Buying While Blindfolded
By
Rod Travers
Executive Vice President
A phenomenon is unfolding across corporate America, especially in
financial services: the rise of procurement and vendor management
functions. Once found only in larger organizations and government
entities, these departments are now part of companies of every size.
What concerns me is how many companies are getting this important
function absolutely wrong.
Nolan experiences this as both a supplier of services and from the
inside. One of our services, in fact, is to help companies build
procurement functions—and fix broken ones. Companies implement such
programs with the best of intentions: manage spend, reduce cost, improve
negotiation, strengthen contracting, eliminate fraud, and guarantee
outcomes. Unfortunately, many programs quickly deteriorate into a
robotic process that effectively isolates buyers from sellers and
focuses on a checklist instead of the ideal solution. Sound familiar?
One common problem is that business-side buyers of specialized solutions
(for example, an analytics tool or related service) cannot freely
communicate with suppliers. Likewise, suppliers must operate in a cone
of silence and avoid contact with buyers, or face disqualification.
Sellers must therefore prepare a specialized proposal based on an RFP
and perhaps a brief Q&A session. Making matters worse, procurement staff
find themselves in an untenable situation when they are unfamiliar with
the specialized solutions and services they are asked to procure.
An example of a procurement tool stifling common sense is Ariba, a
procurement management system that many suppliers are required to
participate in by their buyers. Once a day, the system sends buoyant
“opportunity notifications” to suppliers, letting them know that eager
buyers are looking for a product or service. Unfortunately, these
notifications have no details about the buyer or what they are looking
for. Important specifics—such as industry, size of buyer, and required
skills/capabilities—are nowhere to be found. The unintended consequence
is that suppliers don’t respond because they quickly learn that their
efforts seldom yield business. Buyers likewise end up getting
half-hearted responses, often from less-qualified suppliers who are
taking a shot in the dark.
 | A successful procurement program should do these things: |
| Focus on finding the most suitable solution, not on simply
following a checklist or finding the lowest cost. Every solution and
procurement situation is different. |
| Foster business relationships and trust between business-side
buyers and solution providers, whether or not a purchase ultimately
takes place. |
| Bring best practices to the negotiation and contracting steps.
|
| Help manage risk; ultimately, the business-side buyers should
own the risk, not the procurement function. |
| Avoid abdicating responsibility to tools and technology. Buying
and selling are based on relationships and personal trust. |
| Measure and report the value delivered. |
| Keep it simple for buyers and sellers. |
