Category Archives: rants

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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Seven Supply Chain Commandments? I Think One Commandment Is Enough!

SupplyManagement.com recently posted an article on “Command and Supply” which stated that if you apply the seven supply chain commandments to your procurement practice — and ensure its daily execution is faultless — you will achieve superior performance. While I don’t disagree, I think the commandments can be simplified and amalgamated. In fact, I think they can be reduced to one!

But first, the commandments:

  • Articulate a clear value-creation algorithm
  • Approach the supply chain as a comprehensive value delivery system
  • Segment the supply chain and consistently adapt it to the characteristics of each segment
  • Optimize the global operations architecture for scale, access, flexibility and risk mitigation
  • Selectively invest for mastery in differentiating capability areas
  • Deploy information systems that deliver insightful analytics, alignment and responsiveness
  • Drive process execution discipline with the right talent, powered by a culture that enables high performance

They’re all good. But I think this one commandment covers it:

Focus on Value

If you do, you

  • will create a value creation algorithm,
  • focus on the creation of a value delivery system,
  • segment the supply chain into segments which require different approaches for value creation,
  • optimize for scale, flexibility, and risk mitigation,
  • invest for mastery where the returns are greatest,
  • will acquire systems that provide real analytics, and
  • drive for continual improvement in process execution.

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Reverse Auctions Are Not Strategic. It Isn’t Always Strategic! Part III

This isn’t to say that they aren’t important, that they’re not one of the best methods at your disposal to quickly identify current market prices, to obtain products or services at market prices in a competitive market, and to increase transparency in your strategic sourcing efforts but, on their own, reverse auctions are not strategic.

A reverse auction is simply an electronic way of enabling a simple bidding opportunity that could just as easily be conducted in the real world (if your supplier representatives were willing to travel to the auction location to place their bids). Do you think strategic when you think of this type of public auction? No. And simply electrifying something does not make it strategic.

An online reverse auction (has the potential to) open up the auction to more potential suppliers, drive greater market transparency (if more suppliers choose to participate), and streamline your product or service acquisition, but nothing about this is strategic. It’s simply good tactics.

This isn’t to say that a reverse auction can’t be the end result of a true strategic sourcing effort. For example, if you are sourcing custom manufacturing services for a new, relatively unique, product that you are preparing to unleash on the marketplace and you have went through a supplier pre-qualification round to select a small group of suppliers you would be willing to jointly develop with (who have all received the confidential specs under NDA), you could decide to simply hold a reverse auction to streamline what could otherwise be a time-consuming multi-round RFX, but note that this is just the tactical implementation of a sourcing strategy for a strategic category. The reverse auction itself is not strategic!

And it’s definitely not strategic if you’re sourcing $1,800 worth of office supplies or store shelf inventory!

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