One of the beauties of working in Consulting is the opportunity to be immersed in the Purchasing areas in several companies at the same time. Each one with its particularities, systems, leadership and especially its modus operandi.
I recently worked for a company whose main objective, like 95% of consulting engagements, was cost reduction. Due to my strategic thinking and long term mindset, I always prefer to deliver “Supply Chain Optimization”, rather than simply “Cost Reduction” (Thanks BASF, AVON, BI and other companies that contributed with my formation as a Strategic Sourcing professional!).
In the first few weeks, we assessed the opportunity, the potential different approaches, and the several methods and tools that could be used to achieve the objective and as usual, the Strategic Sourcing methodology was chosen.
This methodology was developed by the consulting firm AT Kearney in the early 2000s and addresses 7 steps that must be followed to ensure the choice of the best source of supply. See briefly below:
1. Determine the Category Profile
2. Selection of the Purchasing strategy
3. Generate Supplier Portfolio
4. Selection of implementation path
5. Negotiation and selection of suppliers
6. Integration of suppliers
7. Benchmarking of the Supply Market
In a cost reduction project led by a Consultant, the results must be identified and implemented quickly, and for this reason, almost at all times, the strategy chosen is a simple bid (RFI, RFQ, RFP) when the buyer determines its specifications and sends requests for several suppliers to submit their quotations. Another option is the auction, in which an electronic system is used for suppliers to submit their bids in real time.
In both options, it is always fair for the buyer to give the current supplier a chance to participate in this process and improve their actual price. It is normally a stressful situation for the current supplier, as he realizes that he could lose his business with the company - hence the certain “fear” some suppliers have when they become aware that their customers are working in partnership with consulting firms. The timing of involving the current supplier requires a lot of expertise and “tact” from the process leader, after all, we don't want the client's current supply chain to be jeopardized.
Going back to the case of the client I worked for recently, most likely out of protectionism and concern with the relationship with the current supplier, the client decided that my consulting firm should be responsible only for the bid process involving potential new suppliers, while the client's purchasing area would be responsible for the process involving current suppliers. And then the conflicts started.
I immediately raised the flag that this would not be a favorable option for anyone and for several reasons.
The Strategic Procurement methodology was originally designed as a flowchart, where activities must be performed one after the other and preferably by the same professional or team. Sometimes the methodology is also represented as a continuous cycle, when after the last step, the opportunity for a reassessment opens up, which takes us back to the first step.
An extremely important point when making a bid is to remember that all suppliers participating, whether new or current, must receive the same type of information, the same content, at the same time. A good practice, just as an example, is to respond to all bidders whenever a question is raised by one of the bidders. Some more shrewd vendors avoid questioning when they know the answer will be distributed to the list of participants, since the question can change their position in relation to the competition.
How to guarantee the quality, content and the timing in which the information is shared, if we have more than one team leading the competition process?
At the same time, as consultants, we need to be careful, the client is the holder of the history and information and let's be honest, often clients still have the old mentality of “I'm paying for your services”. It's shocking how many companies hire consultants to tell them what to do and how to do it, rather than relying on their expertise.
Returning to the previous case, thankfully the client's workload did not allow his team to lead the bid with the current suppliers without impacting the process timeline and this activity returned to the consulting team, as it should have been from the beginning. The consulting team was able to adopt different communication styles and speeches for potential new and current suppliers and in this specific category, double-digit savings were achieved. It is important to point out that in this case, in addition to the savings, the current supplier was kept as the main supplier and a new partner was added to the supply base only as a risk mitigation.
Now imagine how much time and resources would have been wasted if the client company had decided to maintain its position of leading the bid with current suppliers. Numerous meetings to align documentation, deadlines, contacts and exchanged information would be necessary. Generally, consultants charge by the hour of work, that is, in addition to being ineffective, these meetings would be an extra cost for the client. Not to mention all the rework generated after receiving the offers. Imagine compiling and evaluating everything with two teams involved in the process?
And finally, another important point, imagine having competitive offers from a current supplier and a new supplier. Who will lead the second round of negotiations?
We can spend hours discussing the disadvantages of “breaking” the cycle of strategic purchases, but in essence, as a popular saying in Brazil goes, “dog with two owners dies of hunger”. Bringing to our reality, bid with 2 owners, is neither productive nor effective.