Here at the Next Level Purchasing Association, we consider ourselves pretty good at explaining the most advanced topics in procurement today.
But we also recognize the importance of not ignoring the fundamentals. Often times, people take an over-complicated view of procurement and that gets in the way of making the simple tweaks that can add up to real performance improvement.
So, let’s take the concept of supplier selection down to a very basic level.
Taking social responsibility out of the equation, a supplier is usually chosen for one of two primary reasons: because that supplier is good or because that supplier is cheap.
Yes, in procurement, you always have to be cost-conscious. You always should have the financial health of your organization top of mind. And it is your fiduciary responsibility that you don’t allow your supply base to enjoy excessive profits at your cost.
But, always choosing the low bidder as a rule is a troubling sign for a procurement department.
It can mean that the procurement department probably isn’t skilled enough to evaluate suppliers’ non-price capabilities for adding value. It can mean that the organization may be limiting its own competitiveness with a customer base that may choose suppliers on multiple factors, not just lowest price. It can mean that the organization has a culture of mediocrity that will prevent it from ever being a truly great organization.
Let me put that into perspective.
Sourcing supply has a lot of similarities with sourcing employees.
In both cases, an organization wants actions performed and is willing to pay for it.
Now, imagine that your organization filled every single position with a person that was willing to be paid the least among all interested candidates.
That’s a disturbing thought, isn’t it?!?!?
Well, why do you have your job?
Is it because you are good at what you do?
Or is it because you are cheap?
If your organization is committed to selecting only good suppliers – even if it has to pay a little more for the best capabilities – you probably have your job because you are good, too.
However, if your organization selects only the lowest bidders from its supply base, you may have your job because you are cheap.
And if you think that your organization values higher-level employee talent and you find yourself selecting only low bidders, you may want to explore aligning your supplier selection practices with your organization’s culture.
To be a truly great organization, you need good suppliers and good employees. Not only cheap ones.