Procurement Outsourcing – Keep your Integrity!

Procurement ethics

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Like so many professionals Procurement people are very proud.  They are proud of the job that they do and the contributions that they make.  And they are most always proud of their ability to negotiate and get the best deal!

But at some point in their careers, especially in the age of Outsourcing, they are likely to have to deal with potential suppliers who provide Procurement services.  Procurement typically negotiates deals for other functions like I/T, HR, Manufacturing and every other area in the company.

Now they are faced with dealing with companies who basically state that they can do a better job at negotiating and Procurement than they do.

In the face of such a perceived, direct challenge to your abilities how do you and your Procurement team deal with this professionally and with integrity?

I have been on both sides of this situation.  And while people usually act appropriately I have dealt with some individuals who compromised their integrity along the way.

When selling Procurement Outsourcing services you need to have a lot of credibility to begin.  You need to have some level of spend that you are managing, a history of negotiated takedown rates, strong supplier relationships, an extensive management and measurement system, and an organization of highly respectable Procurement professionals.

In going to market to sell these services you inevitably will need to share with your potential client your experiences with the respective spend categories that you are discussing.  This will include your historical performance in negotiating better rates and deals.  And this will most likely require you to do an analysis of your potential customer’s spend as a step in validating your sales proposition.

This preliminary analysis will have to be presented to the customer.  It’s your confirmation that you can do what you say you can do.  Even if you keep the data and presentation at a high level you are to some degree sharing your crown jewels.

However the customer response can vary wildly. 

Customers with Integrity

Some customers will recognize the expertise that you and your team bring.  They will recognize the value that you contribute.  And they will see this value as being accretive to anything that they can ever achieve.  They will also see that you can deliver savings faster than anything they could accomplish if they tried to do this themselves.  There will often be a new set of proven suppliers and mature relationships that you are bringing to the table which will further strengthen the customer’s business.

There will be many things to be worked out such as the contractual terms, gainsharing arrangements, data sharing, business processes and systemic linkages.  But all of this will be done under the umbrella of a positive relationship where the customer and you see the mutual advantage of doing business together.

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These customers act with the utmost professionalism and integrity.  Their Procurement teams understand that even a supplier of Procurement Services is a positive complement to the work that they are doing.  And this relationship will only allow them more opportunity to achieve their objectives and be successful.

Customers with Questionable Integrity (at best!)

When you provide your preliminary Procurement analysis on what you can save to potential customers you can get a much different response.  Some potential customers may, while they are happy with your analysis, ask you to do even more work.  This can take weeks and months.

In the meantime they are taking your data and analysis and going to their incumbent suppliers to beat them up.  They are telling their suppliers that unless they match or exceed the savings that you said you could provide then they will re-source the business.  And they will do all of this WITHOUT you!

I have seen this play out many times.  Even when it is quite obvious that the potential customer does not have the level of expertise that you are bringing to the table their pride will not allow them to see the bigger picture.  They will feel threatened.  They will feel they need to save face with their bosses.  And they will feel that their long-standing supplier relationships are at risk.

Their inability to see the bigger picture will cause them to compromise their integrity.  They know that they historically have not been able to achieve what you have shown that you can deliver.  Yet they can not themselves accept outsourcing, which they so often already negotiate on behalf of other company functions, when it applies to themselves.

Case Studies

In one case a potential customer had a tremendous amount of “Tail Spend”.  The bottom 10% of their spend had not been negotiated at all for many, many years.  We provided them with the analysis showing the tremendous savings we could deliver.  They made the promise to do business with us.  Contracts were negotiated.  Yet we couldn’t get them to sign the final contract.

Time went on.  Months went by.  We escalated the delays within their company.  And eventually it came out.  The Procurement team took our analysis and went to their incumbent suppliers, who in many cases they had never talked to, and beat them up for lower rates.  Needless to say the deal collapsed.  The lack of integrity was astonishing.

Another situation similarly started with provision of an analysis of the spend and savings potential across a wide array of spend categories.  The President of the Division and the head of Procurement were both on board.    However they couldn’t get the CFO to accept the proposal.

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Even though the company had zero prospect for making savings on the categories under discussion the CFO was consumed with the margin we would be making.  Instead of focusing on the savings he would get, as delivered by us, he only cared about our profit.  He created enormous obstacles to negotiating a deal and charged his Procurement team to deliver the savings we had promised.  The CFO cut us out.

The Procurement team was unable to deliver any savings.  They had no spend leverage, no expertise, no relationships and no capability.  The shortsighted view from the CFO resulted in the company achieving no results at all.  And their integrity was compromised entirely.

In yet another situation we had managed to convince the customer to do business with us in the provision of logistics services.  We were able to deliver phenomenal savings to the company over what they had been paying.  Our positive contribution to the company’s performance was highly visible within their company as we were handling the movement of their most important products.

However over time the Head of Procurement became increasingly anxious about the arrangement.  They somehow took exception to our ability to do better than what they had been able to accomplish.  They hired a logistics procurement person and proceeded to negotiate with our suppliers behind our backs.   Despite our having had an incredible global organization which we could give our customer access to they felt that they could go around us with a junior hire.

Again the lack of integrity was on full display.

Procurement Outsourcing

Outsourcing is a reality that is here to stay.  True Procurement leaders will understand the greater vision that outsourcing applies to Procurement as well.  And they will see that it is in their interest, and in their company’s interest, to leverage all available expertise whether it resides inside or outside of their company.

Outsourcing companies are not trying to show up the Procurement team.  They are trying to help you achieve your objectives and make you successful.  While I am sure there are exceptions I believe most of these organizations act with integrity.

It is incumbent to maintain your integrity in these circumstances.  If you truly do not want to do business with a Procurement Outsourcing firm then call that out early in the discovery process.  Do not take their information with the sole intent to use it to your advantage without doing business with them.

Be Ethical!  Integrity is Key!

Originally published on July 20, 2017.
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