Procurement: a Proud Bastion of Bullying

Spend Matters welcomes this guest post from POD Procurement. 

Before we get inundated with angry comments, we need to put this statement into perspective.

We recently undertook a survey asking two specific supply chain questions, along the way we met a person who had just moved over into procurement a couple of years ago and these were their answers.

  1. Question: What is critical to your businesses ongoing success?

The answer was unsurprisingly: “The supply chain. We need a sustainable supply chain, and we want closer working relationships.”

  1. Question: If your requirements drop (post-contract award) by 1%, 2% or 3% do you renegotiate the contract?

Answer: “No, we just tell the supplier that’s tough luck, were not paying for it, we don’t want it.

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You may think this shocking, but when we tell you we also asked the same 2 questions to a number of highly experienced procurement professionals within both within public and private sector organizations, the answers where the same. Some organizations even labored how critical the supply chain is becoming: “We understand innovation comes from the supply chain and is critical to our future growth.” But, in answer to question No. 2, they all said the same thing: “We tell the supplier to suck it up, it’s part of doing business with us,” the statement was usually accompanied by a smile.

Bullying according to Wikipedia is “the use of force, threat, or coercion to abuse, intimidate, or aggressively dominate others,” yet it appears by this action toward suppliers bullying is prevalent in procurement today.

Most organizations have supply chain policies that condone any kind of bullying, what is interesting is that is it usually viewed on how you expect your suppliers to work with their suppliers, not necessarily how you work with yours. If we try to ignore the moral aspect of what’s happening for 1 minute, let’s look at the impact this attitude is having on businesses globally. A 2% reduction may not seem much to you – after all it’s just one contract. But if we look at it from the perspective of the supplier, it’s possibly one of maybe hundreds of contracts. If each buyer had the same attitude, the impact to the suppliers’ profits could be substantial, which is interesting when procurement also say they want “a sustainable supply chain.”

Second point, do you think this approach embraces the supplier and encourages them to help you reduce your costs? So when you ask for “innovation to help you lower your costs and become more competitive,” maybe you should think about how you are working with your supply chain today.

Last point, you may be buying from a supplier, but your business might also be selling to others. In other words what you are doing to others, they are doing to you. It’s a perpetual loop and it’s not conducive to success.

So we come back to our headline Procurement: a Proud Bastion of Bullying, we may have unfortunately explained and even justified the headline but in reality it doesn’t have to be this way. We understand the complexities, costs and risks with contract renegotiations. We also know the overheads, risks and impracticality of creating pre-negotiated pricing models for all contracts to cover the “just in case,” and we know no one wants to pay for what they don’t need as that’s just wasteful. So what do you do if your requirements drop post-contract award?

There is an alternative that you might want to consider, it’s called POD and is free to use. POD enables procurement to reduce their requirements, without re-negotiation of the contract, without using a pre-negotiated pricing model, to mutual benefit for both buyer and supplier. Not only does it address the moral issue but also creates a sustainable supply chain that rewards supplier innovation.

If new procurement people coming into the discipline believe the current attitude is an acceptable manner to conducting business, it’s a poor reflection on the efforts many are putting into making procurement a reputable and valuable asset to business.

If you have any views on this matter please feel free to contact stopthebullying@podprocurement.com

 

Voices (4)

  1. Omar Khan:

    In reference to question #2, there is an equitable & collaborative way to resolve the decrease or increase in contractual quantity. Buyer and supplier agree on a pre-negotiated price adjustment clause that allows “upward or downward adjustment” of contract price by certain percentage at the end of contract period in case of purchased quantity variance.

    Having managed high dollar commodity contracts for a global OEM, I have found this methodology working very well to the satisfaction of both parties. Bullying the supplier into taking a hit is neither ethical not legal if challenged in court of law.

    1. mike robertson:

      Omar, we totally agree. Though we do find pre-agreed pricing models can be complex and time consuming to setup. FYI there is another option called POD that could be used instead, same outcome as a pre-agreed model but without the workload.

      1. B+t:

        Please explain POD. Because all your postings so far boil down to ‘we have this thing called POD and it’s great , it magically lets you have a prenegotiated quantity variance agreement without negotiating a quantity variance agreement.

  2. bitter and twisted:

    “…right, as the world goes, is only in question between equals in power, while the strong do what they can and the weak suffer what they must.”

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