Let’s say your company’s goal is to grow your customer and provider relationships. To facilitate this, you decide to build a new office downtown close to them so everyone feels invited and welcome. You believe that all the effort will be worth it if it helps accomplish your objective.
You select your “new” place, a space which is now an old office that needs a lot of work. You know you need to select a partner to rebuild and furnish it for you.
You approach a few construction companies who are willing to help you build the new home for your enterprise. But how do you choose which one to work with? Which one is going to understand how you work and the problems you’re trying to solve? Which one will really understand you and what you need, down to details like chairs, tables, shelves, etc.?
The Procurement Process
The procedure of finding a partner and agreeing to mutually beneficial terms in hopes of ultimately acquiring goods and services or any kind from an external source — often via tendering or competitive bidding processes — is called procurement. Procurement generally involves making buying decisions in different situations, where sometimes you are amazed that your partner is so incredible or, alternatively, you are very disappointed to learn that the partner that doesn’t meet your standards.
Context is everything, so I will reformulate the question: How can you select the best (or a good enough) partner for your business strategy?
To answer this question, excellent communication and negotiation skills are required to make sure everyone has a shared understanding. An important part of the negotiations will revolve around the price, because you do not want to pay more than you can afford.
Parallels to buying a car
This process is akin to buying a car. There are many factors to consider when you want to purchase a vehicle: Which brand am I going to choose? Do I want an electric or a diesel car? What color will it be? And so on. Everything is about trade-offs: What do I get for the price I’m paying? If I pay more for it than the other cars I’ve been looking at, will it be worth it to me in terms of the value I receive?
A classic procurement case usually begins with identifying a business case in which a product or a service is needed to satisfy a list of specifications or requirements. You need to identify at least three vendors who you think are good candidates, engage in negotiations, select your partner, and obtain a signed contract.
Back to our example
In our example above — building out a new workplace ASAP so you have an office near your customers and suppliers — you have gone through the negotiation process and now have the two top offers on the table:
- ABC Construction’s LDA is willing to rebuild the space to your specifications for 5.000€ and the build-out process will take 20 days.
- XYZ Construction’s SA says it will take one day to evaluate the workspace and 10 additional days to complete the project for the cost of 10.000€.
Which company are you going to choose? ABC is cheaper, but XYZ is faster and twice as expensive.
Let’s say your choice is ABC. Congratulations, the rebuilding process has begun! On the first day, they find floor issues which are going to take 4.000€ and 3 days to take care of. Afterward, they find the ceiling needs major repairs, which is going to take 2 more days and 3.000€ over the original budget. What originally seemed like a fast and cheap solution has suddenly morphed into a slower and more expensive one.
‘Best or good practices are never the solution for an unknown goal but can be a source of inspiration.’Agile Thinkers
Lean-Agile Procurement (LAP) helps with difficult decisions
Making choices is no easy task and making difficult choices is even harder. The process of Lean-Agile Procurement may be just what you need when it comes to finding big solutions for big problems. LAP works with any type of business. The key to this process is gathering all stakeholders at the same place and time to determine the project’s exact needs and ensure full transparency.
Adopting Agile in the procurement process can bring many benefits for you and your business. According to the State of Agility in Procurement & Supply 2020 — a global annual report that gathers data and metrics about this topic — utilizing Agile practices in procurement causes customer satisfaction to improve by 23%, time to market by 21%, and company status and reputation by 19%.
Nowadays, time matters more than some years ago and the need for speed and adaptability is a primary concern. In the example of ABC vs. XYZ, trust is everything. You can lead by example and be a trusted partner for your customers, providers, and co-workers. Take what you’ve learned through experience and work with your customers to identify their true problems — and provide not what they say they want, but what they really need.
If you would like to learn more about Lean-Agile Procurement and how this approach can help you and your partners, please join Hugo Lourenço and the Agile Thinkers at one of our upcoming courses.