that will lead to cut off supply from your current source do you need to do anything. But since there is usually other supply from other sources, even if more expensive, you realize that you don’t need to think about every possible risk or disruption — you just need to detect when one has occurred and go back to market right away.

All you need to do is monitor the transactions and make sure they occur on the required schedule, at the expected unit count, and at the expected price. Should a transaction not occur when expected, and for something with a lead time of more than 7 days, should a ASN not appear when expected, then alternate supply needs to be secured. The program should automatically place an order to the backup supplier (or the #2 supplier on the last event) and alert a buyer to investigate what happened. Should the buyer investigate and determine the delay is just due to a carrier f*ck up, you take solace in the fact an extra replacement order is on the way, and comfort in the fact that everything should be fine starting with the next order. Should the buyer determine it’s because of a border/port closing that could go on a while, she orders a new RFP (and uses Force Majeure to cancel any remaining commitment to the current supplier), invokes the (agentic) automation, and goes back to work. And should the buyer determine it’s because of a plant fire or plant damage from a natural supplier that’s going to go a while AND create a global supply shortage, she buys up all the supply she can as fast as she can before supply becomes very scarce and prices go through the roof. And then, knowing the only extra costs are inventory, she goes back to work knowing that the annoyance her organization is feeling due to a temporary sharp rise in inventory costs and a rapid reduction in cash flow, is nothing compared to the pain the organization would feel if all of a sudden there was no supply, they couldn’t produce their products in their biggest product lines, and defaulted on contracts and had to pay an extended legal team to defend lawsuits on Force Majeure claims while the organization sees a substantial drop in revenue.

Now let’s consider the high complexity, low risk, low impact spend governance category where you’d likely see BPO, facility management, and installation projects. Here you’re spending a lot of time on your vendor identification, vendor qualification, RFP, vendor selection, contracting with obligations, milestones, and risk management, and spend schedules and when you’re done, you think you’re done. But when you understand the sheer complexity, you know you’re just getting started. First of all, the vendor doesn’t know your processes or expectations as well as you think. Secondly, their improvements are theirs and theirs alone (and they’ll lock you in for life) unless you ensure, and capture, knowledge transfer. Third, once you become dependent you become damned if you continue and damned if you don’t. They’ll know the precise moment you can’t live without them and then prices will skyrocket on the next renewal. And even worse will be if they get into financial trouble and can no longer support you to the degree you expect.

This means that you not only need to capture as much knowledge as possible on the improved processes they deliver, but also the technologies they use and the providers who provide them. And then you have to, before each renewal, determine who the other providers are who could also deliver an equivalent solution based on your current process and technology requirements, and ensure you could contact them quickly if needed. The switching costs will be high, so unless you don’t have a choice, it’s not a trigger you’ll want to pull, but if you aren’t ready when you need to, you’ll be in deep trouble.

You realize you not only need to go through a very involved selection project when you need the BPO, regular engineering, or facility management service, but due all the market research to kick off another one on a (bi) annual basis to ensure that you are not caught in a very bad situation on the once-a-decade black swan event when the provider all of a sudden becomes unavailable or (possibly as a result of a merge or acquisition) raises prices so high you can’t afford to continue, even though you desperately need the service.

Finally, when you dive into each of the other six categories you realize that your reality is a lot more fragmented and diverse than you would otherwise expect in a Procurement organization and until you accept that, and start dealing with the different fragments differently, success will always be just beyond your reach.