On purchasing and change

This article is a little bit unusual- a mix between sharing some considerations and drafting an issue for the online ezine that I posted online 2003-2005 (go online- it is still online: its future depends on how my activity will evolve); but I will keep it relatively short (under 2500 words).

Few days ago, I posted on Facebook this status update:

what is the relationship between change and purchasing in organizations? I have few observations to share (and some I posted already in my e-zine since 2003)… but before, I would like to see (post it here) if somebody has comments- or qualifiers to add 🙂

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I received only indirect feed-back, so I simply went ahead with the original idea- sharing my experience-based ideas.

Why? Anybody who ever prepared a seminar or workshop can tell you: when you prepare something aiming for a public, if you are any good at transferring knowledge to others (as opposed to just trying to have people look at you and parrot what you say), you (re)discover a simple truth.

We might well feel that something within our own mind is crystal clear, but whenever we aim to transfer that something to others… we have to convert it into something that does not depend on our own individual experience, but acquires a more “universal” value.

This long preamble has, obviously a purpose: this same issue applies to purchasing in anything larger than a one-person organization, as translating requirements into something potentially useful
to identify suppliers implies the ability to translate your needs into something that both the purchasing function of your organization and potential suppliers can understand.

Of course- large organizations, having significant resources at their disposal, and with a continuous stream of purchasing needs to present to prospective suppliers moved from the art to the process- creating all those forms, vendor evaluation models, RFP, RFI, and everything else.

But, before starting to share my ruminations, a small anecdote that I was told from a purchasing manager in a large multinational, as a practical caveat on relying too much on processes and procedures- and not enough on common sense.

When the company had introduced a centralize purchasing function, to avoid waste and even the potential for corruption, line managers were initially supposed to provide their requirements, and the new purchasing function would scout the market.

But between the requesting entity and the final delivery there were few bits and pieces that translated the requirements into something fulfilling a kind of standard taxonomy, and then was transferred to the appropriate sub-function to procure what required.

To make a long story short: the line managers required a COBOL analyst able to speak English. They received an interpreter who had translated computer programming books.

True or not, it is a funny reminder of a basic need: keep into the decision-making loop those who will then pay the price of any wrong procurement decision… and now, few considerations.

Consideration 1: look around for “best practices”, but do not extend the benchmarking into a mimicking of what others did yesterday, as if it were a blueprint for your own future

Preamble: purchasing as a gatekeeper

The title of this section is self-explanatory: but is the traditional concept of “purchase” still applicable in our “cloudy” world, where each business depends more and more on something immaterial provided by suppliers who are actually transferring the delivery responsibility to others?

Digression: I think that in most businesses any manager should receive a not-so-basic training on secure data management and the impact on business continuity of their use of business resources outside the office- as 24/7 connectivity is blurring the boundaries between private and public life.

In the past, managers were taught to avoid leaving the office with confidential information in their briefcase (and I remember companies were random searches on anybody leaving the premises were carried out); incidentally- how do you think that the Blackberry is, as their latest advertisement said, the only one able to tell you when a text message is read by the recipient?

Back to purchasing and change: more than a decade ago, I started seeing more and more managers bypassing their own IT department and bureaucracy to “outsource”activities, and about a decade ago this was converted into shuttling data to an external service provider (e.g. in current parlance a SaaS), e.g. to carry out specialized technical analysis.

Yes, there were also control-freak extremists on the opposite side- but, overall, a centralized procurement support function ensured an instantaneous adaptation to the selected best practices.

And it still holds true when you are asking to procure something- but once the supplier is chosen…

The key Trojan horse? Those services had a budget at or lower than the threshold that managers had convinced the top brass to give them, so that they could procure services without getting through the bureaucratic quagmire involved in a formal selection.

In the past, agreeing to a price and “service level agreements” was enough: but when you are buying immaterial services, often the business impact of the misuse of immaterial services is not clearly understood.

Therefore, keeping the old gatekeeper model, which at most involved collecting the feed-back on the quality of service is not enough.

Your immaterial suppliers, e.g. telecommunication providers, “virtual” software and services within IT (SaaS, PaaS, etc), even your old bank are not static- they too “optimize” their own allocation of financial and human resources.

Therefore, while they focus on complying with the service agreement that they reached with you, they try to be as creative as possible to improve their own long-term efficiency.

And, in globalized world, where fiber-optic cables practically annihilate distance, you never know where the physical infrastructure (or real financial resources) are located.

Because each and any supplier is really using the same business model that long ago was used by airlines companies: overbooking.

Consideration 2: shouldn’t our purchasing functions get from our suppliers information with the same level of granularity and frequency adopted by them in their own “optimization” activities, so that we can constantly assess our own exposure to indirect risks (e.g. the overbooking)?

From gatekeeper to “imported risks” monitor

Nothing that complex, and just a natural consequence of the preamble: change is inherent in the way our “self-optimizing” network of suppliers adapts to both market demand and competition, trying to improve the (economic) efficiency of any service delivered.

When I designed/delivered methodologies, my approach was that the office in charge of the methodology should not simply assume that just because they drop a manual and deliver some training, it is applied and applicable by everyone everywhere in the same way.

Otherwise, you would end up as a manager that I met long ago: he had returned to his former employer, when the new employer, after adopting a “management by objectives” approach, asked him to fill a form stating which business objective he aimed to achieve by… buying a pencil.

I saw too many methodologies and processes becoming so “holistic”, that a not-so-insignificant amount of time was spent to try to fit square pegs into round holes (and without the adaptations done on the Apollo 13).

