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Fatal Practices That Drag Cost Savings to a Halt

Purchasing Training ~ Fatal Practices


Purchasing Fatal Practices
Purchasing Fatal Practices

I was teaching a couple of seminars this week at a purchasing conference in Albuquerque, New Mexico. They were training on Purchasing Contract Law (slashing contract cycle time and catapulting TCO results) as well as on Supplier Management for Agility/TCO.

The feedback was awesome; it’s a big part of what makes my job so fulfilling.

Anyways, there were some public purchasing professionals in the audience.

I asked them why they don’t aggregate their demand across like agencies and negotiate mega-contracts that deliver far greater savings…. You know, aggregation of demand. Most government entities don’t do this, so I just made the presumption that they weren’t either.

The answer was interesting. I’m used to hearing “but we’re all different” (which I don’t buy), but that’s not what I heard this time.

They kind of read my mind and told me “we’re all buying the same things, you are right.” “So what’s the problem?”, I asked. Aggregating demand under this scenario should be a slam dunk, I was thinking.

“You see, it’s not that we need different things, it’s that our customers ask for the same things differently.” What? What does that mean? She went on to explain:

“It’s true our county purchasing departments are right next to each other and buying the same things. There are some normal challenges, such as separate budgets, separate local level leadership, etc, but there’s something else that’s a much bigger problem.” I asked for further clarification.

She basically went on to say, in different words, that the problem is that there was too much innovation. But how can innovation be a bad thing? I immediately knew what she was talking about.

Here’s the problem: The engineers in each county are allowed to design their own specs for the same basic things. She gave me examples of this.

In one county, the light poles might be 1 INCH taller than in another county. You read that right. Also, the wiring that is used for the same application in one county must have a “special coating” whereas the wiring for the same purpose in the adjacent county needs no such coating.

They also said that in one county, a particular city amenity may be designed so it can come off the side of a delivery truck, while in the adjacent county, the same item was designed differently so it could come off the back of a truck.

This results in extreme customization. Customization is a money sucker. It’s also a time sucker. More time to create custom specs. More time to bid custom specs. More time to select suppliers for custom specs. More time to contract with custom suppliers. And finally, more time to manage custom spec suppliers.

Is anyone winning in this deal? I seriously doubt suppliers like being forced to have a manufacturing line that goes at a snail’s pace because they can’t churn out standard products at higher volumes. So they add on tons of cost to pay for this “death by customization” purchasing model. Can you imagine how much they must hate it? They can’t say anything because they don’t want to lose the business over non-compliance to bid specifications.

Now here’s the irony: These are smart people making these requests for extreme customization. They are making what is probably the best design for their specific needs. They just don’t see the big picture at all.

So while this may make sense for an individual business entity (public or private), it is completely unacceptable when you have hundreds of like entities in the same corporate structure (once again, private or public) creating costly custom specifications to solve the same problem.

If you think this is only happening in the government, think again. Internal customers, especially engineers, like to tinker. They like to leave their mark on big purchases. There’s no pride in submitting some standard specification or just adopting someone else’s specification. Nobody gets rewarded or recognized for that. They want to design it their way, whether it’s a good or a service. It’s THEIR specification, they rationalize.

That is what I call “the bad kind of innovation”. We have to educate our internal customers that REUSE is much better than innovation in many cases. Innovation is only good if it solves a problem better than it is already solved today. That kind of innovation creates progress.

Innovation for the sake of innovation, when there is already a PROVEN solution that someone else created, is a big fat waste of time and money, especially when the innovation creates little to no improvement in results, but comes with a huge price tag, both in extra processes and in extra costs.

We need to be educating our internal customers, especially the engineers, that REUSE is more important than innovation when there is already a proven solution in place. Similarly, standard parts and components and services are always preferable to custom parts and components and services. Or at least the benefits need to outweigh the TCO negatives.

Internal customers need to start getting recognition’s and rewards from purchasing for their efforts in driving reuse, not innovation.

Have you ever seen a car with “fake” buttons on the dash that can’t actually be used? That’s because the dashboard template mold is reused for that whole model series, instead of customizing each dashboard to fit the specific options that the end user ordered. It would look nice that way, but at what cost? Reuse is where it’s at in purchasing and in specification design.

Are you driving specification and services design reuse with your customer base?

Are you rewarding your customers for reuse strategies that reduce TCO?

Are you standardizing good and service components wherever possible to allow for aggregation of demand and TCO reduction?

This is just one piece of the TCO puzzle, but it’s an important one. You need to nail this as a part of your overall individual and departmental TCO strategy. Make it happen.

Ask me about products and services I offer to catapult your TCO results, your career, and your income. I do personal coaching, in-house seminars, and I have many online solutions. If you are not more capable every week than you were the week before, then you are stagnant in your career.

Best of all is that “shake the world of purchasing” announcement that I keep telling you is coming. I keep getting mails asking what it’s all about. I’m not even going to let the cat out of the bag on that yet. Not even a little. Look for an announcement around the end of the year.