#indyref and procurement part 3 - consolidation

One of procurement's value levers is consolidation. The premise being if you buy more from a supplier the price will come down because of the increased cost efficiencies that arise as a result.

The continuum over which consolidation may take place covers:

• Individuals
• Teams
• Departments
• Regional business units
• Subsidiaries
• National organisations
• International organisations
• One global organisation 

Stakeholders often tell procurement that as an individual they can purchase cheaper than central procurement negotiating on behalf of the national organisation. That may be but for standard and commonly required items once the total cost of sourcing, negotiation, order, shipping, delivery, receipt, payment, storage, use, maintenance and disposal is taken into account it's generally not the case. 

There does however seem to be a limit over which the benefits of consolidation no longer hold true and where that limit lies depends on:

• The goods and services involved
• The income/profit/loss involved for both parties (as £ or %)
• The similarity between business requirements
• Power of the buyer
• Power of the supplier
• Cost of research and development 
• Cost of tooling or set up
• Competitiveness of the market
• New entrants coming into the market
• Substitutes available 
• Political, economic, sociological, technological, environmental and legislative factors 

For some goods and services therefore negotiation at an individual level might make sense, and for others negotiation at global level may be preferable. 

 

The Scottish independence referendum has similarities with this continuum. Up till now Scotland, a subsidiary of 6.5 million people, has benefited or otherwise from being a member of a bigger organisation of 65 million. 

 

The indyref debate centres on whether Scotland can benefit from being independant or not. 

• For some unique requirements specific to living in Scotland then the best place to negotiate and decide on sourcing will undoubtedly be in Scotland. Whether all of these areas are currently within the Scottish parliament's control I can't say. 
• For others, where Scottish negotiation power is likely to be low, I can't help but feel being part of a bigger organisation would be of benefit. This undoubtedly involves any relationships with the global market place. Surely a United Kingdon provides better bargaining power than Scotland alone whether based on GDP, population or some other factor?  
• Another concern I have is around the size of the set up and running costs. Some of these costs don't increase proportionate to the size of population. So 65m people contribute less per head to these costs than 6.5m would to obtain the same services. I'm not sure yet we fully understand the set up and running costs enough to be able to fully understand the impact of this. 

As an English born, Scotland living procurement professional this is one of a series of blogs looking at the analogies between the Scottish independence referendum (Indyref) and procurement. The first blog tackled the need for facts and data to identify the increase and reduction in revenue, cost and risk for every aspect of running Scotland as an independent nation. The second blog considered the belief that  the grass isn't always greener on the other side. 

#indyref and procurement part 2 - the grass is greener

Procurement are often told by others in the organisation they want to use a new shiny supplier who has promised them the earth because then all their problems will be solved. They try to persuade procurement they can't use the current supplier because of poor performance and lack of confidence about their ability to deliver in the future.

Poor performance comes in many different guises:

• Contracting with a supplier too small to service the needs of the organisation
• Contracting with a supplier too big to find the organisation of any relevance
• Lack of clarity and agreement about the business requirements and service levels required
• Limited performance measurement
• Limited contract or relationship management
• Poor management and processes within the supplier's organisation 
• Poor management and processes within the buying organisation 
• Ineffective communication 
• Lack of collaboration
• Bullying and manipulation
• Lack of trust and respect between both parties 
• A one off error or judgement 
• And so on

In other words poor performance isn't always a direct result of the wrong supplier just the wrong behaviours and information. 

I often use gardening as a metaphor for purchasing as it's often easier to relate to the fact that we've forgotten to feed, prune or weed our suppliers. To recognise that they'd be the perfect supplier if only we'd read the instructions about where and how to plant them, and if we fully understood the perfect environment that would enable them to flourish and so on. 

In the #indyref I'm hearing a lot about not trusting British politicians arguing that

Scottish politicians are better - or perhaps I've missed the point and am being told that SNP politicians are better! 

Politicians are politicians - I don't have any higher expectations of one than another. Although just like many suppliers politicians do seem to have the tendency of over selling what they can do, and then under delivering once they're in. One reason its useful to keep contract length under review to keep them on their toes. Unlike a new supplier, however, where there's a contract end date the #indyref decision is final - so let's not get carried away with the rhetoric and stick to the facts and data about current poor performance and future performance. 

