Strategic Requires A Special Kind of Shift

It’s more than just a shift in speech and activity, it’s a shift in thought and mandate. Even if the business won’t give it to you.

This is kind of a continuation of last week’s series on the problem with simplified graphics, as this post is inspired by another post of Tom Mills’ on how to shift procurement to strategic.

As usual, Tom gives a lot of practical, useful, advice while tackling a very significant topic — and one that needs to be continually addressed because it’s not something that can be summarized in a post, or even an entire guide (which Tom Mills was giving away for free — be sure to follow his ProcureBites site for more free offerings as he launches them).

In fact, for many departments, the shift can’t even be captured in a book. (Maybe an encyclopedia, but given that we’ve writte almost 3.7 Million words on this topic for twenty [20] years here on Sourcing Innovation alone, and probably another million words on other sites, including Spend Matters, and still haven’t addressed everything, maybe not.)

And it can’t be accomplished just by a guide. The reasons are 3-fold.

  1. It’s not a change in speech, or action, but underlying thought. If you are not strategic at the core, you might be going through the motions, but you will never master strategy.
  2. It’s not a change in how you present, but how the leaders perceive. It doesn’t matter how the organizational employees and department heads perceive a shift and how much more ready, or not, they are to work with you, but how the C-Suite perceives you. If you can’t shift their mindset, and all Finance judges you on is cost-reduction alone and Operations on supply stability alone, you’ll never be able to be a strategic Procurement organization.
  3. It’s not a change in how you source, but how you manage your suppliers. If you are not building better relationships, are you truly strategic?

Strategy starts with cognition, something that must be mastered by Human Intelligence (HI!) before any actions can be taken, or any speech can be used to rally the organization, and any real progress can be made.

Once you have the right team with the right mindset and cognitive capability, you can begin to make true progress and follow the advice and guidance of Tom Mills.

The Problem With Simplified Graphics 5: e-Auctions are Not a Strategy

In our last two posts, we discussed the RFP and how the simplified processes that are typically presented by most analyst firms, consultancies, and consultants miss the main point — you need to have a deep understanding of what you need before you can even think of drafting a good RFP, assuming the situation is appropriate in the first place. As per part 3, there are usually (much) better options for a given situation, but most Procurement departments aren’t aware of them. In fact, the only other option most Procurement departments know about is the e-Auction, which is usually not the right option.

Now, today we’re going to pick on Joël Collin-Demers again because his post on e-Auctions gets most of it right.

In his post he breaks new sourcing events down into three categories:

  • no apples to apples comparison capability -> don’t auction
  • strategic or mission-critical -> don’t auction
  • clear specs and 3 or more willing suppliers -> don’t auction yet

And this is pretty close. The reality is that clear specs, apples-to-apples comparison, and 3-or more willing qualified suppliers is more than a don’t auction yet — it’s often a don’t auction, ever.

According to Joel, if you:

  1. run an RFI to qualify suppliers as real potentials
  2. run an RFP to get the full details and verify that the product/service and supplier will serve your needs and you’d be okay with awarding a bid
  3. run an RFQ to get initial pricing, and then select a set of suppliers within, or close to, price tolerance …
  4. you can then run an e-Auction to get the BAFO and find the real value.

But this isn’t always the case.

  • even if you are fully transparent up front, the suppliers who participate won’t be super excited about it and the best suppliers won’t participate
  • the suppliers who do participate will hold back significantly on their bids since they will expect to have to drop considerably during auctions, and you may end up cutting some before the auction because it looks like they won’t be within your price range
  • a desperate supplier will cut too deep into its own margin to win, and that can put it in financial distress which will jeopardize your supply and negate the whole point of the event
  • if a supplier cuts margin too much, they will inevitably cut quality, even if you tell them they don’t have to — that’s just how they see auctions

Auctions shouldn’t be used for anything you need an RFP to qualify a supplier, product, and/or service for. Period. Auctions should only be considered for that for which you don’t need an RFP. After all, nothing prevents you from doing a multi-round RFQ, with feedback between rounds, which will get you the BAFO that won’t jeopardize the product quality or jeopardize the supplier’s existence. In other words, the situation in which you can safely consider an auction is a lot smaller than Joël’s graphic seems to indicate.

Especially since repeat auctions on the same product or service, as we have written before, actually increases costs!

Follow Joël Collin-Demers over on Pure Procurement.

The Problem With Simplified Graphics 4: RFPs Ain’t Gonna Go Live Either!

Yesterday, in part 3, we provided an example where a graphic could get everything right, but still miss a core issue, and that issue was that while they might be a good half a dozen alternatives to the RFP, most procurement departments and professionals just aren’t ready for them. That makes the graphic totally useless for most Procurement practitioners in average Procurement departments.

Yesterday we discussed the alternatives presented by Tanya Wade. But Tom Mills also discussed the issue, and even though we already discussed one of his graphics this week, we like him so much we can’t leave him out of this important issue.

Tom’s graphic was about how to write an RFP. And it is great. Actually, like Tanya’s graphic, it’s truly fantastic. But it has the same problem as Tanya’s … it ignores the underlying issue … that Procurement departments often aren’t capable even with step-by-step instructions.

