The Basics
Procurement and Supply
When discussing Procurement and Supply, we are concerned with the acquisition, management and delivery of an effective outcome. Whether it be a good, a range of services of a series of works.
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Whether the need is of public interest and caught under the Public, Utilities, Defence or Specified Infrastructure regulations in the UK, or is indeed an open market transaction, good practice is imperative in ensuring maximum value is achieved, and a stable and productive supply chain exists.
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Gone are the days that if a supplier is still in business 'then they make too much money', this leads to opportunism and fails to drive innovation, creativity, efficiency and long term value to customers and clients.
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From the source to the product, considering the whole delivery chain and its interdependent parts as contributing to successful outcomes is the only way to effectively manage a supply chain.
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This means learning about two important concepts, contingency, and appropriateness.
Contingency in a procurement and supply setting means understanding and appreciating every situation as unique. The mistake being to treat any buyer or supplier the same as another without due consideration.
Appropriateness in this setting is then about never treating a situation with the same approach without appropriate thought. The mistake here being that the conditions for success in one scenario, may not apply to the next.
Problems with Delivery
A key focus for this work has been the lack of knowledge and understanding of more advanced principles in procurement and supply, especially in larger client organisations.
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A common fault being the common adoption and deployment of a range of working scenarios that are considered 'the norm', or 'accepted approaches'.
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The scale of failure across a variety of supply chains and major infrastructure projects is well known, from cost over-runs and supplier failure to under-realised returns and unstable supply chains, the examples are endless.
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The question becomes, why is this consistently the case, and the most common denominator found to date has been, that clients especially, are simply not aware of the alternative.
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That alternative, is the strategic approach.
The Strategic Approach
When we consider the most common approach to deal making and supply chains, we are confronted with ideas of 'win-lose' and 'maximum margin' or 'arms length' contracting and 'risk laden' contracts. The issue is that this drives a protectionist attitude, from with the buyer when deciding what is actually needed, right through to the supplier who prices in risk awaiting the inevitable fall out.
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Clients for example think that to be strategic, one must avoid the traditional and 'only' partner or enter into alliances, this is not true. To be strategic, clients must consider every option from DB, DBB, DBOT, DBFO, DPS, Strategic partnership, Alliance, Outsource and Spot Buy right through to Frameworks, Joint Ventures and beyond.
Adhering to what you see as the 'best' approach is the first mistake. It is about what is best suited to both the need, your organisation and the market.
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This means being comfortable with one fundamental principle in procurement and supply, objectivity.
Thinking of the 'whole'
When we begin to think more objectively, and focus on successful outcomes that are devoid of either optimism bias (considering your outcome will be more successful than it will be had you only been objective in its analysis) or inside/outside thinking (where you only ever think like the client, not the supplier) you begin to consider not only your need, but the nature of the environment from which you are buying in a very different way.
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This begins to introduce systems thinking. Looking at all the inter-relationships and component parts to find and consider different ways of 'putting it together'.
You begin to consider what is really important, what is important, but also, what is the best fit and how a situation could be approached differently. This is more advanced than purely insourcing versus outsourcing, but about market share, growth conditions, consumer fluctuations and brand strength as a minimum.
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This importantly introduces the principle of complexity in the delivery chain, and how it is different from classical management thinking that is predicated on a 'complicated' approach, because they are not the same. Understanding the difference is critical in systems thinking in procurement and supply because as the strategic approach teaches us, neither is better, but they have to be used appropriately.
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In simplest terms, an airplane, while complicated, once laid out can be replicated and as such are very safe. A complex problem however, involves people and situations, where using the same 'parts' can result in a completely different and far less predictable outcome.
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This is critical when ensuring the change to a strategic approach is embedded.
Creating lasting change
Understanding that the treatment of complex situations is different to complicated scenarios is pivotal when deploying a strategic approach. Which introduces two key change responses. One being the systematic or 'detailed' approach for complicated scenarios that can be laid out, or the systemic or 'collective' approach for complex scenarios that involve different people and are different each time.
Only ever using the traditional Design Bid Build approach for example with fully detailed design specifications no matter the project or supply need is a systematic approach to a systemic situation. Follow the steps and expect the same outcome. The only thing reliable is how unreliable it is.
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The same goes for the use of tools like lean, agile, transaction cost approaches or different supply management approaches such as commercial management or purchase and supply engineering, they each have their place and misunderstanding this can lead to costly outcomes or undelivered benefits.
This means that becoming comfortable with a more inquisitive environment, predicated on asking the 5 y's, or investigating both your competitor and comparator is pivotal in embedding change.
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Looking outside of the normal but also appreciating the current is key. The outcome of a strategic approach may be 'stay the same', and that's OK, you at least know the other options are off the table.
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If using the most common change model of unfreeze, move and refreeze, this is where the concept of 'refreeze' is important. Change is important, but so is taking stock.
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To be strategic is to be prepared to change and to know how to implement that which is new, but it is also knowing that objectively what you are doing now may be the best thing too.