Collaborative Procurement…Be Careful

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Author: Tony O’Connor 

The category manager was on my left. The senior salesperson was on my right. When the category manager said that he wanted to explore “win-win” strategies and look at a “collaborative” approach, I’m sure a saw a twinkle in the salesperson’s eyes. Yes…there was definitely a twinkle, and a slight twitch of the left eyebrow. In any case, she dug her heels in and there was no further movement on price, or anything else.

Surely all negotiating and tendering needn’t be competitive. Surely there is often common interest, common ground where buyer and seller can pursue outcomes that benefit both parties. Yes. Maybe. Sometimes. But be careful.

Have you ever been to the Grand Bazaar in Istanbul? It’s quite an experience. Colour, noises, and Byzantium arches soaring high above the frenzied commerce. The afternoon is even more interesting if you happen to be in the market for a genuine Persian rug. I got engaged the day before and instead of rings we decided to buy each other an engagement carpet. Kind of symbolic we thought.

After getting your bearings on prices and discounts in a few different stores, you eventually settle on one and walk in to haggle with more serious intent. You are showered with kindness and apple tea. You even get a massage if you want it for your tired tourist feet. (Retailers in the West take note.) Eventually you get down to business.

Suddenly you’re hearing words like tuft, gauge, gully, bleeding, burling, pitch, nap, stitch length and weft. You thought it was going to be easy but you’re out of your depth. The rug comes with a certificate of authenticity, the authenticity of which you must accept on trust. You pick one that looks great and will fit in the living room. But you’re smart. You don’t let on at first which is your first choice. You haggle on some others to prove that you’re no easy touch. Then, with a 30% reduction established on others, you zero in on the intended for your intended. And the real decision maker  …  well, she only enters the fray at the end. You get your 30% off, have another tea, and hope that their bottom price wasn’t really 50%. And hopefully, the rug really was made in a village near Isfahan and not in a factory outside Chengdu.

The whole lengthy buying process had only three components; attributes, price and contest. We attempted to ascertain the facts of the product, which turned out to require a lot more subject matter knowledge than we thought. We attempted to get the price down. And, with different sets of needs, bargaining skills and willpowers, we competed with them over several rounds of a contest. At no point was there anything to collaborate about. I would say that a lot of corporate buying is mostly like this.

Our only small regret afterwards was that we wished we’d done our homework and been better prepared.

Collaborative buying does not just mean moving onto new negotiating points, like some option or component of supply. It does not just mean weighing or swapping one benefit for another.  It does not just mean unbundling or splitting service packages into components for individual attention. It does not just mean finding a new item to negotiate over. These are just parts of normal negotiation. When such oppositional matters are called “collaborative”, it can just be the seller trying to lower the guard of the buyer. Collaborative means having matching interests; being on the same side of the equation; being on the same end of the deal. And such opportunities can be hard to find.

One way of aligning interests is to “bring the supplier in-house”. You might explore possibilities of sharing or transferring operating costs. You might take some minor or major managerial control. If the supplier receives commissions or other revenues, you might share in these. You might even share in your supplier’s profits. Then you really do have one foot planted on their side of the ledger. But in my experience, on my home turf of corporate travel, this is fraught with risk, and some demons might lie in the detail.

If you’re not careful, you might be saddling up on a Trojan horse. All the numbers have to be exposed and demonstrably 100% complete and accurate. It can be hard to find out what you don’t know.

A joint-venture will involve some sacrifice of control and profit to you by the supplier. If the JV approach was their idea, you have to ask why they are promoting it. Why would a supplier pitch a business model that logically seems more cumbersome and less profitable? If you are a large account and it is presented as a way to cut through a crowd of similar competitors, then that makes sense. Otherwise, well I wonder.

You really have to know the dollars and the details. You really should know the supplier’s business inside-out before you abandon your guard on their territory. And, if it really is possible to access all that information, the potential improvement in control and value has to be worth your risk and effort. You probably are taking a risk. You need to be happy to ride along the edges of accepted procurement practice in the category. I wonder whether sometimes a management theory or practice or ideology is pursued at the expense of the bare-knuckled realities of the marketplace.

Incidentally, if a supplier’s joint-venture proposal is sold on the basis that it avoids and solves poor supplier practices in the conventional model, it’s certainly worth finding out what those claimed poor practices are. If it seems correct, you might try to apply that knowledge to obtaining an improved conventional arrangement.

I suspect that the phrase “win-win” is thrown around by salespeople largely to disguise the realities of competing interests. We humans don’t like confrontation and disagreement. An alignment of interests comes almost with a sense of relief. Agreement is agreeable at a basic emotional level. You want to believe the collaborative proposal. You want to do it. It is innovative like you. But I think a solid wariness should continue to apply. In fact, when a radical departure from normal practice is suggested by a supplier, a heightened wariness may be needed. I’ve seen some supplier-buyer JVs that I think are questionable.

You might think this is all a bit grim, pessimistic and adversarial, but I’m actually quite an agreeable person. I like to collaborate, but only when I’m standing on firm ground. Speaking of which, our Persian rug turned out to be a genuine dinky-dye bargain.

 

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