Friday Rant: Return of the Lean Bigots (Part 1)

Webster's defines bigot as "a person obstinately or intolerantly devoted to his or her own opinions and prejudices." By this definition, it seems that there are few individuals I've met in the procurement ecosystem -- at least among academics, analysts and advisers -- who are not willing to at least entertain the option that an opinion is worthy of debate, or that a situation may have multiple shades of gray rather than existing in just a black or white context. But one individual who clearly fits the description of a bigot in the context of procurement is Dr. Bob Emiliani, who has made a career out of slamming reverse auctions in favor of lean supplier management practices.
Dr. Emiliani's most recent reverse auction tirades were featured in a Crain's Chicago article that painted a one-sided view (surprise, surprise) of reverse auctions (never mind the fact that in the Illinois state government, procurement corruption is rampant). Crain's suggests that "Critics of electronic reverse auctions say cut-throat bidding is not necessarily in the state's long-term interests" and uses a quote from Emiliani to highlight their point: "It's bad for the state, it's bad for Illinois business ... You're screwing your trading partner. How long do you think you can get away with that?"

Of course what is worse for trading partners (not to mention Illinois residents and tax payers) is a lack of transparency in bidding processes that in part has led to my home state being made a mockery of in the NYT because of its inability to pay bills. After all, the more politicians offer pay backs through un-bid -- or under-bid -- contracts to the vendors whose contributions put them in office and then paid for their $3000 suits, the less likely tax payers are to participate by extension in a supplier kumbaya. That is, if we agree with Emiliani's thinking (never mind the fact that another state, Ohio, has saved millions using reverse auctions).

Without question, reverse auctions aren't perfect. They're not the ideal negotiation format under many circumstances -- but they do have a place and time. In fact, I'd argue that reverse auctions might be a whole lot less risky to the business than many of the lean tactics Emiliani espouses. After all, if you take inventory out of your supply chain (including reducing your supplier's inventory) in an environment of greater underlying commodity volatility/availability, supplier financial risk and working capital challenges (where suppliers can't easily borrow to ramp up production), you might as well roll the risk management dice to see if you'll come through the downturn unscathed without missing an order or pushing out your own lead times. Yet you won't read about how lean approaches can be the equivalent of supply chain Russian roulette from Dr. Emiliani or his colleagues, who preach a one-sided supply chain doctrinaire.

In a follow-up to this post next Friday, we'll offer additional details about how lean thinking and lean practices have worked together to create greater risk in the supply chain -- and why reverse auctions may actually be a preferred format and less risky tactic even in tough times (for both you and your suppliers). And to be fair, I'll present a counter-argument as well. Just as there is a place for reverse auctions and strategic sourcing, there is a place for lean as well, a large place in fact -- in certain cases at the same time. But there is no place for the type of supply chain or procurement bigotry that Emiliani espouses. "Screwing your suppliers?" Please ...

Jason Busch

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