Relationship: The Forgotten Procurement Paradigm

Modern procurement techniques often focus on commercial outcomes, losing sight of the vendor relationships and partnerships that can bring immense value.

Procurement practices in many modern companies don’t deliver effective outcomes. Limited collaboration with other parts of the organisation, combined with an over-emphasised focus on price, lead to a reduction in compliance, quality and service. Companies that develop stronger ties with their vendors can expect greater levels of alignment and better organisational outcomes.

procurment staff meeting with a collaborative vendor

KEY POINTS

  • Many modern procurement functions focus heavily on price-based criteria
  • Enormous value is available from vendors in excess of the price tag
  • A multi-functional approach to procurement maximises value
  • Well maintained partnerships with vendors lead to better procurement outcomes

CONTENT

Over the past thirty years companies have embarked on a journey. A well-intentioned journey of creation, building discrete procurement functions, primarily in an effort to reduce the cost of acquiring goods and services. Whilst this has been effective, it’s also served to separate the business need from the procurement of goods or services to fill that need.

Historically, where workers required goods or services, they would procure those goods directly. They would make enquiries with vendors, establish requirements, seek proposals or quotations, and ultimately make the purchasing decision. Today, many companies have adopted a centralised procurement function, serving to act as the interface between the department requiring the goods or services and the vendors.

This has given rise to a generation of procurement workers, skilled in seeking bids, negotiating terms and administering contracts. Notably, this group lacks any real understanding of the requirement. This is often held by the department requiring, and is often complex and specific in nature. This necessarily becomes hard to communicate to the typically non-technical procurement office.

Often times, highly technical internal staff find it difficult to communicate to non-technical procurement teams. Likewise, the procurement teams have difficulty understanding the intricacies of requirements across many dissimilar areas. The result is that many important or even critical requirements are understated, minimised or omitted in formal procurement processes. Procurement teams then solicit proposals and procure goods or services which do not meet the expectations of their internal customers.

In a similar way, procurement often seeks to separate the internal customer from the external vendor. This further makes conversation about technical concepts difficult, with many translated messages back and forth. Regardless of the knowledge they possess, procurement teams often treat the vendors as an arms length outsider and prohibit the internal customer from speaking directly to them. An unfortunate side effect of this is that much of the value the vendor can provide is ignored. New technologies, alternative methods, and cost-saving production techniques are all ignored – the focus weighting heavily on non-technical price factors.

Despite the shortcomings of many modern procurement structures, significant opportunity exists to harness the extraordinary value that external vendors provide. These vendors frequently have deep knowledge of their product or service and, combined with the input from internal customers, can apply that knowledge to solve organisational challenges in new and innovative ways.

To harness such knowledge, modern procurement processes need to become facilitative, rather than controlling. They should act as a mere bridge between internal customer and vendor. They should seek to understand, clarify and synthesise the requirements and to develop and appropriate market approach that truly seeks out the specific requirement. Furthermore, they must engage vendors with a true partnership approach, which necessarily means value is received (knowledge from the vendor) for value given (business to the vendor) – a concept which blurs the often sharp, clear lines of procurement processes.

A collaborative approach, where the vendor provides not only general assistance but has deep organisational ties, serves to provide immense value to the organisation. Procurement functions must harness that value, and effectively deliver it to the broader organisation, in order to deliver highly effective outcomes.

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CONSULTING INTERVENTIONS

Merillot provides a range of consulting interventions that can assist in developing procurement teams, in addition to broader operational concepts:

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