The procurement process, and it’s main product, the Request for Proposal or RFP, was once useful, but has become a barrier to innovation and productivity.
Let’s look first at the reasons why:
There is a desire for fairness and consistency.
While fairness is admirable when it is reducing corruption and patronage, it also suppresses merit. It favors the familiar. It favors the formulaic.
The investment of time is all on the side of the supplier.
The decision-makers sometimes decline to meet or talk to the suppliers being asked to bid. Usually. The rationale – hey, they’re busy people who don’t have time for a bunch of conversations. This is a major suppression of collaboration and idea exchange, which again results in a suppression of innovation. Buyers who had to invest the time to actually talk to all suppliers would reduce their short list. They might stop focusing on price, and instead focus on judgment. Like who are they are motivated to work with. Who they think is triggering useful thinking or who has better ideas.
There is frequently no clear definition of the challenge, but there is sometimes a specification of solutions.
This is so upside down it would be laughable if it weren’t so common. The best consultants are those that help redefine the essence of the problem and then engineer elegant ways to address it, sometimes much less expensive ways.
Systematic extraction of collaborative effort. Lack of trust
It is through collaboration, especially in the discovery phase, that considerable value is added. If there is any hope of collaboration throughout the project, it should start at the beginning, when the work is being designed.
One of the worst parts of the whole procurement process as it exists today is that new relationships begin with a lack of trust and a lack of disclosure. Not a great way to start a working relationship where trust and disclosure are going to be absolutely essential for success.
When you are awarded a project under these conditions, you are often starting over when you actually sit down with the client.
The traditional RFP starts with the notion of specifying the process or “work product,” and asking for pricing.
While this may make sense for road-building (road builders may disagree!), it rarely makes sense for the kind of squishy and amorphous situation that most business executives are facing today.
No budget disclosure
The underlying belief here seems to be that if you tell the supplier your budget, they will spend all of it. Or perhaps they will not fine tune their proposal enough, not be as aggressive as they could have been on pricing.
This lack of budget disclosure also leads to a frequently encountered situation. The client suggests they are prepared to invest in a BMW. So you propose a few options. BMW, high-end BMW, and perhaps a very nice Toyota, in case they didn’t know what BMWs actually cost.
Client then discloses that in fact they were thinking in terms of a BMW motorcycle. Yikes. I just spent three days wasting my time and a bunch of other people’s time designing the wrong thing.
Plus, there almost always is a budget. On a recent situation, a team I was on was asked to trim a very specific amount of money from a large quote, in order to fit a budget window that we had not been given. Where is the logic in this?
Let’s turn this upside-down
Start with the investment
An improved RFP process would start with the investment — what the client is prepared to pay for a solution — and invite proposers to say how much they can offer within this budget (or perhaps less).
This approach would solve a problem that we often face as suppliers — an unwillingness to state even a range of value. It means that the suppliers, without the benefit of looking at your financial information, have to determine what the value of a good solution is to this specific challenge.
But inside the firm, you do understand if it’s worth $10,000 or $100,000 to get a grip on this issue.
This virtually guarantees you will receive a template solution. Or your bidders have to take some wild guesses about what might be going on and design to that.
Make me sign the non-disclosure; then give me some real disclosure to work with.
Focus on capabilities and fit, not pricing
You don’t want to wear the cheapest shoes, do you? Did you choose your employees based on getting the cheapest people you could get? Or were you looking for a combination of skills and fit? When you go for a haircut, are you going for the $10 standard bowl, or are you paying a fat premium for skill with scissors?
A focus on price can only be based on an underlying assumption that every haircut is the same. Of course they are not the same.
Knowledge-based services are not as fungible as they might appear on the outside. There are tiers of value. If you want the top tier, you have to pay for that.
It’s time for a change
Managers regularly try to circumvent the purchasing process. I do not think they do this because they are lazy, corrupt or incompetent. I think this is solid evidence that the process is not serving them well.
All processes must evolve. It’s time for purchasing to evolve to fit the needs of a knowledge-based economy and the need for innovation to drive competitive success.
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