How to get check you’re getting independent advice on procurement matters

Spend Matters US featured another post this week that is essential reading for anyone who uses consultants, analysts or even takes note of blogs!

In this post, Jason discusses the questions you should ask of 'advisers' of any sort in terms of their business relationships with other providers they might be recommending to you. The classic situation is the consulting firm recommending a software provider; or an industry analyst writing favourably about a particular vendor.  Do read his full post, but here are Jason's 5 key questions.

  1. Do you (or does your organization) receive any direct or indirect compensation from the supplier for referring business based on product, solution or service recommendations and/or referrals?
  2. Is this information disclosed (or not) through any public means?
  3. If "yes," is the compensation tied directly to volume and revenue generated for the vendor or is there an incentive based on another mechanism?
  4. Do you currently have any other type of commercial relationship with the supplier that you are recommending, or do you hold any type of equity or other financial upside in this vendor? If so, what is the extent of the relationship and do you work with other competitors to the vendor in question?
  5. Are there any suppliers that you do not work with commercially that you have referred business to in the past in this supply market? If so, who?

If you've had a life purely on the procurement side of the table, you might be shocked to know how prevalent this is.  I was surprised when I first transitioned to the world of consulting at the sometimes complex, sometimes overt and sometimes far from overt things that go on behind the scenes.

So don't be afraid to ask your consultant or analyst what the commercial relationship is with anyone they're recommending.  Apart from the blog sponsorship here, (which we guarantee doesn't impact our editorial stance),  I've always avoided these arrangements  because when working as a consultant I want to recommend what I think is right for the client without thinking about my pocket!  But it's worth checking whether your advisers think that way...

Finally, the one point that occurred to me not covered by Jason is the situation where adviser recommends 'provider x', then 6 months later jumps into a plum role with that firm.  I've seen it happen - just as I've seen procurement people or budget holders do pretty much the same!  Not much you can do about that, but approaching any recommendation with a slight air of scepticism is generally a healthy stance.

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Voices (2)

  1. MarketDojo:

    Coming at this from the other end of the perspective, as an eSourcing software provider, we are always looking to work with consultancies and other procurement organisations to allow them to use our software as part of their service offering. The relationship can be very beneficial to the clients of such consultancies as it can dramatically expedite the purchasing process for them if they do need such software, plus the two partners can combine to offer a very high and bespoke level of service.

    However we do fully agree with the neutrality aspect. First golden rule is does the consultancy etc. use the recommended partner themselves? If so, and the consultancy does a great job for you, then by process of extrapolation you would expect the recommended partner to be up-to-par as well. Secondly, be wary of exclusivity deals between consultancy and software provider and this should feature in your questioning. Certain providers will be better than others for certain solutions, so there could be a risk of square peg, round hole for exclusive recommendations.

  2. Robert Taylor:

    I’m aware of similar issues arising around sub-tier suppliers as well, especially where the supplier working directly with your company forms part of a vertical keiretsu. In the quest for value right down the supply chain, it can be difficult to determine whether, as an example, a metalwork company related to the assembly supplier you are using is truly the most cost effective choice. Question 5 would be a good one to take away for situations where we are uncertain.

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