Author: Phil Clark, Founder of Embedded IT.
My personal and professional life have often inspired the opportunity to inform and improve aspects of the other. Recently, my wife and I invested in some home purchases which provided interesting analogies to work related buying, and I thought it would be beneficial for others if I were to share.
I am looking to lease a car - I know the precise make, model and specification of car that I want; I also know the term, mileage and up-front payments of the lease. Therefore, I am able to “prescribe” the item I am buying in precise detail. Leasing a car involves a few variables. I have used a price comparison site to find a leasing company, where I will select the supplier of the lowest price.
My wife woud like some improvements made to the the front garden to improve the aesthetic. As she is not a landscape designer, she has visited three local suppliers to seek inspiration and receive some quotes. In principle, she has a vision of the outcome she wants for the garden, but the methods are left to the suppliers. When the supplies walk her through the options available, her decision is based on their market knowledge, ability to describe their plans, and the personal relationship she forms with them.
Ultimately, this is not overly tangible. In terms of the price, it has become a little academic - her choice will be swayed by whoever she feels can do the best job, based on her interaction with the supplier. This is collaborative.
When this process is applied to the procurement of IT equipment, the same rules apply. Say you are buying a commodity product which is specified in depth on a Vendor’s website – for example, a number of servers. You know precisely what you want, which means you can easily buy on price. You simply need to find the supplier who provides the least margin, within common sense boundaries of supply timescales, risk of terms and other general attributes.
However, if you are looking to outsource a selection of IT, this is not a commodity product. Even resources that are commoditised as cloud-based infrastructure, generate service management variables which hold the potential to influence the service you receive. Unless your company expertise in IT, and therefore know more about the delivery of IT Services than the provider, surely a collaborative sourcing approach is your best bet? It certainly reduces the level of risk.
Over the last few weeks I have been chatting to a number of prospective clients involving IT Services projects. Whilst they know what they currently have, none of them know exactly what they want. Most have headline business objectives such as “’improve flexibility”, or “save x%”, but very few have a final detailed design of a service they want to buy. Therefore, trust in the supply base to deliver an outcome is essential.
The key word here is trust, and this is a two-way street. Buying in an unspecified environment requires a level of relationship that ensures both you and the supplier are focused on the same high-level end goal. You must trust the supplier to deliver, and they must trust you be reliable with payments or scope change. It therefore needs to be collaborative.
One of the prospective clients asked me to initiate a competitive race, in order to cut 7 suppliers down to a final 2, and then allow them to negotiate the final supplier down on price. Whereas commercials (prices) are important, this is not collaborative behaviour. Within this situation, the final two suppliers (A and B) both had similar prices. A was the preferred solution, but B was the cheapest option. The default procurement approach here is to encourage A to drop their pricing to match B’s price. However, unless A is profiteering, A may start the potential relationship feeling beaten down. This may result in cost-cutting, which can damage product quality - ultimately matching B’s lower quality service.
Another prospective client wanted to mandate specific parts of the solution to support their own internal preferences. This may be beneficial if the preference is a critical part of the solution that would fail if wrong, however, asking a supplier to use specific system management tools may be counterintuitive - especially if you are focused on the outcome, and not the minutia details. “Taxi, I need you to get me to Waterloo station. I’ve only got a tenner, and I’m only getting in your cab if you use Bosch spark plugs”. Sounds crap doesn’t it.
Collaborative Sourcing is about creating a relationship, with an eye on price. It works effectively when you are engaging in complex procurement such as IT Services, whilst simultaneously trusting a supplier to deliver on your required outcome. Whilst it may reduce your leverage on price or negotiation, it improves your potential relationship. Working together on a solution, then assessing flexibility, knowledge, quality of staff, and reliability, are all part of a process that tends to deliver the right longer-term results.
This style of sourcing requires a level of maturity within a business, that supports buying the best product, not solely the cheapest. Many of the procurement people I work with focus on getting the best deal, despite going against tangible metrics like price or terms. Doing this at the cost of the “happiness of the business user” contributes to a false economy.
Decision making in a collaborative sourcing process is complex. If all of the people involved in the decision lose sight of the desired outcome, and become focused on little details with an unwillingness to compromise, you may end up never selecting a supplier at all. It is essential that all key stakeholders must be aligned on the outcome from the beginning. They should be aware that there may be a need to compromise on some aspects. Agreeing on a clear and high level outcome at the start of the sourcing process therefore becomes even more important than usual.
My wife, by the way, decided to take on the supplier who recommended a solution that delivered on the garden she felt best fitted her vision, based on the discussions they had, and the relationship they had formed. More importantly, he was willing to compromise on the suggestions she did not like, yet still held his ground when she asked for something that wouldn’t work. The price is within 10% of the cheapest option, but she’ll be happy with the end result for years to come.
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