Procurement Inertia: When Did You Last Run Through the Seven Steps?

Don’t wait for the consultants to come in and kick you past your inertia. If you stay vigilant by revisiting your spend on a regular basis and looking at what you can source more competitively, you might even be able to find line items you no longer need. No point in buying spare parts for a production line that is being phased out, right? You also need to understand the revenue model and customer base of your key suppliers.

Looking forward is a challenge in all organizations, and it is tempting to come up with ways to address challenges from the past. There are probably few places where this is on more prominent display than in the military, where preparing to fight the last war is always a danger.

As an example, the US Army now tries not to buy any more of the current versions of the Abrams MBT (Main Battle Tank), as they already have more than enough. Instead they want to focus on putting the funds toward next-gen R&D to prepare for a future version slated to be made in 2017. However, “pressure” on Congress is causing the construction of more of these current-generation tanks, though Davis Welch, the Deputy Director of the Army Budget Office, had said earlier in April that "we do not require any additional M1A2s.”

According to a recent Yahoo news article, 1,600 units out of the 2,400 unit strong MBT fleet in the US Army are of the latest M1A2 SEPv2 version that appears to have been produced over the past two years. With each priced at $7.5 million, the total sum is $12 billion dollars.

Former Budget Director and current senator Rob Portman (R-Ohio) has a rather statist view of the sales prospects of the plant, which is located in his home state. If the MBT assembly line stops, "people can't sit around for three years on unemployment insurance and wait for the government to come back." Perhaps these firms should diversify a little. Just as procurement shouldn’t single-source mission critical components, a sales organization shouldn’t be dependent on any single client for more than 10% of their sales.

Takeaways

Clearly politicians of all brands like to overspend, as long as it goes to their district. There are procurement lessons here, especially for the public sector:

  • Make sure that the business actually needs what you are buying. Monitor auto-renewing contracts so you don’t continue to pay for equipment that is no longer being used.
  • Stay just as connected to your sales side. Do raise red flags when you see that your spend disproportionately goes toward a single product line and/or customer.
  • Develop your key suppliers. Push them to diversify. It is not healthy to single-source, and neither is it good supply base management to let suppliers stand and fall with your business, especially if it is a long-term cyclically recurring demand.

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