Learning from procurement non-compliance – a true story

We wrote a few weeks back about non-compliance – that’s internal users who don’t comply to standard contracts, preferred suppliers and so on. Our hypothesis is that this is useful for procurement if handled properly – it tells you something valuable about your contracts or suppliers. So don’t fight it, learn from it, was our message. Amongst the comments was this story, from eSourcing Sensei, which he’s kindly allowed us to repeat here.  It’s happened to all of us...

Some years ago after conducting a European wide tender for some packaging material with a total spend of about $30m I made several awards to companies based on all the right measures and analysis, including an award for business to one of our sites that was in the process of relocating. When I say “in the process” it was to take place 12 months down the line. At the time the Factory Manager had made a blanket statement that no supplier changes would be allowed to take place to ensure the stability of sustained supply, despite this tender saving the site $800k on a spend of $3.5m.

Now always loving a challenge, I arranged a meeting with him and his senior team and went to the factory which was in central Europe. I had been allocated a two hour session which was pretty amazing stuff and I had done my homework and was fully prepared for the session. Everything went as planned, I was able to answer all their questions. They held a meeting together while I was out of the room, after which the Factory Manager met with me and gave me permission to instigate the change stating, “you are the only Buyer that will be allowed to do this”.

WOW! My head was larger than ever – I was well chuffed and almost flew home without the use of a plane. That may sound ridiculous but believe me this was a serious accomplishment. So I set everything up with the supplier, put the contacts together with the factory, and sat back and wallowed in regaling everyone with the story that I got permission where others hadn’t.

At the end of what should have been the first quarter of supply I checked in with the factory (I had supply in 15 – 20 factories, so tended to focus on each one once per quarter) and discovered that although supply had started, it had then stopped from my new supplier and that they had gone back to the previous incumbent..

I stomped my feet and reminded all who would listen that I had permission for this. I demanded to know what was going on and who had authorised the switch. And went on to remind them of our internal rules and compliance requirements when it came to suppliers.

I was contacted shortly after this rant by the site’s Financial Controller. And after about four minutes of discussion I felt about 2mm tall…………….

I had made a fundamental error. OK, no one else had immediately picked up either, probably because I was so vocal in how good this deal was. That error was that I had been using the wrong currency exchange rate, and as a consequence the deal that I had thought was so good was actually cost negative for the site!

So the internal compliance was that factories had to work to the contracts that were put in place by the Buyer. This factory worked outside that and so were non compliant, but they did the right thing. In this case, they actually saved my bacon because it didn’t get to the point where we would have seen huge PPV (Purchasing Price Variance) losses because of my error. Non compliance was certainly my friend this time.

I had to smooth things over with the new supplier – eat humble pie – apologise to the factory – grovel to my line manager – and learn a valuable lesson. Collecting and collating the correct data at the start of an event and ensuring that is checked thoroughly is absolutely paramount. And I also learnt not to be such a cocky big head and, just maybe, not to gloat so much to my peers!!

Voices (3)

  1. Alan Barclay-Devine:

    I did something similar early on in my career but luckily it was quickly spotted by my boss before it got to Contract stage.

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