Certainly any supplier suggesting they're significantly better than any other would need to be evidenced to be believed. I don't have any evidence that Scottish politicians are any less or more trustworthy than British ones. David Cameron, Alex Salmond, Ed Milliband, Nick Clegg or Nigel Farage are all equal in that respect. 

Which means rather than throwing the baby out with the bath water, if that isn't adding in yet another metaphor into the mix, I need to concentrate on the policies of the parties these individuals represent and understand the impact they will have on my life and the country in which I currently live. The fact that someone is from a particular country or party is not in and of it self evidence that they're better than anyone else. 

As an English born, Scotland living procurement professional this is one of a series of blogs looking at the analogies between the Scottish independence referendum (Indyref) and procurement. The first blog tackled the need for facts and data to identify the increase and reduction in revenue, cost and risk for every aspect of running Scotland as an independent nation. 

Analogies between purchasing and #Indyref

I blog for all sorts of reasons. Generally topics cover procurement, business, communications or wellbeing - writing about everyday insights that I feel minded to share. Every now and again I stray from this 'safe' list and share subjects that just won't let me go - however unsafe the topic may feel. Today's not so safe topic is the independence referendum (indyref) here in Scotland. 

Last year I wrote a blog entitled 'strategies need evidence' and suggested the same was true for the Yes/No sides of the debate. I realise now the analogy was flawed. At the time I compared the request for a Yes vote to a request for a change of strategy in a business. The problem is that in business those wishing to change strategy have to include the pros and cons of their preferred option in their analysis, and the opposition don't often need to put forward a paper at all. That's not the case here.

I realise the closer analogy to the Indy ref is tendering. The business (Scotland) wishes to explore two different suppliers

• stay as we are with the current supplier (No) or 
• go with a new supplier and independence (Yes). 

The difference with this new analogy is I don't have any expectation of the supplier to do anything other than tell me they are the best option. That is I don't expect an unbiased response. As there is no independent body analysing the data for us it's therefore up to everyone voting to compare the options, and to do this we need data (in tables or a series of worksheets - certainly not hidden amongst lots of words nor to be provided once the decision has been made.)

'No' invites us to stay as we are - so we just need to understand the baseline from which to compare the option of yes. (In reality in business we'd also be asking the No supplier what changes they may wish to offer going forward if they were successful. For Scotland that information has been delayed to the general election in 2015. So we can only compare Yes with the current situation.) 

In order to compare the new proposal with the current baseline we need to issue a request for proposal (RFP).

I'd suggested the white paper is the nearest we're going to get to a response to an RFP. That said if a supplier sent me a 670 page document with so few tables or appendices of data in it, and no detailed costs, they wouldn't get through to the short list. After all how can we make a decision without the data?

In this instance, however, Yes is through to the short list - so what supplementary data do I think we need to make a decision? 

I'd suggest we need to identify the profit and loss account and balance sheet of the supplier once the changes have been made. To assist with this we need to clearly understand the increase or reduction in revenue, cost or risk for each the following headings:

• Finance (currency, banking, taxation, pensions etc)
• Infrastructure (governance, highways, transport, international development and relations etc)
• Health
• Education 
• Environment
• Policing, justice, national security and defence
• And all the other things that go into building, maintaining and developing a flourishing country

We also need to understand the % of costs unable to be determined until after the decision has been made. Generally we'd want this to be less than 20% to avoid any surprises. 

I'd love to tell you I know we have the answers to all these questions - I can't. Until I can then my vote can't be anything other than No. No use trying to persuade me with emotion - I get that every day from internal stakeholders wanting to go with their preferred supplier. My answer to yes persuaders is the same as I give to my stakeholders - where's the data to support it.

Becoming an independent country is more important decision than all the change of suppliers I've ever been involved in as a procurement professional. My worry is the data available is woefully less than any of those changes of supplier even if the RFP has more pages and words in it.

Over forth coming blogs I'll be sharing other analogies between the #indyref and purchasing.