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Wednesday, 15 May 2013

Strategies need evidence



One the hardest things when developing category or sourcing strategies is to stop anyone making the decision before all the facts and data have been gathered and analysed, and all the options identified and assessed. Without the facts and data that provide the total cost and benefit of all the options available how can anyone make a decision?

Emotion is a strong motivator but it doesn't always deal in logic. "We should go with this supplier" is only a valid strategy if sufficient information is available to tell the story of why. "Because the current supplier is useless" is not an acceptable reason. They might be - but why, what does useless look like, what's the cost of that poor performance, what options exist to improve the current supplier, what are the business requirements, what are our current costs, what other suppliers are in the market, what criteria are important when making the decision, what are all the options that are available, what will all the costs and benefits of those options be and so on.  

I know it's tempting to say let's :
  • Terminate this supplier - before we realise the contribution we're making to their poor performance 
  • Single source - before we've analysed the data and realised there's no single supplier able to take on 100% of our requirements
  • Dual source - before we realise only one supplier can meet our needs and we'd be better adopting supplier relationship management with them
  • Tender - before we realise the business requirements require a complete overhaul and what we tender for today would not delivery any value improvements until that happens
  • Outsource - before we really understand what we're wanting to outsource
  • Develop the relationship further - before we realise the supplier is exploiting us
When developing category or sourcing strategies we need to develop the business requirements, understand the supply market, undertake supplier analysis, understand the costs and supply chain. It's only by undertaking this analysis with rigour that we can determine the options, assess these options against the criteria and then make a recommendation.

I found myself writing the other day that "senior management approval will only be achieved if we are able to provide evidence of the efficacy of our recommendations." If emotion and subjective statements are our only response we'd best be ready for a disappointment!

I was very pleased with our presentation of a sourcing strategy to a senior leadership team recently. We presented a 10 page summary document. Every question they asked we were able to provide an answer and the evidence for it - either in the 10 pages or with reference to a larger 90 page document and multiple (and I mean muliple) excel worksheets. We never once uttered the words "we haven't thought of that" or "I don't know" because we'd done the analysis and we had all the answers (I do so love excel spreadsheets :-)).

That's how procurement adds value to an organisation in understanding the value that can be added once, and only once, all the facts and data have been gathered and analysed.

Footnote: Living in Scotland means it's only a matter of time before I'm asked to engage in the question of Independence (and I'm dreading that day.) Currently, with my procurement hat on, I'm astounded that anyone can be suggesting which option is the right one. If a category manager came to me with a statement that they knew the strategy we should adopt (which both sides seem to be doing) with so little thought about all the implications to the business, no business requirements, no cost and benefit analysis, no analysis of the market, no criteria for selection, no risk analysis undertaken and no analysis of the other options - I'd tell them to go away until they'd carried out that analysis. In fact I'd doubt their integrity and expertise because a decision could not be made without that level of detail.

Scotland is being asked to make a decision on 18th September 2014 when both sides are currently running around trying to determine why their option is the right one and constantly uttering the words "I hadn't thought of that" "I don't know" or even worse "we'll only know that after the decision has been made"

Alison Smith
The Purchasing Coach

2 comments:

  1. Great post as always Alison! We as the procurement "experts" are there to help the end-users with those questions. I recently dealt with someone who listed what companies we should go with and not others, but when we got into the 'why', and poked further, it was all about quality & usability issues...so we started coming up with criteria of what quality levels would be our minimum requirement (as it so happens, we don't need the best of the best ...)

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  2. Thanks Katherine - it's easy to forget that what we take for granted isn't obvious to those whose expertise is in other areas

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