Let’s take Tom’s 6 steps:

  • determine the business needs: it’s not just determining what the business needs, but what fulfills that need … what the core requirements are, the detailed specifications that are required, the utilization requirements, etc. … all of which requires extremely deep technical or process knowledge that Procurement doesn’t possess
  • introduce your business: long winded introductions don’t always provide clarity, especially since most companies will puff up their business description, mission, and values with marketing puff that will distract from the core goals and objectives … which is where the RFP needs to start to get the organization on the right track
  • project scope and budget: the scope is critical, but you should allow the suppliers to suggest the phases because if you lock them into an inappropriate or inefficient plan you created due to your lack of expertise, you won’t get the best quote; also, it’s not appropriate to suggest a budget on the first contact; the best approach is to precede the RFP with an RFI where you collect basic information on the supplier, their capabilities, and their typical proposal range so you can invite the right suppliers to the full RFP in a budget range that is both appropriate and that you are prepared to pay
  • selection criteria: this is dead on … but it has to be right, which means the Procurement department has to be on the same page as the organizational end-user because they can’t shift the criteria and process later or they’ll risk losing credibility
  • submission requirements and deadline: this needs to be super clear and the requirements should be well thought out and set in stone because, if you change them, you’ll lose credibility — but if you are looking for a custom solution, you need to be willing to extend the deadline for all parties if a supplier can make a reasonably grounded request (where they clearly explain why they need more time and educate you in the process)
  • check the RFP: more specifically, have key stakeholders check … overlooking key requirements will waste everyone’s time …

The reality is that while many Procurement departments don’t know any methods beyond the RFP and e-Auction, they don’t know the process they should be following … and that’s why they can’t write a good RFP, even when they get a great template like Tom’s that tells them what to do step by step — they don’t always have the core knowledge to execute — and that goes beyond Procurement knowledge into deep organizational product and service knowledge and an understanding of who needs to be involved.

n other words, even when the simplified graphic is right, it’s still wrong when the typical Procurement department is not mature enough to implement any of it.

And remember to follow Tom Mills and his Procure Bites for practical procurement proverbs (unless you prefer the pompous pontifications of LinkedIn).

The Problem With Simplified Graphics 3: RFPs Ain’t Gonna Die!

Unlike rock and roll, RFPs are noise pollution, but RFPs ain’t gonna die.

Today we’re tackling a different type of graphic. In this case it’s not one that oversimplifies, but one that misses the core issue — an utter lack of Procurement maturity in the average organization.

This is a case where we don’t have any real problems with the graphic, it’s theoretically correct, but problems with the underlying assumptions, which ignore the fact that most Procurement departments are not ready.

In the graphic in question, Tanya Wade presents 8 valid alternatives to the RFP which all organizations should be aware of.

But here’s the thing, most Procurement departments, to this day, are immature and can barely do basic RFPs and e-Auctions. They have primitive, last generation (if not first generation) sourcing and procurement platforms, and their knowledge puts them on par with the Island of Misfit Toys. They aren’t ready for anything else.

Let’s take Tanya’s suggestions one-by-one.

  • Intake-Orchestration (I2O): few organizations have this, and those that claim to just have a software solution from a third party and accept the third party’s definition blindly don’t understand what true I2O really is — because intake isn’t just software, it’s process — and without a good understanding of the process the organization needs and an effort to incorporate that process into the acquired software, I20 doesn’t work (at all)
  • Guided Buying: you not only need solutions that support it, but the knowledge to configure them properly so that the end users can self-serve
  • Dynamic Markets and Frameworks: the majority of Procurement organizations are not sophisticated enough to handle dynamic markets and frameworks, this has to be done by a third party which requires the use of a Consortium, and while once popular, many of those have disappeared over the last two decades
  • Paid Proof of Value: this is great in theory, but not many vendors will do this in practice — they want a sale, not a cost-neutral pilot — and if you won’t guarantee a sale upon success, even those that will consider it won’t do it
  • Supplier Discovery Platforms: this is about the only platform the average organization is more-or-less able to use, and the -less part is that while they can use it, they can’t always do the verifications that the platform can’t and will sometimes invite inappropriate suppliers to the RFP and won’t realize it until they go through a full detailed RFP and a product verification, which could waste weeks or months of their time
  • Benchmark-Led Renewal: Procurement organizations need external data and external guidance to create benchmarks, and then need guidance on how to interpret them and negotiate on them; and they don’t know where to get this data and how to identify the experts to guide them or negotiate on their behalf (or even find potential help in the first place)
  • Problem Statements: i.e. CrowdSourcing — this was supposed to change Procurement two decades ago, and that was the last time we really heard of it …
  • AI-Assisted Market Scan: for most procurement departments, this is asking chat, j’ai pété or clod to identify products, services, and suppliers; match to requirements; and make a recommendation — which will result in the procurement regularly getting a quote for the perfect product from a fake supplier that doesn’t exist because these tools hallucinate regularly

In other words, even when the simplified graphic is right, it’s still wrong when the typical Procurement department is not mature enough to implement any of it. Without an understanding of readiness, even the right path is not one an organization can walk down.

Follow Tanya Wade over on The Procurement Blueprint.