Dominant power & lethal injection procurement

Back in 2013 I discussed the problems Texas was facing with its death penalty regime due to a supplier no longer wanting to supply. Today there are reports that there are no longer any legal supplies of the drugs at all in USA, after Pfzer, the last remaining supplier, decided to cut supply.

This is a remarkable example of how dominant power impacts on procurement.  While few would doubt the USA has massive buyer power collectively over markets, in this case, the USA have discovered that dominant power can also be with the supplier.

Like yesterday's posting, on Archaeologists, this is another clear example of a bottleneck item. It is also an interesting example of the difficulties which can be faced in finding substitutes.

Sourcing Portfolio Analysis: Book review

This is not bedside reading material though it is a book every procurement professional should read.

Set aside any preciousness you have for Krajlic, Porter's 5 Forces, and Category Management, be prepared to be challenged, and read this with an open mind. Here you have a hefty academic critique of existing ways of procurement thinking. It is a logical discussion which leads you to a better way.

I'm not sure how much rigour Kraljic put into setting out his model which is at the core of so many procurement strategies but Cox doesn't spare any punches in highlighting its weaknesses. To me, Kraljic works best as a simplistic approach to differential procurement management and is useful for engaging senior stakeholders. Procurement managers need to recognise that it is part of a toolkit as opposed to the only tool. I think Cox assumes that procurement professionals have actually taken the time to read and digest Kraljic's original paper - to me that is an unjustified assumption. So, for many, Cox's actual explanation of the Model may well be new. Disappointingly, at times Cox's critique looks very like 'cut and paste' and becomes a bit tedious - a little more focus on the narrative would have avoided what sometimes has the appearance of lazy writing.

Having said that, Cox appears 100% correct. He reiterates and expands on many of his previous discussions on Power and the need to recognise that an understanding of relative power is fundamental to effective procurement strategy - I agree with him. Sadly I rarely find practitioners demonstrating a thought process which considers power.  He sets out a matrix of strategies which flow from relative power positioning - this isn't the traditional 2x2 but 4x4 - that's a lot of positioning. I think I understand what Cox is saying but then ask myself how robust and objective the user's mapping can be anyway. Is it not true that although his method is robust and scientific, if the basic information which feeds it is lacking then there is no sound foundation.

I found the detailed setting out of his sourcing strategies exceptionally thorough and can't find any fault with what he says. Cox acknowledges the difficulties which practitioners face and sets out a good justification for pursuing his decision rules. Having said, that I would like to see some evidence that applying the approaches outlined deliver real tangible benefits beyond the existing rule of thumb approach used by many which is at the heart of his critique.

Where I really struggle is with the application of the detailed approach within a regulated public procurement environment. If I am correct, Cox is arguing that the relative power of all those the buying organisation considers to be 'the market' be established. Therefore multiple suppliers and the development of discrete strategies for each of them.  But within a regulated procurement, would that mean each of the potential bidders is subjected to relative power positioning, which then shapes the 'tender approach' within the competitive requirements of legislation? Perhaps, a way round that is better understanding of the relative power of the market per se, then developing an overall approach, then, for those who successfully navigate the competition, post-award discrete strategies tailored to the relative power? I could of course be wrong. Nevertheless, even if the detailed application isn't easily transferable to a public procurement environment, the need for understanding the relative power positioning is and managing suppliers conscious of that positioning and aspired to positioning is too.

Nevertheless, the book is a bit of a slog demanding a lot of thought but worthwhile. The book shouldn't sit on a shelf looking good but be used as a route map constantly referred to. I would like to see the paradigm shift which Cox calls for as the profession needs this sort of smart thinking.  Having said that, my experience is that many are still struggling with what to do after the completion of a spend analysis and Kraljic is only grasped at a high-level. We need the rigour of thinking which Cox applies and we need to apply his approach.  If power positioning and the associated strategies were applied I honestly believe better outcomes would be achieved and the profession would reach a new level.

