Penny Wise, Pound Foolish?

If I had a dollar for…insert statement about some stakeholder who insists they can buy it cheaper, get better quality, generally knows better and has a happier life than me as evidenced on Facebook…I’d be obscenely wealthy. Sounds familiar, eh? In this blog, I offer a paracetamol tablet to help soothe this procurement headache. If we want to flood the system of neural interconnections with sweet relief, I suggest educating and role modelling balanced commercial behaviours.

Line of sight

I’ve titled my series of blogs ‘Procurement from the balcony’ for a number of reasons. Among them, is that us procurement folk have the great fortune of extended views of the commercial horizons of the businesses we work in. We have unfettered access to spend data and operational objectives and we go about our craft identifying opportunities via leveraged scale, behaviour augmentation, substitutions, automation, demand management – you name it, there’s someone in our industry doing it. But how do you talk to the bargain hunter who found a cheaper note book at a clearance sale in Haymarket and thinks the group stationery deal is shit? Knowledge sharing is the answer. This is not an indignant moment, rather, it is an opportunity to promote understanding and spread the good word. Take the time to explain the deal. Talk through the group discounts, rebates, pre-bates, net benefit, P2P efficient, FSC certified, recycled, diverse enterprise supplied outcomes that are all in play versus that 20c ‘rip off’. This is a scenario that plays out over and over, category by category. Our first response can often be ‘don’t they get it?’ Truth is, a bargain hunter is doing the right thing and trying to spend company money like it’s their own. It’s admirable and should be encouraged. It’s up to you to show them though, how this deal was more strategic and less an outcome of procurement dogma. Demonstrate the commercial and strategic outcomes that are inherent in a deal and help everyone in the business to see the sustainable woods from the trees. Better yet, delight them in the detail so they can see you as a creative partner in future.

Horses for courses

Tactical purchasing, obtaining quotes, running generic RFx’s and letting the broad market forces of supply of demand sort out the selection is too often the redeeming feature of a procurement brand understanding. In this way the prevailing stakeholder view can be that the function is primarily administrative. Unfortunately, we also help permeate this view in our successes – we commoditise spend categories, harmonise specifications, align market participants and perceptions of a good or service transition from bespoke, to uniform. Applying these skills rigidly however, to creative categories such as marketing, or early adoption of technology for example, is fraught. Negotiation and engagement approaches in these categories are vastly different to those typically applied to sourcing and commoditised spend categories. There are too many horror stories of a procurement team leading adversarial negotiations in these areas. You might have the glory negotiation outcome in your back catalogue, but if you’re one of the table bangers out there then it’s clear to me you’re still on a commercial learning curve. Ease up tiger. These are great moments to develop your negotiation and stakeholder engagement skills. If your leadership are encouraging bad cop behaviours, take the time to educate them on the value the business is trying to create and the way in which it plans to obtain it. Also, there is nothing wrong with not having all the answers at the outset. No one does. What we have, is a hypothesis or two to test and the skills to develop an understanding of our BATNA. We all have a role to play in spreading awareness between the tactical and the strategic in the minds of our stakeholders. This is a call to arms to take up yours.

The social contract

I’m not going all Rousseau on you but it’s time we looked harder at the culture in our organisations and the way it reveals itself in the way we manage contracts. Similar to the table bangers, there’s an over-representation of Schwarzenegger’s out there. Terminators who believe they are sent from the future to shoot first and ask questions later. Problem is, they tend to shoot their own businesses in the process and then go on to release press statements talking of necessary civilian collateral damage. Senior managers, procurement and legal teams end up spending countless hours patching up gunshot wounds like medics in these conflict zones. There’s nothing heroic about starting a contractual dispute without careful reflection and professional advice. It ends up being a zero sum game at best, and more often than that, an unnecessary resource drain. At the other end of the spectrum, there are the ostriches. Those who bury supplier payments – like heads in the sand – at the first signs of performance uncertainty. So replete in their passive aggression! These contract managers let relationships strain and whither on the vine along with any reasonable opportunity you had to make issues known and to remediate them within current service and payment cycles. Aside from this, the practice is straight out unconscionable. Did someone just call “medic” again?

Lastly, we also need better conversations about risk appetite and the bureaucrat gestapo’s we create. Risk, legal, audit and compliance are foundational, however can end up as bracket creep passed off as continuous improvement, without a regular regard to business efficacy. Just because you can contemplate the imposition of a requirement, doesn’t always mean you should enact it. Benefits and relationships, both internal and external, can be eroded under the weight of excessive administrative burden directed at hypothetical trauma and disruption. Indeed, they can stifle the very creativity and innovation needed to prepare for that disruption. In all of the scenarios above, before we act, we should broaden the factors considered when we ask: At what cost?

As with all roles, a cornerstone of (procurement) leadership is relationship management. Balancing the interests and behaviours of suppliers and the businesses we represent is a commercial acumen and builds with career experience. In my view, this is a role that procurement teams perform that is not readily visible, or at times understood by our stakeholders and various commentators I read. It is a skill that is applied in a much more fluid context than the narrow expressions of self interested parties – again, both internal and external. It is in this way for example, that the disciplines of contract management (or supplier relationship / performance management) as they are currently published or “solved” with technology, are in my mind largely without substance. Generally these activities simply fail to represent the internal systems and cultures of the organisations that are undertaking them. Moreover, the simple mechanism of contract, of itself can engender power imbalances (real or perceived) and behaviours that are antithetical to an organisations, or an individuals, core values. This is not to say we should stop managing contracts and drop our focus on SRM/SPM, rather, it is to acknowledge our relationships with suppliers include many more stakeholders than dull notions of the principal and the contracting party.

Commercial acumen has many forms – and I’m suggesting that relationship management may be it’s most sophisticated. Procurement leaders have the daily role to manage the complex interface between an organisations financial and operational objectives and a myriad of behaviours that are at work in the delivery those goals through relationships with equally diverse and complex supply chains. Perhaps this is too lofty a conception for the work that we do? I’ll let you decide.