Written by Stuart Emmett
Following Paul Vincent’s dissection of buyer and supplier relationships and their impact on negotiations, I felt compelled to add my own take. I agree with much of what Paul says and think he makes some very valid points, but I think the problem too big to expect procurement to provide the complete answer.
The problem is actually rooted in the way most organisations work where the holistic system of interacting parts gets it wrong. To try and get it right, we must look wider and not just tinker around the edges. To really understand the issue, as well as looking into procurement itself, we need to understand the ripple effect it has across the wider business.
Government’s hand in public procurement
In public sector companies there is a fixed process with mandatory directives that stipulate the majority of purchases must use a tendering process, with further negotiations permitted only in a few specific circumstances.
This enforced tendering does have a basis in logic as it can encourage open competition along with clear audit trails over supplier selection. However, imposing a one size fits all rule can create significant financial implications. In recent years there have been a number of reported procurement errors in the NHS, DWP, MOD and HMRC which have cost UK tax payers billions of pounds.
Fixed tendering procurement processes can also have an impact on relationships with suppliers. Companies who issue a tender can choose to fix it by not providing enough details, putting any new suppliers trying to win the bid for the first time at a distinct disadvantage to the incumbent supplier with inside knowledge.
Conversely, in some cases where a past supplier has been working well, the forcing of re-tendering in every so many years may then force the buying organisation to select a new supplier. This can have a discouraging effect on suppliers as it does not reward past success or build up any long term relationships.
Furthermore, the reputation of any company can be at risk if it takes a hit from poorly performing suppliers, yet fixed tendering processes often focus only on finding the lowest cost. There is, in many cases, an unstated idealistic assumption that low cost and high quality/service will go together. Fortunately the government sector is finally catching up with the private sector and beginning to capitalise on the growing key principle of seeing suppliers not as adversaries, but as collaborative partners who work together to explore how to reduce cost at the same time as improving quality and service.
A collaborative approach is jointly beneficial as buyers and sellers are mutually dependent on each other, but too often the reality is a fractured Us vs Them approach. Fundamentally, procurement is all about business relationships, where, as with any relationship, there has to be trust.
Trust is however, an all too rare quality in business; indeed, the lack of trust is alive and well inside many of our organisations where power plays and turf wars are common. Cooperative styles of working will fail when overwhelmed by the reality of a prevailing antagonist style. However, change the approaches to one more focused on collaboration and changes in behaviour should follow.
The challenge is that change is not always carried out; even when the people in charge of the process know that there is room for improvement. Inertia is a fatal flaw in many organisations, and is typically caused by poor managers surrounded by a weak team, who are unwilling to put their heads above the parapet and challenge the status quo. Innovative managers can become bogged down by such pervading management principles, and will often simply choose to move on. As is often said, people leave managers not companies.
It is proven best practice that staff and organisations benefit by having in-depth skills in one key function (like procurement) and also have, what is commonly lacking, cross functional expertise. A sense of teamwork is essential, not just in procurement but across the whole company.
As I often note when training about managing supply chains, my first supply chain rule is to win the home games first. This means companies should fix the internal structural and relationship issues first, and only then look to improve relationships with all of the external suppliers and customers.
It is irrational to manage interdependent and interlocking processes as if they are completely independent of each other. We have to join them together and join up all of the thinking.
It is people, process and structure that create any organisational system, so, to change a system’s behaviour, people must change the processes and structure.
Stuart Emmett is a mentor and trainer/consultant in leadership, management and supply chain excellence. He has vast experience working with many different industries around the world, and has penned 30 books on the subject. You can find out more about him at www.learnandchange.com.