Skip to content

A Simple Way To Undermine Procurement Success

June 22, 2009

There is so much talk right now about supplier risk, but disappointingly little about how customer behavior itself is often at the root of unsuccessful projects and relationships. If we truly want to reduce the risk of things going wrong (and also change the agenda for future negotiations), then both parties must be willing to undertake honest self-examination and to listen to the viewpoints and perspectives of the other.

An excellent example of the problems we face was highlighted by John Yates, partner at Beachcrofts, a top UK law firm. John was speaking at a lively and very well attended IACCM member meeting in London. His topic was “Are Buyers & Sellers Focusing On The Wrong Things?” and his broad conclusion was ‘yes, they are’. (IACCM will have John cover this material on an upcoming Ask The Expert call).

John started by telling us he was angry. He had spent the previous day looking at UK public procurement guidelines and model contracts. And that had led him to think about the typical behaviors he has encountered when he is working with clients (both buy side and sell side) on major negotiations.  I am going to save his wider thoughts for our future conversation. Today I want to write about his observations regarding the quality of information.

Almost every negotiator claims that they are seeking win-win relationships. Almost every bid manager and negotiator expects the other side to provide full and honest disclosure – and if they do not, then trust is undermined. What had struck John was the frequency with which modern procurement and sourcing strategy seems to result in buyers who deliberately withhold information and see this as a valid way to reduce their risk (and allocate it all to the seller).

Behind this thinking (which John observes as endemic to much public procurement) is the idea that if you remain silent on key aspects of your requirements or current business conditions, the seller cannot subsequently point to any inaccuracy in these statements as contributing to possible failure or reasons for price increase. So by remaining silent you place the onus on the seller to undertake ‘due diligence’ – and hey presto, when they discover the truth, it is their fault for inadequate checking!

John’s comment was  “Buyers see no connection between quality of information provided, and price, quality and risk”. Withholding information (or failing to take responsibility for its discovery) creates extra risk and then of course forces the seller to push for defensive clauses and to build a defensive organizational posture and behavior.

It was an excellent point and one to which many sales organizations will subscribe. As part of the development of a more formal and disciplined procurement process, far too many sourcing organizations were trained to treat suppliers as the enemy. Far too many were trained to prevent sellers having direct contact with users and to ration the information that is provided.  This became integrated into the thinking behind  ‘commoditization’ and attempts to standardize and simplify the value of supplier offerings.  All these steps are understandable, but they do not work.

Procurement must become more sophisticated in the way that it evaluates business needs and supplier capabilities. One key step is to ensure far better exchange of information across all the key stakeholders. This will not only improve the frequency of successful acquisitions, but will also place Procurement into a far more valuable and strategic role within the business.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: