If you are in procurement I am quite certain that someone in your organization has asked you to explain why the expected cost savings or efficiency gains haven’t materialized.
I will share some of the explanations I have been told and my thoughts on each issue.
One-time concession – There are occasions when the stars align, and a significant concession is achieved. What usually follows is a gradual return to the prior price point over say the next year. The good news is the one-time gain, the unwelcome news is that it isn’t sustainable. Plus when you compare future RFPs to this one they will always look worse.
Unworkable deadline – Suppliers probably hate this more than anything else. Like everyone else they are short on staff. If there isn’t enough time to do a thorough analysis, then the default play is to submit a high bid to cover contingencies. Other suppliers may simply decline based on the theory that submitting their best guess is not good business.
Moving specifications – If suppliers are faced with a moving target, they will add a fudge factor to cover themselves.
Supplier apathy – If you see a decline in the number of suppliers participating it might be time to look at your process. The harder you make the process the more demotivated suppliers will become. Another factor can be award favoritism. Suppliers don’t want to spend time bidding if they never win any business. Suppliers may also take a pass if the specifications are unrealistic versus other market opportunities.
Lack of Planning Time – This is the most common reason given that dooms the expected savings. I would like to say that I know how much time is needed to run each event, but I can’t. We all have multiple priorities to manage. I like to recommend that evaluating the risk of the spend category is a sound way to determine where the time spent will be most beneficial. Simply assuming commodity purchases won’t be critical can be a mistake. There might be some low hanging fruit in those categories. I know of one heath care company that achieved astonishing savings for purchases like envelopes just by doing a little planning.
Multiple decision makers – Dividing responsibilities is necessary, but one person must be the decision maker when conflicts come up.
Ignoring the expert’s advice – If you are paying for an expert, you certainly have the right to choose a different path on occasion. If this happens on a regular basis, then consider changing experts. Your expert should be aware of all aspects of the RFP to give you the best advice. Hidden agendas complicate the process.
Accepting the lowest price – There are many other aspects of service that can impact the overall value of a contract. A well-designed RFP will weigh all the factors and produce a true total cost of ownership. I know that some organizations must accept the lowest bid. If that is your situation, it is imperative to include all factors that can impact the final cost so a true total cost is determined.
If you find yourself thinking “these are issues I deal with way too often” – perhaps it is time to bring in a professional to help your organization get on track.
Ask better questions, make changes and 2018 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at (973) 718-7071 x875. The call will be forwarded to my mobile phone if I am not in my office which is pretty likely.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life