While the book is remarkably cheap at £20 and certainly worth a buy, if you would prefer a taster have a look at Cox's white paper available at: http://www.iiaps.org/pdf/WP-PowerPositionSPA.pdf

NB I am grateful for receiving a complimentary copy of the book on which this review is based. 

Premier Foods procurement strategy going from bad to worse

Last year I wrote about the procurement strategy of Premier Foods which has suddenly become a hot topic and now looks as if the chief executive has been coerced into setting aside.

Initially the rationale of the Premier Foods procurement strategy was to supplier reduction and a focus on strategic suppliers. The objective wasn't necessarily wrong but the implementation was flawed in both rationale and implementation.

Now to add to that confusion the chief executive has said "in my view that is just one of many kinds of discounts. It's an investment on growing our business and that's entirely appropriate". That seems a massive shift in last year's justification! Did the chief executive understand the 2013 rationale? Was there any Board buy-in to the risks of what could happen and the potential fallout which has now led to adverse national press and media converage?

Gavin Darby, the chief executive, to me, has made things worse by stating:

If the optics of this scheme for some people feel uncomfortable, I'm happy to move on and move the scheme to a more traditional discount .. we would just say we have an invest-to-grow campaign, we want people to come with us to invest in our business and that would be reflected in a discount soon the terms they have offered in the past.

If Premier Foods had wanted "[suppliers] to come with us" they should have thought a bit more about how they would bring the supply market with them.

Darby seems to forget that some of last year's suppliers appear to have now chosen to opt out of supplying and some who did pay-to-stay never received any business anyway. How will Premier Foods go about negotiating the new discounts with those firms? Let's face it Premier Foods have now lost the initiative and common sense would suggest that suppliers should just refuse to budge on discounts.

Setting all that aside, we have yet another example of procurement damaging brand value and I assume adding to remedial costs associated with retrieving reputation.

Then we have the issue of do they really understand the concept of strategic supplier management? Sadly, I fear, Premier Foods are working to their own recipe and it has a remarkably bad taste.

More Teswoe's - and thoughts on the linkage of Marketing & Procurement Strategy

With the slogan 'Every little helps' Tesco are also sure to understand the drip, drip, drip of every little piece of negative publicity also counting. I have given considerable attention to Tesco's approach to procurement over the years and how it may not have been just exemplary as others argued.

However, today's Sunday Times article drew my attention to an aspect of Tesco procurement strategy that I previously hadn't considered, namely, minimising customer choice. I just hadn't considered that the strong arm of Tesco's buyers were suspending products from the shelves - customers were being deprived of choice by Tesco. Of course the suspension also had a painful impact on suppliers. Ironically Premier Foods lost £10m in three months. I say ironically as you may recall, some months ago, I referred to Premier Foods bizare approach to defining strategic suppliers.

While these case studies are of interest to the procurement world, to me they are also of interest to those interested in Marketing Strategy. Did Marketing in Premier Foods position Tesco as strategic - clearly Tesco's Procurement Strategy didn't position Premier Foods as strategic. And what about the reputational damage caused by Tesco's Procurement Strategy - never mind that a number of the Tesco staff are now suspended, how much will Brand reconstruction cost. Wouldn't it be interesting to read the brief for the procurement of that Brand agency who have to undo the damage caused by Procurement!

Phones4U rings out a need to understand power/dependency

The news that Phone4U has been forced into liquidation as a result of its strategic suppliers opting to no longer supply means that nearly 6,000 workers will understandably view any talk of a recovery with significiant scepticism. The market and government tend to forget that failed businesses bring personal traumas and scared memories. Phoens4U struck me as great on customer service and providing a useful offer - I have had many phones through them over the years and was always impressed by the staff who dealt with me - my heart goes out to them.

