Some years ago, I was at a gift and housewares trade fair at the NEC in Birmingham, UK. This fair was attended annually by all of the major distributors and customers in the industry.
For more context, I have a friend that is a major supplier of housewares. Let’s call him Mr. Housewares. And I’m acquainted with a high-profile buyer from a leading department store chain, let’s call him Mr. Buyer. I bumped into Mr. Housewares at the fair and in general chit-chat, he informed me that he would soon be meeting with Mr. Buyer.
One word led to another, and we both discussed Mr. Buyer’s negotiating style, which can only be described as tough, demanding and with a reputation for win/lose thinking. Mr. Housewares’ way of dealing with Mr. Buyer has evolved to have two price-lists, one general one for all customers and one especially for Mr. Buyer, that is inflated by 10 percent.
So when Mr. Buyer demands and gets 15 percent discount for volume, he thinks he is the best thing since the sliced pan. And if you’re curious as to who started this madness, it was Mr. Buyer. After getting burnt by Mr. Buyer some years previously, Mr. Housewares developed his tactics for self-preservation.
If you think this is a one-off, then think again.
Procurement in this region
A culture has developed in this region and indeed in many places around the world, for companies to insist on at least three quotes from different suppliers before making a decision. Originally intended to maintain compliance, keep everyone honest and an attempt to cut out hanky-panky, it’s a sensible concept. But it is often flawed in its execution.
The marketing director of a food company recently described it to me like this. She wanted to engage the services of an external vendor for a forthcoming campaign, and got three quotes as per the rule.
She interrogated the submissions and compared them to her initial brief. Her preferred options were vendors A and B, as they best matched the brief. Although vendor A was the incumbent, she selected vendor B as their costs were more favourable. She dismissed vendor C as a non-runner from a capability perspective.
The quotes were sent to the head of procurement. This procurement person is a clip-board warrior, his job is to ensure that the process is being followed and that the company is getting the best deal. That’s fair enough. But because vendor C was the cheapest of all three, he insisted on awarding the contract to vendor C.
While the marketing director argued and argued and explained that the comparisons were not like-for-like, it was no good. The clip-board warrior, who has a singular focus on cost only, got his way.
Fast forward to the eventual campaign, which was a disaster. When it came to the post-mortem in the boardroom, fingers were pointed in every direction and nobody took accountability. And worse, that exact scenario continues today. And not just in that company, I assure you. There are many examples of procurement professionals engaging with a level of authority that is above their ability to analyse effectively.
How can the procurement process be improved?
There are of course many procurement professionals that are highly effective. This is what they do:
- Have a win/win mindset. A win/win mindset is one where both parties believe in the potential for a future relationship, built on trust. When both parties feel that they are winning, they will feel more confident about doing business together again in the future. On the other hand, a win/lose outcome is one where one party feels that they have lost out. For example, if procurement issue an ultimatum on price, the vendor will be resentful when it comes to future encounters. Human nature will encourage the vendor to find ways to cut corners in the execution.
- Understand the brief. Take time to understand the business objective beyond the document that you have been given. Speak to the project owner to fully appreciate the objectives, the detail of ‘what good looks like’ and the implications if the wrong decision is made.
- Check for best fit before looking at price. Stop focusing initially on price as if it was the only thing that mattered. It isn’t. As a general rule of thumb, lower prices usually means lower quality. That lends credence to the expression, ‘buy cheap, buy twice’. Compare the detail of each element of the vendor’s proposal for best fit.
In fairness, procurement cannot be expected to be expert in every discipline (IT, marketing, training, consulting, legal, etc). so sit with the project owner and pay respect to their wisdom. You can still be objective, but you’ll be better informed before making a decision.
- Value all elements of the vendor’s quotation. If you cannot help yourself and find it hard to look beyond the cheapest quote, at least take some time to understand the alternative vendors and the gap in their pricing. What added value are they offering for their higher prices? If you don’t see any value in their higher prices, then you’re probably missing something. If you decide however that the added value doesn’t fir the brief or is of no material value, then that is fair enough.
The last word
As a service provider, I often get random requests from companies for a ‘best price’ quotation. If they don’t offer an opportunity to meet to discuss their needs, that’s a flaw. I know instantly that they are simply satisfying an internal compliance rule for three quotes. I will either withdraw from the process or spend little time on my response.
There are many great procurement professionals doing wonderful work for their employers. But if the Mr. Housewares and Mr. Buyer scenario at the top of this article resonates with you, then perhaps it’s time to think differently. It’s a silly game that can be avoided with better dialogue, a willingness to look beyond the numbers and think win/win.
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