If you sell products or services in today’s marketplace you’ve probably experienced the joys of current “procurement” techniques. Reminiscent of the industrial age where it was all about production of low-cost and commodity goods, we’re still expected to provide the lowest prices possible for the products and services we deliver. But is this the correct approach?
Although today’s products and services are becoming increasingly complex and dependent on one another, common practice sees opportunities still being broken down to their lowest common denominator and then sourced at the lost possible cost. We’re told that the “P” in RFP stands for “proposal,” however nine times out of ten it really appears to stand for “price.” In most industries (and the one I am most familiar with: construction) successful proponents are primarily selected based on price and low-cost compliance.
To me, this seems a little dated. We’ve moved passed the Industrial and Information age. Today, we are shaping the Network Age. Our society is increasingly characterized by the networking of people, processes, information and things – the Internet of Everything. To collectively ensure the highest and most sustainable possible value for current and future stakeholders and generations, conversations and partnership and procurement models need to evolve from a focus on price to a focus on value.
Value is created when the best minds, processes, and solutions are converging. Using the best products and services with innovative business models to provide the most sustainable (longevity, environmental, economic, and social) solution for complex problems. Naturally, price is always a factor, but not the determining one. It should not be the price of the initial investment that matters; it’s the cost of economic, environmental and social drivers for the ‘whole-offer’, the sum of all its parts over the lifecycle of the proposition.
This shift in focus requires a significant change in mindset (and procurement).
We need collaboration. Rooted teaming and transparency between those responsible for capital costs, those responsible for operating costs, and those that benefit from solving the problem must take place. The value (in the most sustainable sense of the word) for end users and the public at large must be at the center of these conversations.
We need everyone to be on the same page. Suppliers must become true partners, collaborating and co-creating with all having the same goals in mind. Owners and customers need to rethink the risk and reward models as they seek the best solution to meet their needs. Bringing all these voices to the table will cultivate the experiences and relationships that are needed for true innovation—and the utmost best possible outcomes.
We know it can be done (we’ve seen it and been part of it); but it’s far from common practice. Sadly. I am of the strong belief that today’s procurement techniques stimulate silo-ed and low-cost behavior, and consequently will not provide the greatest optimized results in economic, environmental, and social benefits to all the stakeholders in question.
Buying cheap is expensive. Buying value is sustainable for everyone.
What does this mean for those that make a living of breaking down customer problems and finding the lowest possible price, and consider that to be their greatest value-add? Right. Disruption.
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Wow! This really is by far the most useful thing on the topic I've ever come across. Thanks for your effort.
Rick, thanks for your thoughts – I couldn’t agree more. Project Managers provide the best value to clients when they are strategic partners in providing end to end solutions for capital projects – from concept to commissioning. Price is irrelevant – value is everything. Clients require certainty.