On 'Lots' within a sourcing strategy.

Peter Smith posted an interesting post a few days ago on 'Lots' (breaking up potential contracts into smaller packages). His post was a follow-up to a previous discussion on the EUs strong steer that, in their view, 'lots' should be the default strategy when letting contracts.

I have advocated the use of 'lots' for many years but that has always been as a tool in achieving the strategic objectives of the organisation, for example, ease of access to SMEs.  If 'lots' are not strategically aligned with the organisation's objectives then, to me, they should not be used.

'Lots' are just one of an array of strategic sourcing options which should be considered - they should not, however, be the default option. Nevertheless, the EU now expects public sector procurers to document why 'lots' are not used and therefore implies, they are the option of preference. The implication is that at some stage that documentation will be need to be produced as some sort of discoverable evidence in defence of a professional judgement by the CPO.

Now I am not against a CPO documenting an options appraisal which justified why 'lots' were not used, on the contrary I would like to see more procurement decisions led out in logical argument. However, I feel those documented justifications should be for internal scrutiny and not something which the EU should demand.

I also have concerns of what this could lead to. For example,

Even ISIS have a procurement process

ISIS have wreaked havoc across the globe as we clamour to find a solution to their terror machine. Their sophisticated use of social media is far more advanced than most western businesses and governments, but what about their procurement processes?

Give some thought to how you would go about managing a supply chain which copes with the insatiable demand for bullets, guns, suicide vests, IEDs, etc. to the front line - thousands of bullets alone every day. The consequences of not getting the 'right thing, to the right place at the right time' may also have a heavy price to pay in personal accountability. While we discuss airstrikes, effective disruption of the procurement process would be a useful strategy as it would demoralise the 'frontline' and seriously degrade ISIS impact - it has to be explored and exhausted. 

The Financial Times has provided insights into how the procurement system works.  

Blackmarket arms dealers are 'licenced' by ISIS commanders, following approval by two members of the security services, and provided with stamped IDs which provide freedom of movement on the condition that ISIS are the sole customer. 

A 'pull' system is in place from the front line; effectively a requisitioning process. Requisitions are received by 'centres' - various tools are used to communicate the requisitions. The 'Committee' provide price lists to the 'centres' for common items. The dealers also receive  price lists.

Amazingly, they have also adopted a strategic approach in that since prices having been rising, they have issued more dealer licences in an effort to encourage competition reduce prices!

Governance of the process is a top table issue, understandable given the risk of failure.

There's something fascinating about this procurement process, isn't there: requisitions, price lists, approvals, making markets work, governance, speedier transactional processes. We can't tell if compliance is an issue or even quality control, but the next time you hear someone arguing that the procurement process doesn't work for them, spare a thought to how easy it all could be.

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!

A risky business

I have already shared some reflections of this year's Chelsea Flower Show but the purchase of tickets is also worth thinking about.

Tickets for the Chelsea Flower Show are freely available to purchase on the RHS website some time during the preceding Autumn. There's limited availability, so, once they're gone, they're gone. If you want to visit Chelsea  therefore you are likely to buy your tickets near enough six months in advance. Therefore, at the time you buy you have no idea what the weather will be like and you also take a gamble whether you personally will be able to attend.

However, since the tickets are in short supply and sold out months in advance you can minimise your risk by buying the tickets in advance and then, should you decide not to go, try to sell your tickets on eBay. That way, you could make a profit on your initial purchase, or possibly be left with dated tickets of no value at all - it's a risk you take.

I'm sure you realise that the only sure winner in this is the RHS Chelsea Flower Show (the supplier). While they do not choose to auction tickets (yet) they have money in the bank long before the event whether or not the ticket purchasers actually use the ticket.

Now the week before Chelsea there's a flower show quite local to me, in Hillsborough. While a ticket to Chelsea costs £55, an online ticket to Hillsborough costs £9. Perhaps at some stage we can discuss the comparative value of the tickets, but that's not the issue here.