But the decisions of Vodafone, O2 and EE to no longer contract with Phones4U demonstrate the importance of understanding and recognising the power/dependency relationship in procurement. Clearly those big providers have developed an alternative business model of cutting out the middle man questioned their added value. But how did Phone4U addresses these former partnerships over the years? Did they view the partnerships as not only a significant procurement risk or even they recognise the potential for the supply chain to close the firm?

We can only hope that negotiating strategy of Phones4U was not a major contribuor to its demise but when O2 withdrew as a supplier back in February warning bells must have sounded. But warning bells must also sound for all those businesses which are dependent on those providers for delivery of their services - do you consider your business as preferred customer of, for example, Vodafone, or are you merely dependent on them?

Uber wars

Today sees the next round of 'Uber Wars' in London.   Uber is an app which allows you to hail a Cab and know how much it will cost.

If like me you travel frequently between Northern Ireland and London it provides the additional benefit of not having to bring English notes as London Cabbies have a reluctance to accept the Queen's Northern Irish Sterling. 

It also provides an alternative supply source - using Uber doesn't mean you can't also use Black Cabs!

Nevertheless, the Black Cabbies are out in protest today, I think 12,000, through fear of what digital might do to their business model. I've previously discussed Digital Procurement Strategy and how we should embrace it but this is an angle I hadn't touched upon.

It's a strange protest insofar as it has actually pushed people to find out more about their competitor,  Uber, and its benefits, I suspect has led to a marked increase in Uber app downloads. I also assume, Uber provides some sort of 'trackable' history which means it may be safer as well as cheaper. Meanwhile Uber stole a mark on the Black Cabs today by adding Black Cabs to their app. I'm not sure how the Cabbies will respond to that.

Will the protest work? Actually I don't think so. The existing dominant provider has signposted to its competitor. There are negligible switching costs, if any. 

To have an impact Black Cabs will need to think smarter in communicating whatever benefits they have and delivering a more customer focussed service - something which is erratic. The previous benefits of 'The Knowledge' may no longer be worth investing in if you have aspirations of being a Cabbie - could Uber become a tool for Black Cabbies too?

Then the protest suffers from too many alternatives available today - a parallel protest with a Tube Strike may have led TfL to revisit its position. It's also a lovely day here in London - walking is fine!

From a commercial point of view, will firms no longer accept Black Cab receipts and ask for evidence that you first tried Uber?

Digital is changing taxis - have you thought how it is changing procurement?

A Mars a day doesn't help procurement pay.

Today we have heard that Mars UK have revised their terms of doing business and expect suppliers to wait 120 days (as opposed to the previous 60 days) for payment. Alternatively, it is reported, suppliers can access supply chain finance, for a reduced payment in 10 days.

Only last week I discussed the issue of late payment and I have to admit I am surprised it is a symptom of the economic recovery as opposed to the recession. Nevertheless, it can be assumed Mars UK have a strategy behind this new policy which suppliers, in turn will have to decide on their response. Now there is a danger that others will feel this is the way forward and something to be copied - so a few thoughts:

1. How dependent are you on your suppliers? If you need your suppliers more than they need you they may chose to say "no thanks";
2. How easy is it for you suppliers to find alternative customers? If it is easy for suppliers to find alternative customers they may just opt to give those customers preference over you;
3. How competitive are your competitors? If your competitors are also using the same suppliers don't be surprised that they offer your suppliers more attractive terms to suck out your supply source?
4. Have you existing contracts in place which state the existing terms? Don't be surprised if suppliers decide to enforce those terms unless you give them something in return, for example a longer term commitment;
5. What will you do if suppliers just say "okay, but in that case the price is higher and lead time longer"?
6. Have you thought what you will do if the suppliers just say 'no' - how will you mitigate against that risk?

The Probation's Dilemma

I'm sure many of you are familiar with the Prisoner's Dilemma - perhaps through the scene in one of my favourite films, The Beautiful Mind, when Nash outlines how his college friends can all 'get the girl' through collaborating together. I think today we saw a new iteration, The Probation's Dilemma.

