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Procurement Decision Making - Who Empowers Who?
This week’s Wiki-Wednesday article is part of the series on Next Generation Sourcing: Empowerment. As a strategy in procurement, empowerment has the potential to change the course of a project at many points:
Which suppliers are invited?
How will we structure the RFP or RFQ?
What negotiation strategy will be the most effective?
But no other decision in a project has more of an impact than the supplier award. Which suppliers will be awarded contracts, for how much, and what will the terms be?
Depending upon the organizational structure in place, and the model of the procurement organization, their role in that decision can vary from decision maker to observer. The model may also vary from project to project, and between direct and indirect spend.
Procurement as Decision Maker
In categories where cost is the primary factor affecting a decision, the project is to get a specified good or service for the total lowest cost, procurement will work the sourcing process and notify the business which supplier(s) offered the lowest pricing. Procurement is positioned to suppliers as the process owner and the ultimate authority for the category. If there is an executive approval process for this award, it is usually an administrative sign off on the decision before a contract is signed.
Procurement as Facilitator
In direct categories where there is an active business owner, procurement manages the sourcing process (with frequent involvement of the business owner) and then presents all qualified options so the owner can make an award decision. Procurement can present themselves to suppliers as an objective party, open to their ideas, taking care not to appear as though they have no influence and allow suppliers to bypass them. Executive approval for the award will ensure that the business owner does not give inappropriate advantage to the incumbent or miss out on opportunities to innovate based on aversion to change.
Procurement as Collaborator
In strategic categories of spend, procurement and business owners may take equal roles in the sourcing process. Procurement owns the sourcing process and technology use in the project and the business owner is responsible for category knowledge. Each party is able to leverage their strengths, collaborating on the structure of the RFP, negotiation strategy, and execution. Both will have input on the award decision, with executive approval of the recommended award made by the combined team.
If you are interested in reading more about decision making in procurement, Charles Dominick of the Next Level Purchasing Association published a three part blog series on the topic on the eSourcing Forum in 2008 that still holds true. In these three posts, he looks at basic, advanced, and expert decision making capabilities across cost, support performance, and innovation.