"I'LL GET A BETTER DEAL" AND OTHER MISCONCEPTIONS

If you are in Procurement, you will have heard, more than once, an internal client say that they can get a better deal than procurement. They believe they negotiate better, and they know better than procurement what their needs are. And to boot, they will often then add "and I can get it done faster!"

Let me tackle these comments one by one with a real life example that happened years ago, in a corporate environment where I was in the procurement team. 

We discovered that one of our internal clients had chosen to buy two servers on his AMEX expense card. The supplier was a firm that we did purchase servers from, on a regular basis for the company as a whole. This individual though felt that they had gotten the best server, at a cheaper price and it was processed much faster than having had to go through procurement and our "tedious" process.

 Pricing

• Was the price quoted to this individual cheaper than the one that we would have had on the purchase order issued by procurement? Yes, absolutely it was! But there were a number of issues with this price:
• The price quoted was in US dollars, not Canadian. At that time the Canadian dollar was trading about 10 cents below the US dollar. So the "real" price would have to be converted to Canadian dollars for comparative. When this was done the price was equivalent to that in our database
• The price didn't include freight. The way it was ordered, this was being shipped from the US to Canada and you can imagine for this type of product, shipping is not chump change
• Because of the way it was ordered, on a credit card, and outside our company's contract, once it crossed the border, there would be no warranty. The person ordering said he thought that because it was on an AMEX card, that there would be a provision of warranty. Actually, I don't think he ever even thought of warranty and this comment was a Hail-Mary pass to justify his questionable behaviour.

So when taking all of these items into account the "price" became significantly higher than the one we had negotiated.

I know what I need

Actually, I accept the fact that the business unit will be able to articulate and even identify what they need, perhaps in the server case even down to the vendor and model number. So as a procurement organization it is not our role to say "no you should buy this, not that." However, if  procurement is doing their job, they will be up-to-date on what is happening in the market, across a realm of various suppliers and be able to advise on other alternatives than the one presented. 

Procurement personnel have taken a vaccine against sales pitches and are pretty immune to the "this is the best for you pitch." A lot of others are not and they may be mesmerized by the shiny new toy, and want to buy the space shuttle, when a VW bug would do. They may have developed a more fluid relationship with a salesperson from one organization vs. another, so this company has a clearer understanding than another. So inevitably procurement will get the comment "the other supplier doesn't understand out business needs." 

And you know what? All of these things might actually be true, but I have found multiple times that when providing other options/alternatives that the original "must-have" isn't. 

Procurement is never there to dictate to an internal client what they should or shouldn't do. The role of procurement is as an advisor to the business. An influencer if you will, and never the final decision maker. Working hand-in-glove with the business to proactively define their needs ensures that the company as a whole benefits.

Faster

I think by now you probably realize that faster in the front end, is highly problematic and becomes a lengthy "fix it" situation on the back end. In the case above, we could have probably actioned the server buy in about 24 hours -- of course that would have been dependent on the approval hierarchy that would be required (note, this person did not get any approvals -- was just going to expense the servers). I have yet to be in a Procurement organization, where if something is identified as urgent, that it won't be actioned extremely quickly, and often faster than if the individual does it themselves, because, procurement has the relationships within the vendor's business to make things happen -- because procurement represents the entire spend, not just a one-off buy. 

The problem is though, is that when a group always advises Procurement of the urgency of their situation, it becomes like the Boy Who Cried Wolf. We don't believe it anymore and then action it in a regular manner. And if everyone says everything is urgent? Well, then urgent becomes routine and again, not necessarily the outcome that is desired by the end client.

Granted, if urgency reigns supreme, then it is up to Procurement to engage with the internal client and discuss their needs and put together a plan to ensure that they are getting what they need when they need it. 

By being proactive and when Procurement is involved at the beginning, in the planning stages, at budget time etc., then again the entire process becomes mutually beneficial.

You are probably wondering what happened with the server scenario. We didn't find out about it until the hardware was delivered and the expense report was filed. It was Procurement that fixed this mess, and it wasn't easy. We went to our supplier reps in Canada, and indicated that the US never should have excepted an order from a company that they knew to be a client, on an expense card (without a PO). We also stated that we were sure that considering the millions of dollars of business we do with the supplier it would be worth their while to find a solution to this issue. We accepted that our company didn't follow proper protocol either, and we would put checks in place that this would not happen again.

The outcome was our vendor, on paper, took the servers into their inventory in Canada, reversed the charges on the AMEX, we issued a PO, which was based on our contract and pricing terms, and the issue was resolved. It took about a month to unravel this, but we did it.

And the rogue individual who did this? Well, he just got a slap on the wrist and was told never to do it again. Why were there not more consequences? Because at the end, we fixed it, so it was considered "no harm, no foul," because no one knew the number of hours and negotiation it took in the back room to make the fix.

Most of the internal clients in this corporation came to rely on procurement and our expertise. We listened, we understood their needs and we became part of their teams. Hand-in-Glove. We respected each others' knowledge and experience. The individual who had ordered the servers was new and who knows what kind of procurement group he had been exposed to in his former company. Probably not one like we had.

The next blog entry will be about what Procurement teams need to do to make themselves valued partners in the business and how to market their value proposition.