Previously we have discussed problems with the potential outsourcing of prison services, now we've learnt of plans to outsource the probation service. Personally I think this creates a real dilemma.

1. The first problem is that already there is speculation one of those potentially in the frame for delivery are G4S.  Rather than revisit old ground and boring you, all I will say is: Olympics security delivery, black-listing, and Home Affairs Select Committee.
2. Second, there is the potential power some of the providers may gain in service delivery, namely, providers of tagging, prisoner transport, prison management and, now possibly, probation services. That's a lot of eggs in one basket and a lot of risk with a very small supply base who could start to have so much power they could hold the MoJ to ransom. 
3. Third, there's the problem with making Payment by Results work - specifying outcomes and contract management. Yes, Chris Grayling was one of the architects of the DWP Welfare to Work Programme, but to me that should still be treated as prototyping and an opportunity to learn. 
4. Fourth, there's the not insignificant problem of very unhelpful impact the austerity strategy has had on the third sector who have a good track record in supporting ex-offenders. The third sector are frustrated with their perception of the Work Programme and many have suffered considerable pain as a result of the austerity measures; many are struggling to survive and have been forced to make redundancies. It's all very well offering the carrot of £500k to help them prepare to bid but could this just be a little bit too late?  Have we already lost some of their innovation and creativity in service delivery by being 'penny wise and pound foolish' in short-term procurement strategy? If you were a third sector organisation would you have enough confidence that the probability of success will justify the costs of bidding?
5. Fifth, we have the lethal mix of third sector cashflow and payments by results - will potential third sector providers be able to cross subsidise an unproven government 'good idea'?
6. Sixth, is the readiness to change - it certainly doesn't look as if those who already work in delivering probation services have welcomed this initiative with a fanfare of endorsement!    

So, as I see it, that's The Probation's Dilemma: the need to blend that difficult mix into a success for all the stakeholders so that they each perceive a 'win' - given questions about the MoJ procurement capability and the risks involved: Beautiful Mind or Beautiful Dream?

The application of Porter's 5 Forces Model: Procurement resource or nemesis?

It's a funny old world. 5.5m results were found in a 'google images' search for Porter's 5 Forces Model. Hours are spent forcing the Model into students heads.  Yet could it be that using it as a tool for pragmatic analysis and development of strategy is cast aside on graduation like the mortar boards cast to the wind in pre-H&S days. Is the Model relevant or just a set piece of business school theory? If however we used the Model as a tool, would it suggest a change of strategy?

Let's think in terms of developing a procurement strategy. First we need to understand that the buying firm are in the middle - I appreciate that contradicts some well known texts!  As the buying firm we are part of a value chain supplying external customers and clients -  the buyers in this case are upstream from our firm.

While the bargaining power of buyers and, threat of of new entrants and substitutes should therefore be uppermost in the minds of the marketing manager, the later two should have a bearing on how the procurement manager thinks too and help in framing the procurement strategy.

When we refer to the firm's procurement strategy, the 'bargaining power of suppliers' relates to our suppliers.  The 'threat of new entrants' relates to potential new entrants which our customers could draw on (displacing us) but just as easily, how potential new entrants to the market could disturb the bargaining power of our suppliers and enable us to source elsewhere. The procurement manager would want to reduce the barriers to entry for potential new suppliers and in so-doing increase choice, potential new sources and a healthy competitiveness within the market. Equally, when we refer to the threat of substitutes we can view that as potential new products and innovations which could make us more competitive and replace the 'old spec'.

A few years ago I carried out some research on the Global Financial Crisis (GFC) and whether it had led to changes in procurement strategy. I was aghast to discover that the over-whelming response was that it hadn't - the respondents were, according to them, implementing a pre-GFC strategy, a strategy developed in an entirely different environment. Five years into the GFC I dread to think that the same situation may prevail. However, what I want to consider is whether a short term approach to procurement strategy may well be detrimental to long-term strategic objectives.

Let's consider the current environment which prevails in many countries.