By Teigan Margetts, Manager / Consultant at Red Hero Group
In procurement, we innovate. We conquer digital transformations. We handle worldwide disruptions. But some of our processes? They’re holding us back, and here’s why…
Hear more international insights around overhauling procurement at the upcoming Smart Procurement World Indaba in September 2021. Michael Pleuger, a business transformation, strategy and growth specialist will deliver a keynote address on understanding how the procurement function has been redefined and repurposed to help organisations make sense of the “now” in the current crisis.
Here in procurement, we’re blazing trails left, right and centre. We drive innovation. We’re ready and waiting for digital transformations. We even manage to take massive worldwide disruptions – for example, the pandemic and then this $9 billion supply chain blockage – in our stride. But could the one thing that’s holding us back be our processes?
Many have thought so; and may have said as much under bated breath.
We spoke to a group of senior procurement executives to understand exactly what processes may need a rethink, revamp or be removed entirely.
Here are the processes they all believed we need to seriously reconsider:
1. Sourcing from a single supplier
We’ve said it before… and we’ll say it again, supplier diversity is critical to managing risk. Yet still, so many of us go through the often monumental task of going through an RFP, only to select the best supplier and stick with them, well, forever. This is an unhealthy process, and here’s why:
Having a single supplier often prevents us from looking for other suppliers. And the bad thing about that? We don’t know what we’re missing! It means we may not be getting the best deal. Sure, we can try to renegotiate what we’ve got, but we may lose sight of the best the market has to offer. Beyond this, having a single supplier removes our ability to use diverse suppliers (for example, indigenous suppliers), and, concerningly, it limits opportunities for new ideas and innovation.
Relationships are important, of course. But procurement has to realise that without improving this process, we will be stopping ourselves from doing more and doing better with suppliers.
2. Managing risk through a bulky RFP
On the topic of RFPs, we have another gripe. Bulky RFPs are a process that we seriously need to rethink.
On the surface, a thorough RFP seems like a good idea. After all, we want to unearth as much information as possible and get to know a supplier as thoroughly as possible before engaging them. The effort they put into winning our business could also be a sign of good things to come, right?
Wrong.
Bulky RFPs have many downsides. Firstly, they represent a massive workload for suppliers, many of whom will not win the contract. Should that matter to us? Beyond the common courtesy of not wasting their time, it does matter as many suppliers will simply add the overhead of the bidding process into their final costs. So, in some way, we do pay for the process we put in place.
Secondly, bulky processes dilute competitiveness, and this is because the processes are so lengthy and so gruelling that some companies may choose not to participate. Another consideration we must make is that bulky processes remove your ability to work with suppliers to mitigate risk as part of the pre-award negotiation process.
Therefore, in sum: nothing puts off a supplier more than bulky RFP. If we want the best value and the best response, we need to ask for less, not more, in this process. One great way to do this is to go through everything you think you require and strategically ask yourself, “What risk is this requirement designed to manage?” as well as “What am I going to do with this piece of information?” If you can’t answer one or both of those questions, then it’s time to remove that requirement from your RFP.
3. A one-size-fits-all approach to contract management
A one-size-fits-all, or templated, approach to contract management is another one of our processes that seems great on the surface but is anything but. Understandably, many of us make this mistake, though. What better way to save time than to have a template?
But at the end of the day, we don’t end up saving anything. Here’s why:
Being mechanistic and template-driven simply isn’t that efficient. Sure, low-value and low-risk contracts may benefit from this, but higher value or more important ones require an appropriate amount of effort and, importantly, risk management.
Contract management should always be approached strategically, as should all your supplier relationships.
Say, for example, you have just onboarded a strategically significant supplier, and that supplier provides you with a unique component at a price you literally cannot get anywhere else. Should you give this supplier your standard contract? Absolutely not. The relationship is strategically valuable to you, so a contract should reflect this. The contract should be a reflection of your partnership, so it may need to be adjusted for pricing, payment terms or any other number of factors.
Hear more international insights around overhauling procurement at the upcoming Smart Procurement World Indaba in September 2021. Michael Pleuger, a business transformation, strategy and growth specialist will deliver a keynote address on understanding how the procurement function has been redefined and repurposed to help organisations make sense of the “now” in the current crisis.
