Better, faster, cheaper—the paradox of procurement

January 16, 2020
Better, faster, cheaper is the paradox of procurement.

When my husband and I bought our first home, we wanted to renovate the kitchen and started to think about contractors. My dad warned me, you can pick 2 of 3 when you’re working with a contractor. You can get GOOD service CHEAP, but it’s going to take forever to finish the project and you’ll be doing dishes in the tub for a while. You can get GOOD service FAST, but it’s gonna cost you. Finally, you can get FAST service CHEAP but you’ll regret it when the plumbing leaks!

I’d just moved from operations to procurement at the same time in my career, and it struck me that procurement pros are constantly pulled in the same 3 directions.  We need to deliver on speed, savings, and compliance, and it seems impossible to do all of them at once. One item always falls short.

Good service
  • Risk assessed and onboarded
  • Strategic partner
  • Strong contract
  • Well-negotiated SLAs
  • Compliant with policy and regulations
  • Risk/Audit is happy

Making sure you get good service is a huge directive facing procurement. Most risk and compliance programs within procurement are designed to make sure that suppliers deliver on their promises, and that the company is protected if they don’t. A good product or service has been negotiated, outlined and inked. It’s purchased from a vetted, trusted supplier, and there are clear consequences for failure to live up to expectations—things like liability clauses and indemnity, or SLA credits and termination rights. A good service is something you actually use, that went through all of the right hoops and meets your (well-documented) requirements.

Cheap service
  • Competitively bid
  • Heavily negotiated
  • Consider the entire marketplace, not just trusted suppliers
  • Good payment terms
  • Finance is happy

A cheap service meets the budget! The best way to make sure you’re getting the least expensive option is to competitively source it and pick the cheapest, or use competitive bidding to drive your negotiated price down. Rather than trusting just your preferred or registered suppliers, you pick from the entire marketplace, and you pay according to the terms you set.  You use the market and market intelligence to make sure you are always getting the best possible price.

Cheap services deliver cost avoidance, cost reduction, and they make your bottom line shine.  

Fast service
  • Consumer delivery expectations (24-48 hours)
  • Turnaround time (PR to PO)
  • Deliver the product or service in time to meet the business need
  • Deliver fast to increase time to market
  • Operations is happy

When you need to buy a new faucet for the kitchen remodel at your house, you walk into Home Depot and walk out with the faucet. Maybe you don’t even do that—you log on to Amazon, hit a button, and it magically shows up, sometimes even on the same day!  So, why should it take any longer to buy a faucet for the office bathroom?

Business users have the same expectation for corporate purchasing, especially in fast-growing and highly competitive industries. Procurement organizations need to ensure that the process doesn’t slow things down

How do you make everybody happy? Most of the time, you don’t. Traditional procurement organizations, like contractors, pick two. Can you find your organization below? Which two are yours?

GOOD service CHEAP

If your organization is focused on getting the best possible products and services for the best price, you are probably very focused on Sourcing and RFX events. Since you have a significant lead time for purchases, you conduct extensive supplier research and vetting, and always get multiple quotes to ensure you are getting a great deal. You may have a well-developed relationship with your legal team, and contract managers dive into every contract to ensure the terms are well-established. You hit BIG savings targets every year and your procurement team aces the audit.

Alas, your business lines are about to revolt. Buying the stuff they need takes FOREVER, and it may be putting your company at a competitive disadvantage. Engineers and project managers spend more time trying to do supplier management or navigate the purchasing process than doing engineering and running projects. At first, your operations and business partners complain about process inefficiency and throw 6-Sigma at you. Over time, those business lines begin to struggle with compliance and look for ways to get around procurement. They see you coming; they know exactly what threshold hits your compliance requirements and purposely try to go under it just to avoid the delay.  

GOOD service FAST

If your organization stresses compliance (good) and turnaround time (fast), you are probably focused very heavily on directing spend toward preferred suppliers. These trusted suppliers have gone through your vetting process, have strong contracts, and have clean, fast ordering processes. You may have a number of punch-out catalogs that facilitate the ordering process, or you always order certain materials from a single supplier. You likely have a procurement operations staff who follows up on orders and ensures that the delivery and invoicing process goes well, and a strong contract management process. You probably have good visibility into purchases and suppliers, but not as much into market pricing.

Unfortunately, you aren’t competitively bidding most purchases. There’s just no time to do RFPs, and there is institutional reluctance to change from “the way it’s always been.” An RFP and contract negotiation take months that you don’t have, so they happen rarely and only after a lot of cajoling your business lines. Onboarding new suppliers takes AGES, so you’re willing to accept that you might not be getting the best price. You struggle to make your savings targets and wonder how many times you can go “back to the well” to negotiate down your strategic contracts.

FAST service CHEAP

If your organization is focused purely on turnaround time and price, you have likely decentralized your procurement process. You may be in a newer, fast-growing company, or an organization with limited regulation. The aim is to empower your users to get what they need, when they need it, and use adherence to budget to ensure savings.  

Unfortunately, in this day and age, a lack of supply chain oversight turns into risk problems and a lack of visibility. People buy stuff they shouldn’t, without appropriate contracts in place. They buy from suppliers who aren’t properly vetted, and you end up with a gigantic supplier database that you can’t rationalize or control. Audits and risk reviews become a nightmare, and poor supplier performance can quickly escalate to reputational, regulatory and financial disaster.

A Venn diagram of compliance, turnaround time and savings to show how procurement struggles managing all three.
Is it possible to do all 3?

Ultimately, that’s why I moved from pure procurement to procurement technology and digital transformation. You could do all 3 if you had an unlimited number of people to throw at procurement. Certainly, increasing your staff will have an impact on all 3 measures—but I believe technology and transformation are the answer. The right tools and the right processes can bring you closer to the magical center, and to being a truly strategic partner in your organization.

Automating compliance, speed, and price

Using AI (artificial intelligence), you can create business rules and automations that make rogue purchasing compliant and automate onboarding, risk and compliance steps. There are some incredible tools in the market that are dramatically reducing the time to draft and negotiate contracts. Other tools help to manage the supplier relationship and de-risk transactions without adding time.

Machine learning (ML) and deep learning (DL) can give you extra time by helping to predict purchasing trends and anticipate demand, or dramatically reduce the time to source (ahem, Fairmarkit). Data services have made tremendous strides in delivering just-in-time risk information to help you get ahead of supply chain disasters, providing information that is impactful and actionable.

The procurement landscape is exploding with solutions that can help you bridge the gap—but that’s another blog for another time!  In the meanwhile, plot out your own location on the grid when considering your procurement strategy. Where do you fit, and where do you want to go?

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