Procurement is never easy, but it is substantially more efficient if the decisions are made in the right order. That doesn’t mean we don’t go back and change things when we have better information but if you start with the small(er) decisions, you create problems for the big decisions and build a whole load of friction into your process.
Things like contract durations, limits of liability, KPIs etc are all too variable at the outset, you need to build up to those tactical decisions and make them on the basis of good strategic level decisions.
Organisational strategy, requirements development, procurement strategy, then commercial strategy for simplicity. Each will have other components but that’s broadly the approach I would recommend. Each decision along the way helping to shape and benefit the next.
Yet, I have spent an inordinate amount of time in the last few years in projects where the first decision to come down the chain is akin to ‘we want a 7-year contract’. How has anyone made that commercial decision before we have developed the requirement, procurement strategy, tested the market and even started thinking about the commercial strategy? Or worse, being required to develop a procurement strategy with no form of requirement and then going blue in the face explaining why that is futile.
Let’s look at a couple of examples of what I’m talking about:
Example 1: The 7-year contract
Let’s start with my ‘7-year contract’ example. This ‘direction’ was given before the requirements work was complete and the market hadn’t been tested. So off we went, developing the business case for a 7-year contract – huge amounts of underlying work for the finance team. We developed our requirement and we tested the market for procurement routes and supplier capability. Inevitably, the best procurement route available was a framework that allowed a maximum of 4-year contracts. Back to the drawing board. Back to the decision makers. Time and effort wasted.
Example 2: “Get us a price”
Another example that I see in construction regularly is the cart before the horse approach of “get a price and we’ll figure out the Ts&Cs later”. If you haven’t drafted a set of Ts&Cs to a reasonably mature state which underpins your RFP then there are still plenty of decisions left that you probably haven’t made (limits of liability, pricing terms etc). This is a complete absence of strategy and so the order of things is askew. So now you’re in a negotiation on commercial terms with a price on the table which is arguably meaningless but the board likes it and you have little or no leverage. Critically, it is not faster this way! If you had laid out all of those things in the RFP, you would have a price that reflects your terms.
Where we have to be strong as procurement professionals is ensuring good process. That’s not to say we follow the process to the letter every time, but get the overall sequencing right. Follow the established cycle – it is built on decades of experience and wisdom. The process inherently guides you to take the right decisions in the right order and when you have the right information.
Don’t rush, don’t short cut, it only creates friction and potentially weakens your position. The right way is the fastest way.
Kevin Smith
Managing Director
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