It amazes me in the day and age of information, that so many companies still mess up the competitive buying process. There are a multiple of resources out there for companies to use to help identify best practices within the competitive process, but companies do not choose to use them. I have seen companies treat the procurement of consulting services like a commodity and focus on the lowest price (which ensures you will likely get the worst result possible), I have seen companies purchase millions of dollars worth of commodities without asking for price bids from other competitors (which means they are not likely getting the best price) and I have seen organizations select million-dollar software systems without knowing what requirements these systems must meet. These examples reek of irresponsible purchasing methods because they are not focused on what is best for the organization, but what is fastest or what falls within the limited skill-set of the purchasing people.
There are three reasons why this happens:
- lack of understanding of the strategic importance of purchasing within an organization
The purchasing within an organization is usually left to the purchasing folks, who do not always have the best insight into the strategy of the organization. It is incumbent upon senior management to make that connection and ensure that purchasing is seen as a strategic, not tactical, part of the company. The purchasing strategy must align with corporate objectives.
- lack of desire to spend time up front planning the process appropriately
People usually don’t know the benefits of planning the process better at the beginning. This would include developing the strategy for procuring, the requirements that need to met (why the good or service is being purchased in the first place) and the criteria that will be used to make the purchasing decision.
- lack of understanding that different types of purchases need to be handled differently
Purchasing consulting services is not the same as purchasing commodities. Goods are not the same as services. Different decision-making factors need to be accounted for and most organizations follow the same process for both. Both situations may have many competitors, but an organization cannot treat services like a commodity. The objective of purchasing services should be to find the company that offers the best value for money and meets all the needs of your organization. The objective of purchasing goods should be to find the best price for the product that meets required specifications. There are of course exceptions to these statements, but that is the fundamental difference. Companies need to recognize this and take steps to account for it in the way they purchase. Otherwise you are not maximizing the return on your purchasing investment.
Tags: Competitive bidding, goods, procurement, purchasing, RFP, roi, services, strategy
April 12, 2010 at 10:31 am |
Id put the fundamental split as “commodities” vs. “Everything else”, rather than “services” and “goods”