I had the privilege of being part of a six-person procurement team late last year that was helping a client with their strategic sourcing. With 15+ years of experience in supply chain, I was the “baby” of the team, which was an absolute powerhouse of knowledge in how to strategically source categories. When we came in, it was on the heels of one of those really big consulting firms, whose name you might recognize (and at some point your company might have even hired). In contrast to our team’s experience level and depth of knowledge, the oldest person on that other team was maybe 28 years old, with a newly-minted MBA who started consulting straight out of college. None of this is bad; they were all incredibly smart and I’m sure will do amazing things in their careers and for the companies they help. But (there’s that big “but” you knew was coming) the combined experience in that other consulting team was easily dwarfed by the real-world experience our team brought. It got me thinking: why does that matter? If that other team has all the education, is super smart, and has all the frameworks and analytics of a giant consulting firm behind them, what does experience matter? The short answer is that real supply chains are messy. Really messy. Until a procurement professional has been burned a few times by a poor scope of work, a bad customer relationship, or spending hours trying to pull meaning out of an ugly data set, it’s hard to explain why these things matter. So today let’s talk about experience in procurement: what it gets you and why it’s important. And let’s pepper each of these points with an example from my own years as a procurement professional.
Relationship Building
When I first started in procurement (moving over from engineering), I wasn’t good at relationship building. Suppliers were vendors to me, and I fought for my voice with my internal customers instead of listening to them. I told engineers that the products I could source were better than what they had designed. I once spent an afternoon with my TI-89 calculator and a few sheets of engineering paper calculating why an octagonal cross-section on a bar was actually stronger than a hexagonal cross-section because the octagonal cross-section was easier to source and less expensive. The calculations aren’t the part that makes me cringe today; instead it’s the memory of me photocopying my calculations and just dropping them on the Project Engineer’s desk. He was a really nice guy and didn’t tell me how incredibly rude that was, nor did he set me straight on just how many other components would have to be redesigned to accommodate an octagonal bar. For years I looked back on that event and couldn’t figure out why he wouldn’t just switch to the less expensive, easier-to-source octagon. Only much later did I realize how much he didn’t listen to me because I had not built my relationship with him.
In every department in a company, things actually get done through relationships and trust. In procurement, this is even more true because we interact with every group in the company. While there are a few professionals who understand this dynamic fresh out of school or new to the procurement profession, many of us have to get knocked around a little to learn it. Most procurement professionals I know have a story like mine where they either ignored the relationship need or built it too late to matter. One of the things experience gets you is understanding the importance of building relationships first before bringing in improvement ideas, new suppliers, or different processes.
I’m pretty sure that bar is hexagonal to this day.
Total Cost of Ownership
The importance of the Total Cost of Ownership (TCO) in a sourcing event cannot be understated. This one is what prompted this article, as it was the biggest thing our team found when we were doing cleanup for that other consulting firm’s team. To illustrate the issue, let’s talk about branded apparel. These are the hats, t-shirts, and quarter-zips with a company logo that are sold or given away to improve a company’s brand presence. Let’s start calling this other consulting firm’s team The B Team because I, of course, get to be part of The A Team.
The B Team came in, gathered some messy data on historic spend, and sent out an RFP to the incumbent supplier and a few others. They had suppliers propose a brand name for each item and whether they were “good,” “better,” or “best” quality, which I actually like as an approach when you don’t have enough data and can’t get it. It’s ok to ask suppliers as the experts what makes sense in their industry and then comb through the answers to get the best result. For what it’s worth, I would have done an RFI for this stage instead of an RFP, but this part of the article is about TCO.
The B Team gathered this information and intended to flip it into an e-auction but was removed from the project before they could get a chance. This stage of procurement is where understanding the value of a category is so important and simply has to be accounted for in an e-auction or negotiation. The B Team didn’t consider all the things that actually matter in a branded apparel bid: delivery/shipping fees, stocking rates, and minimum order quantities. They also didn’t consider thread counts for embroidery, Pantone color matching, or other quality level thresholds. When suppliers fear an e-auction as a race to the bottom, this is exactly what they’re afraid of. And rightly so! Who cares that a t-shirt was $3.94 instead of $3.95 when the white screenprint on dark fabric is so cruddy-looking that the customer says, “If their t-shirts have such terrible quality, what does that say about their product?”