Nothing more than signing a “service level agreement” is required, where the receiving manager gets the standard methodology, and negotiates on the deviations, based on a “catalogue” of possible variations, up to those that require staff from the office to be seconded temporarily to the activity (to keep a closer eye, and maybe add few more pages to the “standard”, if relevant).

More than once I was subject around Europe, either as a direct supplier or a subcontractor, or to help select suppliers, to cumbersome bureaucratic procedures- focused more on formal compliance than anything else; and often everybody assumed that past success was the basis to assume that it was a repeatable and scalable success- ignoring the changes in the economic context.

Recently, I heard more and more an added story: when becoming a supplier requires “qualifying”, companies are asking prospective suppliers to pay a processing fee, more often when the qualification is “top down” (i.e. with a central office) than “bottom up” (i.e. to satisfy a specific business needs coming from the line managers).

And I saw that being selected “bottom up” is like having a “fast lane”: but once in, the level of scrutiny required to get further activities was limited mainly to having no negative feed-back on prior activities.

A constant monitoring would require considering change as a dimension of analysis.

I saw way too many suppliers being unable to cope with unexpected success, to suggest to double check if the supplier is able to “scale up”- and in the 1990s I too walked the talk, by refusing to provided additional services, as the timeframe for delivery was shorter than the time needed to procure and coach the right people; instead, I offered to help select and manage a supplier.

If you have a critical logistics supplier, and that supplier loses a significant chunk of the existing business, can you replace them, if they suddenly lose the cash-flow required to provide their services?

Consideration 3: the closer the integration with a supplier, the more you need to monitor THEIR risks, and the ensuing ripple-effect on your business.

Synchronized swimming

At the beginning of my career, my first project was in automotive, on purchasing, actually writing a program (and then doing some business analysis) whose purpose was to collect a pile of parameters, to decide which suppliers could be payed automatically.

I do not know if it was ever used, but I wondered how some small companies that I knew could actually keep with their scheduled deliveries, etc, as part of the “just in time” approach.

Actually, I discovered that later on: some of them were financially overexposed, as their warehouse was actually built up to manage their inability to work “just in time” with their own suppliers upstream (everyone has a supplier- and if you are too small… you have no leverage to impose conditions to them!).

Somebody could say: but this is an issue just with production companies, we deliver immaterial services, and/or use suppliers delivering services, not products, therefore…

Well, also when they provide cleaning services or computer programmers: the same “just in time” approach applies, and more than once I found myself to be called as a project manager or to help negotiate some issue, only to discover that the real issue was an overeager small fry trying to grow by never saying “no” to customers when they were told “we are happy about the service you provide- we want more”.

In part, is covered by the “Consideration 3” (see previous section), but in reality the issue is well known to any company certified under any of the schemes available around.

If you are a small company, and your supplier is a bureaucratic behemoth that activates a new account in minutes, but then for any change or complaint takes forever, their timeframe for decision making affects your own decision making.

And the same applies the other way around: a small supplier can have brilliant and creative employees, but while they could be your “idea provider”, or be a wonderful addition as “in house SPOC” to support managers used to manage projects worth 10 million EUR each (and the associated organizational pyramid), would this nimble, flexible, and mildly chaotic service provider able to cope with larger responsibilities?

The larger the activity, the easier is that the activity starts before the ideas are really fixed- and some tuning will be needed.

When I was facilitating activities, a project manager complained that he had been sent there to replace another one, and he was going to become the scapegoat, as the other one had been smarter in jumping ship on time, while he was going to deliver the message.

I told him: do not worry, your bosses knew that- and you are in a big company. You are the one doing the fact-finding and delivering the message, and probably you will be replaced by a third one, the one who, using what you have discovered, will save the day- giving the excuse to change the original plan with no loss of corporate face for any of those involved.

But, being a large company, it is a routine that I observed often- you will be sent elsewhere.

Consideration 4: when you select suppliers, you select their product and services- along with their own corporate culture; are you ready to manage any cultural mis-alignment?

Conclusions

I have other considerations to share- but I promised to share few considerations, not to write an essay on change and procurement.

I will in the future share some considerations on the “phase-in” and “phase-out” of a supplier- as I think that both should be clearly settled also within the contract.

When I was supporting software publishers in their negotiations, I had to translate contracts from
English to French and Italian, and recently also the other way around.

It was quite interesting to see how something as simple as selling a box of software or delivering a technical service was really carrying along the legal culture associated with the originating country.

Personally, whenever I negotiated a contract I kept linking the economic (amount) and financial (amount spread across time) sides with business objectives, and to link those to the level of service that we agreed to deliver- up to the point of creating a mini-bureaucracy, by strictly enforcing the rule that one person per customer was the unique interface, and any project or service manager working for that customer should CC or BCC the unique interface.

And I was of course quite happy to coach somebody into taking over the honour of being the unique interface (I wrote already in the past in this blog of my “step-by-step” approach to coach new people into a role).

But I always settled within my own “pyramids” a clear set of communication paths, including those toward the stakeholders and the buyer or activity manager on the customer side.

As, in any business relationship, both as a customer and as a supplier, I always said that communication and joint risk-management is the corner stone to ensure the success of the activity.

Changes might be required- but surprises are what often generates issues, not the change per se.

Ask anybody who worked on my activities: I always taught them to write minutes for each meeting, often also informal meetings, if their results could be construed as a commitment, and to use the closing of previous minutes as a starting point for the next meeting.

Consideration 5: Also when the customer is a behemoth, and the supplier a midget (or viceversa), it is more constructive to communicate as soon as possible about anything that could affect the desired outcome, than playing David vs. Goliath when the time comes

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