In my last post I said I'd be writing about "Collaborative Optimization", but something else is bothering me and I would like to get some feedback from readers before I discuss the more important topic. Portfolio analysis suggests that most spend falls in the "leverage quadrant". And quite frankly, I was always most comfortable when applying leverage in supply negotiations, especially since I worked for a company whose annual spend was larger than some countries GDP.
Regardless of what was purchased I always thought about how we could get the lowest price... and of course I still think this is very important. But what I see happening with a lot of Procurement folks (and I've been guilty of this too) is that they buy everything "like a pencil". What do I mean by this? I believe many in Procurement buy technology or enabling services the same way they buy office supplies -- beating down so hard that the supplier can barely see their margin, leaving the relationship ambiguous and awkward at best.
I've had many years experience managing a globally deployed electronic sourcing platform that returned the annual investment in technology, hosting, maintenance and internal labor costs in incremental savings about every 4 working days. So did it really matter if we paid the lowest possible price for this technology? Wouldn't you also want to help ensure that your technology supplier remains financially stable? Would you really want to be the "tipping point" that makes a supplier of important procurement technology unsuccessful? And, what about contracting for consulting services that truly enable significant accelerated savings? I'm talking about returns of 10X, 20X, maybe even 30X. Does it really make sense to get "cheap" with these engagements and potentially sabotage the results?
I think some people have a difficult time separating "things needed to do the job" and "investments needed to excel and ensure future competitiveness". Now those of you who know me well might wonder how a person who is such a strong believer in electronic sourcing can make these statements. Well it's easy. Electronic sourcing is not about buying cheap, it's about getting suppliers to compete in a fair, ethical and transparent way -- a healthy dynamic that's good for buyers and suppliers alike. My point in this discussion? Certain "buys" are investments in your future ability to deliver sustainable benefit to your organization. Think carefully about these negotiations! And by the way, I recognize that many of you already operate with these adjunct priorities in mind... it's just taken a long time for me to come to this conclusion.