DeltaBid welcomes this guest post from KP Singh, a procurement manager at Myer with experience in a variety of indirect categories. As a procurement professional, you know when to be happy with the deal you've closed, and in this article, KP shows us how to explain a "good" procurement deal to management and other stakeholders.
Early in my procurement career, while presenting the outcome of a procurement event to a senior executive, I was asked a simple question: how do you know it’s a good deal?
As straightforward as this question was, I was thrown off and unable to succinctly articulate the complexity behind the entire procurement process I had undertaken.
Years later, more experienced and better equipped with a multitude of examples, I wish I had another chance to answer that question.
A good procurement deal has three demonstrable outcomes:
- due process
- value for money
- the establishment of good supplier relations
Due procurement process
A robust procurement process ensures an organisation maintains its external marketability and creditability, both of which are critical for longer-term leverage and competitive pricing.
Although flexible in the depth or breadth of underlying activities (depending on the scale, risk and cost of the purchase), the procurement process should never impede on foundational procurement principles.
A due procurement process must never be compromised by:
Biased selection criteria
A lack of transparency in supplier selection
Limited competitive tension
Incomplete procurement preparation and planning
Furthermore, before engaging the marketplace, it is essential to undertake a review of the supply market to better comprehend the market’s value-chain, cost drivers, complexity and means of operation, as this will directly impact your ability to get a better deal.
Value for money
The most critical outcome for a procurement practitioner will always be to ensure the organisation has obtained value for money. Unlike a CFO’s definition, value for money is not simply a net reduction to costs or bottom-line savings.
Value for money is knowing what you can get for the price you are willing to pay and consequently, getting more for less. There is a lot of subjectivity in this definition, so some other factors you must draw upon in your definition are improved quality, reduced risk, less internal resource effort, fitness for purpose, improved timeliness, greater innovation, and convenience
Here are 11 ways you can demonstrate value for money:
- Considering the likelihood and consequence of all risks in a supply and implementing appropriate mitigation strategies through the procurement activity
- Ensuring that any resultant contract is set on your terms reflecting your positional bargaining power
- Capturing and documenting all business requirements for the goods and/or services as clear contract specifications
- Defining clear supplier performance standards that will govern the relationship
- Addressing current and future business needs
- Eliminating waste and non-essential demand
- Introducing supplier innovation to the organisation
- Balancing supplier risk and reward to motivate the right behaviours
- Determining the right balance between cost and quality
- Delivering a solution that considers business utilisation
- Delivering tangible financial benefit to the organisation (defined as either cost savings or avoidance)
Establishing good supplier relations
When representing your organisation in any commercial business dealing, ensure you always maintain good supplier relations. Establishing a foundation built on collaboration, trust and respect will enable contract managers or respective business owners to extract more value over the term of the relationship after the deal is done. The tone is set during the procurement process and the conduct of procurement personnel is an imperative.
When dealing with suppliers, always remember the basics:
Honour your commitments.
Remain open and honest (especially when delivering bad news).
Negotiate in good faith.
Achieve win-win outcomes (achieve your objectives but trade, concede and compromise all non-essential items).
Guarantee your conduct is aligned with your organisations corporate values and remains true to procurement principles.
Ensure you question (internally) the legitimacy of your organisation’s position on open matters.
Don’t focus solely on cost and supplier margins to obtain organisational value for money.
With all of this in mind, here’s how I should have responded to that senior executive’s very valid question:
“The deal is good as it went through a due process, achieved value for money and set the foundation for a good working relationship with the supplier. If you have five minutes, I’d like to expand on each point to provide you some facts that will lead you to the conclusion that the deal is not just good but is exceptional……”
About the author: KP Singh
KP is a personable and values-based procurement professional with extensive experience across broad indirect categories. He is motivated to deliver exceptional commercial outcomes and committed to delivering sustainable value without compromising on business imperatives, safety or ethics. KP welcomes connections through LinkedIn.