Imagine you are purchasing a car. You’ve thought about it for a while, done due-diligence and decided after careful consideration to get a Jaguar.
When it comes to features, you know what you want; two doors, V8, rear-wheel drive, front engine, 6-speed automatic. And since this is a once-in-a-lifetime purchase for you, you decide to splurge with a budget up to $100k.
You know it’s a lot to pay, but you also know you will get a world-class car that you’ll have for quite a while.
The icing on the cake is that you know a guy who works for Jaguar, and you are pretty sure he will make the process go smoothly, get your car quickly and offer a better-than-average price. After all… it always helps to ‘have a guy’.
But before you commit, because you are also prudent, you do what prudent people do; you take it to procurement.
Procurement interviews you and asks a bunch of questions to understand what you want, why you want it, and how much you are willing to spend. After a couple of days, they send you a document outlining what they learned. It’s pretty comprehensive. It looks something like this:
Two-door automobile with features including (but not limited to):
- Four wheels
- Two doors (extra doors allowed but will not be given extra credit)
- Steering wheel
- Two seats (one passenger, one driver)
- Hood, with engine in front. V6 engine required. Extra cylinders allowed.
- Trunk with storage space no less than 10 cubic feet
- Windshield with windshield wipers
- Rear-wheel drive preferred, four-wheel drive optional
Of course there are a couple of pages of detailed descriptions covering everything from build to warranty, but at first glance, it seems to capture everything you picture your Jaguar to be.
They tell you that they will get you the best package and price within the month, and assure you they will take care of everything – in fact they are pretty insistent on this part.
They won’t even let you talk to your buddy at Jaguar, which seems a bit weird to you, but they are both professional and have assured you complete satisfaction, so you agree to leave them to it…
A month later a brand new Yugo shows up in your driveway.
This is not the car you were looking for…
You phone your procurement department to complain and the conversation goes something like this:
“You got me a Yugo?? I wanted a Jag!”
“We told you we would get you the best package for the best price – and that’s what we did”
“But it isn’t anything like what I was looking for!”
“Well, does it have four wheels? You asked for four wheels.”
“It has the two doors, two seats, windshield and wipers you wanted, no? Did you see the stereo? The hood? I know it comes complete with a V6 and steering wheel as discussed!”
“We got you everything you asked for, plus we saved you a bunch of money. What’s the problem?”
“Well, it’s not what I wanted…”
With apologies to procurement folks everywhere, this entirely fictional scenario probably hits home to a lot of people these days.
In an industry that is more and more about incremental efficiency and repeatable processes, the role of procurement has necessarily, and rightfully, taken a more prominent role in many companies.
And the good news is that it works… so what is the problem?
As a service provider for close to 25 years, I have seen problems arise in situations where the solution provided needs to offer more than just a sum of its parts. Examples include consulting services, project based work and software items. These are examples where the ‘solution’ provided is a combination of tangible content (which is easy to score), design (a bit harder) and expertise in delivery (harder still). These are also examples of ‘solutions’ where the customer – the individual or department that will consume it – and the service provider – the designers and experts – are the best equipped to negotiate the scope, cost and service provision levels.
Sadly, the processes being adopted in many companies preclude any contact between those parties.
Don’t confuse my message – procurement departments are essential! The people who work in them and run the process of managing extremely complex supply chains – ones that have material impact on the company’s cost structure – are well-trained, professional negotiators that are highly skilled at their jobs.
Believe me; I’ve sat across the table from many of them.
The answer is not to eliminate their involvement, nor is it to go back to the good old days when we could negotiate deals over lunch, dinner or during a meeting.
I believe that it is a mistake for our industry to continue reducing everything to its component form; removing true domain experts from the process and over-committing to objectivity at all costs.
The best deals I have been involved with – fair and equitable to both parties – were negotiated face to face and with key stakeholders in on the negotiations, and often no procurement representative in the room.
Oil and gas companies, like service companies, are populated by smart people; experts in their field. All stakeholders need to be at the table – with the right kind of process in place to ensure fair competition – and to get the right answer in place.
What do you think? What’s needed to ensure the most comprehensive and adequate solutions?Back