The 4 Worst Procurement Myths
PurchTips - Edition # 208 July 13, 2010
By Charles Dominick, SPSM
Do You Believe These Common Procurement Myths?
Myth #1: More specific specifications are always better. When all suppliers bid on the same exact requirements, you get the assurance of an equitable or "apples-to-apples" comparison and the ability to use fewer variables when comparing suppliers. While that's good in some situations, overly restrictive specs may keep you from capitalizing on the strengths of suppliers whose capabilities can offer more profitable options.
Myth #2: Total cost of ownership (TCO) analysis is always the best method on which to base a supplier selection. TCO analysis is indeed a very useful practice. However, when different supplier offerings can deliver different value to your organization in the form of things like higher revenue opportunities, TCO analysis may not lead to the most profitable decision. Total Value Management may be a more appropriate method.
Myth #3: Privately-held suppliers will never share their financial statements. Many privately-held suppliers do resist sharing financials with prospects. However, making the disclosure of financial statements a condition of awarding business and being willing to make accommodations - such as signing a non-disclosure agreement and limiting access to the statements - can convince suppliers to share financials.
Myth #4: Long-term contracts should always begin immediately after a sourcing process. While customary to award a long-term contract after reviewing a proposal and negotiating, a supplier selection that seemed smart "on paper" can be disappointing in reality, leaving you stuck trying to make it work because you've made a long-term commitment. When you structure your sourcing process to include a short trial period, if the most attractive bidder fails to perform, you can explore the next alternative. I call this practice "dating suppliers before marrying them."
For a fifth myth, go to http://tinyurl.com/28dxyy9
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