I’ve heard an ongoing debate all my time in supply chain about whether a buyer needs to know their categories well or if they can just buy it because all procurement activities are basically the same. I say a procurement professional needs to know their category well enough to know what goes into the TCO. This is the next place experience comes in: when someone has been around a certain category or type of category long enough, they start to know what “extras” beyond price need to be included. Even more than that, experience gives you the ability to make a call on when to include all of these extras, when some don’t matter, and what moves the needle on value.
With branded apparel, it’s all about the shipping and stocking fees.
Long-term View
One of my main clients hears me say, “I’d rather lose the battle and win the war” a lot. No matter how good relationships are or how collaborative we are, procurement professionals fight a lot of battles. We fight our customers to just “follow the procurement policy, please!” We fight our suppliers for the best value for our company, sometimes fighting for the very last penny on a deal! We fight each other for more spend, better suppliers, and who has the most savings! (Side note on procurement policy, value vs. savings, and customer service in this other article I wrote in 2024). Some days being a procurement professional, even with all the “soft” skills in the world, is one long battle.
When my company implemented e-auctions at the beginning, I didn’t know how to talk to suppliers about the value e-auctions can bring. As a consequence, I had multiple suppliers refuse to participate in RFPs if there was even a chance there would be an e-auction after. I tried to fight every one of these battles and worked very hard to get suppliers to participate in auctions, using my spend as a bully pulpit to try to force suppliers in. I would often get them to participate, only to have to fight that same battle again the next bid. I was winning battles, but losing the war.
Then a large infrastructure project came along. We built this type of project about once or twice a year, and they were always worth millions of dollars to the supplier. It was a specialized field, so only three suppliers were qualified to do the work. Two of them refused to submit a response to the RFP because we had told them we were considering using e-auctions for the negotiation tool. Normally the negotiations on these projects took months, followed by another several months to translate the negotiation to contract documents. Our technical team asked for an exception to the e-auction and was denied. We warned the suppliers they would get no work if they chose not to compete in the e-auction, regardless of their pricing. We used the e-auction to clarify complicated pricing, format and confirm the structure for the contract documents, and reduce the award time from months to weeks in the one remaining supplier. We lost the battle on price and paid WAY too much for that project. Our CEO knew it, but we had his support and we pressed on. We ran two more RFPs and e-auctions this way, awarding millions of dollars in work to the single supplier who was willing to participate in our process.
If you’ve been reading my articles for any amount of time, you might be able to guess what happened next. We received phone calls from the two non-participating suppliers: “Why haven’t we been seeing work from you?” We told them clearly that we were serious when we said e-auctions were our chosen negotiation tool and they were losing business by not being willing to negotiate fairly, quickly, and transparently. One of the suppliers started participating again with the next project. The other did after another project went by and they still didn’t receive an RFP invitation. Costs dropped below what they were before we started using e-auctions, and contract cycle times shortened because the e-auction was adding crystal clarity to the pricing documents.
We lost the early battles, but we won that war. Nowadays I would do things a little differently (see “relationship building” above!) and work more closely with suppliers to understand their true concern. The point is that experience gets you a long-enough view to be able to win the war and not just win the battles.
If you’re like me, you have to lose a few wars before you start to see the whole battlefield.
A good procurement team needs a great mix of people and lots of different experience levels. None of us are born knowing what we need, and those who are fresh out of college have a great understanding of new tools and cutting-edge procurement approaches. If you’re new to the procurement space, learn how to build relationships, calculate the Total Cost of Ownership, and win the war (not the battles). If you’ve been in this space for a while, it’s your job to teach these things. And don’t send The B Team when The A Team is needed.
If you’d like to talk about procurement experience or anything else in this space, let’s chat. If you’d like to get these articles weekly straight to your inbox and never miss one, sign up for my newsletter.
My book, Transform Procurement: The Value of E-auctions is available in ebook, paperback and even hardcover format: https://www.amazon.com/dp/B0F79T6F25
My chapter in the powerful anthology Femme Led: Hard-Learned Lessons from Women in Leadership is now available in ebook and paperback format: https://a.co/d/0bOzma8F
One of the things experience gets you is understanding the importance of building relationships first before bringing in improvement ideas, new suppliers, or different processes.
I say a procurement professional needs to know their category well enough to know what goes into the TCO. This is the next place experience comes in: when someone has been around a certain category or type of category long enough, they start to know what “extras” beyond price need to be included.
The point is that experience gets you a long-enough view to be able to win the war and not just win the battles.
