How Do You Make Procurement Technology Change Happen?
Change is difficult.
The key question confronting anyone in a sales or procurement role is this: why is change necessary now?
It is because risk is pervasive today in ways that it wasn’t before the Pandemic.
We used to take supply chain stability for granted, enabling us to employ “just-in-time” purchasing. Now, supply chain disruptions persist and we speak increasingly of “just-in-case” acquisition. Some blame extraordinary demand. Others talk of the “ripple effects of disruption.”
The one thing on which everyone seems to agree is that supply chain issues are here to stay.
The simplest answer when speaking to people about the need for immediate change is that companies need to replace an approach built for a low risk world with one designed for managing a high risk one.
Consider this analogy.
Before 2019, people made a living in financial markets by selling options (on stocks, on rates, on commodities, on everything). Effectively these options sellers provided other people with insurance against a change in market conditions from calm to wild. Many options sellers lost tremendous amounts of money in 2020, as they paid out claims to those they had underwritten previously.
Financial markets now exhibit a different “volatility regime.” There are fewer people around to sell options translating into lower competition on price. The sellers who survived remember their losses and charge higher fees. Buyers are willing to pay higher premia because they now know how this kind of insurance pays out in choppy conditions. There are new buyers who only know turbulent markets.
Similarly, markets for real goods and services are in a new phase.
This explains why enterprise buyers and suppliers need to change now. Covid managed to inspire a sense of urgency where previously there was none.
When Discussing Change, Flip the Script
When we make the case for change, we’re talking about the status quo.
The status quo is the default choice.
Agents for change must defeat the status quo first. This note from Seth Godin explains the approach well.
The standard defense case is simple: talk about the benefits of the status quo (while ignoring the costs) and highlight the costs of change (while ignoring the benefits).
Let’s consider the case where the status quo is a buyer using email and spreadsheets to manage reverse auctions in the acquisition of goods and services.
Imagine a buyer defending the use of email and spreadsheets when someone presents an alternative approach.
“We use email and spreadsheets for lots of purposes. So does everyone else. It’s easy and no cost. It’s familiar. It works. Moving to a sourcing platform takes time, incurs huge implementation and training costs, and requires a risky commitment to ongoing subscription fees for a bundle of features of which we will use only a fraction.”
Typically, the person trying to sell the sourcing platform will emphasize its benefits (while ignoring its pitfalls). Given the history of low-risk supply chain environments, the argument was always the same, at least before Covid.
“Our platform enables you to manage reverse auctions in a way that generates an increase in competition, leading to cost savings.”
If you’re unconcerned about risk, then it just comes down to buying at the lowest cost.
Here’s Godin’s key argument:
“And the danger is pretending you’re being fair, when you’re not. In this silly article from the Times, the author (and their editors) are wondering if oat milk and pea milk are a ‘scam.’
“This is a classic case of defending the status quo. Here’s a simple way to tell if that’s what you’re doing: imagine for a second that milk was a new product, designed to take on existing beverages made from hemp, oats, or nuts. Defending oat milk against the incursion of cow milk is pretty easy.
“The author could point out the often horrific conditions used to create cow milk. ‘Wait, you’re going to do what to that cow?’ They could write about the biological difficulty many people have drinking it. Or they could focus on the significant environmental impact, not to mention how easily it spoils, etc.
“Or imagine that solar power was everywhere, and someone invented kerosene, gasoline or whale oil. You get the idea …”
Proponents of change need to ensure that there is a balanced, complete conversation around costs and benefits by challenging the standalone case for the status quo approach.
What Would This Different Approach Look Like in Terms of Procurement Technology?
In the example of defending the status quo approach to procurement, advocates of a new approach should highlight all the issues that lead to failed outcomes.
“Our traditional approach to purchasing fails on every relevant dimension. We don’t end up buying the right solutions from the right suppliers at the right price.
“The traditional approach is bureaucratic and it takes far too long to execute. Time is value and if we have to wait months for the thing we’re looking to buy as the solution to a problem then that means we have to live with the problem for the additional length of the purchasing cycle.
“The traditional approach is expensive to transact. Specialized procurement staff and senior line managers spend too much time managing these reverse auctions by hand, distracted from other value-additive activities.
“There is no structured data that we can exploit firmwide. Instead of a data lake, we have cesspools of loosely connected spreadsheets. They vary in quality, consistency, and relevance.
“From their perspective, suppliers will tell you that the sales cycle is too long. Six months for technology? That’s even if they see the RFP. Most of the time, we only send RFPs to suppliers we have vetted previously because the process for onboarding a new vendor is itself time-consuming and bureaucratic, taking up to several months to navigate. Do email and spreadsheets make it easier to vet suppliers the way the platform does?
“Often, we send the RFP documents to the wrong suppliers, ignoring the right suppliers. We don’t have good, up-to-date information about who does what. Do email and spreadsheets mitigate this problem the way that the platform does?
“Suppliers make an investment decision in deciding whether to respond to an RFP. They have to weigh the cost of responding to an RFP to the expected benefit of winning. They assess the value should they win: size of the contract, expected margin, etc. They estimate the probability of winning. Do email and spreadsheets give them additional confidence to bid over a platform solution?
“Does using email and spreadsheets lower the supplier’s cost of onboarding and responding? Do suppliers have an easier time on the platform?
“Suppliers also shy away from responding to poorly written RFPs that ask the wrong questions and don’t ask the right ones. Does using email and spreadsheets help us obtain useful market intelligence that leads to better buying decisions? Does the platform have tools for getting smart about a particular category?
“What about opportunity costs for us as buyers? If using email and spreadsheets makes it difficult for the right suppliers to respond to our RFP (or to even know of its existence), how do we know that we’re getting sufficient competition on price and solution? If we don’t get competition on these dimensions, aren’t we overpaying for a second-best solution that we’ll have to live with for years?
“How are we measuring procurement right now? Is that the right way?
“If we had a sourcing platform in place that required no implementation, no training, and no ongoing subscription fees, but permitted us to solicit a wider band of suppliers, with a faster cycle, usage-based pricing, and market intelligence that led us to write more enticing RFPs, would we ever switch to email and spreadsheets?”
At EdgeworthBox, we feel for buyers who are under pressure as market conditions change across multiple categories simultaneously. Changing the approach to purchasing can feel like replacing the transmission on your car while you’re driving down the freeway.
We built EdgeworthBox to help make procurement collaborative and effective. It’s an exchange with tools for hosting structured procurement data; standardizing and simplifying onboarding and RFx; and speeding up the sourcing process.
Our approach increases the quantity and the quality of responses buyers receive when they solicit vendors. Sellers like the simplicity and exposure to potential customers with the right product-solution fit.