Because my previous procurement parables – like “Hiring Buyers With Potential,” “A Procurement Certification or MBA?” and “Execute, Da**it, Execute!” were among the most widely read blog posts I’ve created, I’ll share another procurement parable with you today.
The setting for today’s procurement parable is the offices of Hill Office Technology & Computer Optimization Company, or HOTCOCO for short.
HOTCOCO has been a rapidly growing company since it was founded four years ago. Occasionally, management felt that it was growing faster than it should be.
HOTCOCO’s internal processes would always work well up to a certain point. But as the company’s sales grew month after month, soon those processes that worked so well at previous workloads would break down at higher volumes.
In order for HOTCOCO to delight customers and keep them coming back, management had to do something to install processes that could scale in harmony with its anticipated growth rate. Therefore, the company’s executive team decided to bring in consultants to lead the reengineering of most of its internal processes: from procurement to shipping to accounting and everything else. HOTCOCO’s CEO asked her procurement manager, Paul Coffey, to source for a consulting firm that could end the months of internal struggle that was plaguing the company and threatening their ability to keep up with growth.
Paul, who was promoted from sales and had no prior procurement experience, knew that this was a critical project. So, he assigned his newly hired senior buyer, Buck Starr, to lead the effort. Though he was a new college graduate, Buck did hold an internship in the procurement department at one of the major manufacturers in town and was lauded for effectively employing his “gut feel” in making smart decisions.
From his internship, Buck knew how to run a sourcing project. He assembled a cross-functional team of employees with a vested interest in the outcome of the consulting engagement, put together a request for proposal (RFP), found a few qualified suppliers, and got those suppliers to submit proposals by the deadline.
Under Buck’s leadership, the team reviewed proposals, visited the top four bidders, and decided that either of two suppliers would be a good fit for the contract. But, speaking of the contract, there was a problem. Buck didn’t follow the purchasing best practice of including the contract’s terms and conditions in the RFP. So, the team decided that it would send terms and conditions to the top two suppliers and see what their reactions were. Paul told Buck to send the consulting firms HOTCOCO’s “Technical Services Agreement Template” because that was the closest thing that HOTCOCO had for the type of service being procured. That template was 40 pages long and was typically used for subcontracting computer-related work that HOTCOCO didn’t have the resources to perform for its customers itself.
Well, the first supplier, AET Consulting, came back with a response that troubled Buck and the team. The supplier wrote:
Dear Mr. Starr,
We have reviewed your terms and conditions. It appears that we are going to have to withdraw our bid. Though this engagement is for a mere $10,000, the contract is written in a way that could expose us to tens, perhaps even hundreds, of millions of dollars of liability.
While we would love to work with HOTCOCO, it simply would not make business sense for us to expose ourselves to that level of risk, which could put an end to our entire company, for an engagement like the one proposed.
Thank you for giving us the opportunity to bid. Best of luck with the project.
Buck was disappointed. AET was in business a long time (15 years), had a good track record, and was adequately staffed for the engagement.
Before Buck could ponder AET’s withdrawal too long, he received an email from the other supplier, Grey & Grey Consulting. It said:
T’s & C’s look good. We’re ready to start. Lemme know.
Earl Grey, IV
Grey & Grey Consulting
This troubled Buck. How could one supplier see terms and conditions as such a catastrophic threat to their business that they would turn away a sale and yet another supplier agree to those terms and conditions without batting the proverbial eyelash?
Furthermore, Buck started reviewing his notes about Grey & Grey. Though they had been in business almost as long as AET, they had done promotional products printing for 12 years before switching to a consulting business in the past 25 months. And, after doing some research on LinkedIn, Buck found that there were a lot of people who used to work for Grey & Grey, even though they were a relatively small company. It appeared that they may have a turnover problem.
Something about the situation just didn’t sit right with Buck. His gut told him that it would be better to craft a contract template that was more appropriate for a consulting engagement and see if both AET and Grey & Grey would remain in the hunt for HOTCOCO’s business.
However, when Buck brought this suggestion to Paul, Paul’s face turned red as if the blood was boiling inside his body. “Buck! We don’t have the time to write a new contract template,” Paul yelled. “We need a consultant in here now and if AET doesn’t want to do business on our terms, than that is a huge indication that they are a dumb supplier and we should want no part of them!”
“I mean no disrespect, but when a company as respected as AET refuses to do business with us because of an onerous contract, it kind of scares me about what kind of intellectual horsepower Grey & Grey has at the helm,” Buck replied. “I sort of feel like our contract is overly one-sided and if Grey & Grey aren’t smart enough to protect themselves, do we really want them telling us how to run a business?”
“Nonsense, kid,” Paul shouted even louder than before. “We need a cooperative consulting firm and we need one now! Get it signed and let’s get started.”
Now, in previous procurement parables, I took the story to its end. This time, I’d like to conclude this post with a question for you…Which HOTCOCO procurement employee do you agree with: Paul or Buck?
To Your Career,
Charles Dominick, SPSM, SPSM2
President & Chief Procurement Officer – Next Level Purchasing Association
Author – The Procurement Game Plan
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