Cherry Picking and Procurement

I'm on a rant, LinkedIn. A real tirade.

Don't be scared - it's not about YOU. I'm not mad at you because, surely, you wouldn't do this. You're so smart - you know better!!

I sometimes wonder what it would be like to have a job that everyone didn't feel like they could do better. Like, for example, if I were a brain surgeon, I bet some truck-driver in a bar wouldn't be all "Yeah, I have years of experience with that and I'll surgery your brain right now to prove it!" Or if I were an astronaut, someone in the boarding area of a Southwest Airlines flight wouldn't say. "Pfffft. Space. Who HASN'T gone to space? I have 9.7 million frequent flier miles - one more trip and I'll get a free drink coupon for my next journey!"

If you work in HR, people probably think they know your job. ("Listen, I just put my middle-schooler on a PIP until his KPIs trend in the right direction on his report card!" And anyone NOT in Sales clearly knows what it takes to close a deal. People who have never worked in Legal believe they are sofa-king good at contract-writing.

Similarly, some people who have never worked in enterprise Sourcing and Procurement believe they are the best at managing spend.

Arm-chair quarterbacks are everywhere, with their squishy abs and their TV-yelling and their Buffalo chicken wings. (Slipped that one in there because I'm hungry. Sorry.)

To be fair, I do not doubt that many are very good at managing spend. Maybe they are on those reality shows for Extreme Coupons where they go into CVS with 78 coupons, come out with $973.22 worth of hair conditioner for only $4. Those people - they impress me! That's some good spend management there! Plus, I use a lot of conditioner so I should do that.

Those people might even be great at managing their budget at their company. For example they found a vendor who will sell it to them for $200 less! YAY! What a win!

But do they know that setting up a new vendor, adding the work and the risk of another vendor record, costs the company way more than what they just saved? And they are adding to a long list of one-off transactions those of us in Procurement call tail-spend with suppliers that will never be contracted or managed? And that this adds Legal risk and risk of fraud and other potential bad-actor stuff into our organizations? And do they know that tail-spend, in aggregate, can be significant in volume and value and weakens our leverage with our key supply partners, possibly reducing our rebates or making us miss our contractual commitments?

Probably not.

Us procurement types appreciate those who are budget-conscious, those who have 'value for money' sense in them. Those are our people!!

But please don't assume that your knowledge on how to manage your spend on stuff is the same as the Procurement department's knowledge on how to manage that same spend across the enterprise.

Across the enterprise. Those are the key words.

Finding one Dell laptop on sale at Best Buy isn't the same as running an enterprise program for how laptops are sourced, contracted, and procured across the company. Finding one of anything for a better price - that's called cherry-picking.

Cherry-picking is pretty much any time someone says "I can get that cheaper than the company program" when they are talking about a one-off for their budget or their department without considering the enterprise. Sometimes, when people go their own way, they hurt the bigger program. The enterprise contract may have financial commits. Leakage to that program, while it may seem less expensive to one person or department, might injure the overall program that was arrived at using aggregate spend because it provided optimal value to the whole enterprise.

Here is an example of what I mean: at my last company, we spent a lot on air travel. Global company, highly mobile. For easy math, let's say it was $100M a year on airline spend. A person in one of our business units submitted a suggestion to top leadership saying that he could save the company $30M a year on air-travel. I was asked to meet with him since I headed up that category of spend at the time. I gave him an overview of the Managed Travel Program, the KPIs, the compliance requirements (some of them regulatory), the carbon usage we reported. I talked about the challenges and opportunities we were always working on, and then I asked him to share his $30M savings idea with me.

This guy traveled once per year on an international flight. He sourced each leg of a multi-leg journey himself, carefully, and compared that to the fares he saw in the booking tool. He was taking 3-hop flights from the US to London, in economy. He was going around policy and buying a collection of one-way tickets.

Instead of telling him how terrible that idea was (see how nice I am??), I asked questions. "What happens when one flight is significantly delated and you will miss your next flight?" He told me if that happened, he would have to change his next flight himself, but he made sure he had long layovers to minimize the risk of that. I asked him "How much time does it take you to investigate all this and get your annual trip booked?" He told me it was many hours. I asked if he compared his overall travel time from his itinerary to the one suggested by the agency and factored in the monetary value of his time. He hadn't.

I told him that our executives and our employees who consultanted to clients and sales personnel were on the road many weeks a year, for many trips. They counted on someone else to do that work. They counted going direct whenever possible to minimize travel time and risks of missed connections. When they did book a connecting itinerary, they counted on someone rebooking them if any delay caused them to miss a connection. They counted on their ground transportation provider to be updated if they were coming in later than expected. They counted on many things. And our Compliance team counted on being able to provide the regulatory Duty of Care to travelers who were stranded due to events outside of their control, and they couldn't do that when individuals booked outside of the program. And my team counted on all of our spend being IN the program so we could use it to negotiate our big contracts for our major routes we needed to fly, and when people went outside of the program, we couldn't see or count that spend unless we went data-diving in the expense report data, which was hard. Finding the leakage is always hard.

His heart was in the right place but this guy couldn't take $30M out of our airline spend because he didn't understand the industry, the program, or the needs of the internal stakeholders - especially the frequent travelers. That spend was already carefully sourced, negotiated, contracted, and managed. There was already a team who looked at it overall to lower costs and deliver better value for money aligned with stakeholder requirements and senior leadership direction.

See, a program - whether it's airlines or office supplies - has to hang together across the enterprise to work. If one person, department, or location pulls out, the program loses balance. Leverage is lowered. Contractual financial commitments are missed. Penalties may apply. Rebates are reduced. Operating costs go up. And more.

Cherries are delicious! By all means - pick them and enjoy them in your personal lives. In fact, you can even cherry-pick in your own personal spend management. (I know a lizard who can save you 15% on your car insurance!)

But before you go cherry-picking on company spend, talk to someone who knows the enterprise program ins and outs and make sure you have all the facts. What seems good for your individual budget might end up raising costs for the enterprise, and shouldn't we all care about the good-of-the-many over the good-of-the-few?

If you say yes, then I'll let you know next time I have an opening on my team!

~~~~~~~~~~~~~~~~~

Linda Metzler likes writing about Procurement and she tries to be funny but this one was deadly serious, except maybe that lizard joke about car insurance.

OK, that wasn't very funny either.

Linda feels that Procurement isn't rocket-surgery, although she has been tempted a few times to give a pre-frontal lobotomy for free at work - she just wants to help people understand what it is Procurement does because she hopes someday one of them can explain it to her mother.