Monday, September 29, 2008

Poor Procurement Produces Piss Poor Performance

Makes things worse not better
A massive procurement process by the Office for Government Commerce has descended into farce. The process was labyrinthine, badly designed and at times completely unfit for purpose. By missing out entire categories of buying (e.g. bespoke) it is likely to result in poorer, rather than better, procurement by the public sector. Any queries by people struggling to complete the process were met by intransigent 'computer says no' replies.

Majority of budget spent on procurement
Not that the OGC has a monopoly on piss poor procurement. A recent telco pitched out a large project and got 40 people to pitch! A rough calculation shows that two thirds of the actual budget was spent by suppliers before the winner was chosen. This is morally repugnant. Overall, everyone loses, as it limits the ability of small, innovative companies to grow.
Another frequent request is for the company to develop a section of the course as part of the pitch. OK, that's fine, but if I go into a bank for a loan, I don't ask for a free fiver, just to see what the product's like. Demos are not cheap to develop.
Having spent 25 years responding to tenders, I've 10 pleas for a sense of proportion in procurement:

1. Go for a two year approved supplier list, but make sure you have a range of companies to cope with innovation. This means choosing on competence and not just price.
2. Don't ask for proposals or tenders unless you have a secured budget and the project is assured.
3. Distinguish between Requests for Information (RFI), Requests for Quotations (RFQ), Requests for Proposals (RFP) and Requests for Tender (RFT)
4. Don't ask for demos/prototypes if total project cost is less than 30k.
5. Make sure total cost of procurement to vendors (in total) is less than 10% of the project cost.
6. Make sure total cost of procurement to buyer is less than 5% of the project cost.
7. Be fair on penalty clauses. There must be a quid pro quo approach where both sides are held responsible for delays, quality issues and so on, according to actual causes.
8. Have a clear set of written requirements. These should outweigh all the appendix stuff on environmental policy etc.
9. Keep open communication channel with vendors - they may have some excellent suggestions on improving your procurement process.
10. Keep the process as short as possible, but be reasonable. Don't lose momentum and treat suppliers with respect, as partners. Help them and they'll help you.

Procurement is now a strategic role in large organisations, with a drift towards partnership procurement. Supplier Relationship Management (SRM) is becoming more common as is more adventurous outsourcing and low cost country sourcing.


Anonymous said...

Donald very good advice about "Poor Procurement Produces Piss poor performance", since you are on the board of Ufi you may also want to apply it there!

Donald Clark said...

Can't atke you seriously if you hide behind anonymity. Why not contribute to the debate by adding soemthing meaningful?

Anonymous said...

i am guessing this is a disgruntled supplier who didnt get on the Ufi supplier refresh? The OGC procurement in question is indeed one of the most shocking examples of extreme muppetry ever witnessed, even by those of us who have been in the business a long time. The OGC tender was so incomprehensible, so badly supported that it can only result in a disaster. That and it's a competitive tender so even if you do get onto it, you have to pitch every time an opp appears - surely this is against EU trade rules?

Anonymous said...

A really interesting post. I'd also add that part of the process should be relevant, high quality feedback for everyone who tenders. This should include specific details relating to the service and proposed solution.

If smaller companies are to improve and grow effective and relevant feedback is vital.

Donald Clark said...

This is a very good point. Feedback, as in learning, is the primary means of improvement.

Anonymous said...

An excellent article. Thank you for listing the top observations you've come across during your career. I'm new to procurement and contracts and this article was useful for better understanding and keys to success for future projects. Thanks.