The Return of Stupid Sourcing!

I’m going to disguise the specifics of this (recent) story for obvious reasons but it is true, and highlights an issue we’re going to need to address if Procurement is to thrive for the next 20 years, as it has in the last.

A supplier had an existing relationship with a very large, global business. They weren’t the largest supplier by any means, but provided an important technology related product that would be hard to replace – so the balance of power was fairly even. The supplier and the budget holder were close to an agreement on a new contract, with what both parties honestly thought was a fair set of terms and conditions . Then procurement “got involved”.

The procurement manager did not understand much about the product or the needs of the budget holder. Their only interest was in trying to drive down the price – without any logic, exploring options or other principled negotiation techniques we might know from “Getting to Yes”.  (Neither was there any suggestion of a competitive process).

The procurement individual involved actually got quite abusive when the supplier refused to simply slash their price – the situation not being helped by the fact that the procurement team were sitting physically on a different continent to the main users of the product, and the supplier.

So what happened in the end? The supplier and the end-user eventually did the deal and just took procurement out of the equation. And there’s now a whole department in that firm who think their own procurement team are idiots. Those budget holders will do everything they can now to avoid using procurement  in the future.

I suspect, as so often is the case, that this was driven by the curse of “savings measurement”. A procurement function desperately trying to justify its existence by getting suppliers to cut unit prices, so a nice saving can be declared based on the procurement negotiation.

Now I’m not saying that procurement shouldn’t challenge suppliers – and users  - at times. But here are four thoughts arising from this incident.

  • The challenge from procurement should be intelligent, and founded on competitive intelligence, price analysis, negotiation skills, market understanding... simply demanding “cut your prices or else” is not adding value.
  • Physical location may not be everything these days, but if procurement is a long way away, stakeholders don’t often meet their procurement counterparts, and executives show no sign of understanding the stakeholder’s needs, then procurement is going to struggle.
  • Shouting and swearing at suppliers is rarely a good idea.
  •  Value, not price. Repeat a hundred times. Value not price.

Back to my 20 year comment – we’ve got to move procurement away from the unit price obsession. I know it has already changed in many organisations, but clearly there are too many still focused in that way. And what is perhaps most worrying is that the organisation involved in this case has, at times in the past, been perceived as one where good procurement practice was pretty well embedded. Clearly, procurement can go backwards as well as forwards.

Much, much more to come on this over the next weeks and months.

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Voices (4)

  1. Kim:

    “A Dismal Grimoire Of Procurement Failure” sounds so much cooler than “Lessons Learned”!

  2. Guy Allen:

    Peter, I think you might add 2 more to your list

    1) Alignment to Corporate needs/strategy. If a company is in desperate needs to cut costs then seeking price reductions (while ensuring the value meets the needs of the business) may be a valid objective.

    2) Early involvement with the stakeholder to establish shared objectives with the budget holder for the procurement that meet the corporate needs (see above)

  3. bitter and twisted:

    Do any organisations out there maintain A Dismal Grimoire Of Procurement Failiure as the evil twin for their ”Purchasing Savings Log” ?

  4. PlanBee:

    Can you let me know the name of the company…….sounds like there might be a job opportunity opening up for an up and coming CPO 🙂

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