Do you head down the River of Reasonable Return (RoRR) or River of No Return (RoNR)?

When you're faced with a new procurement problem, are you considering the "River of Reasonable Return (RoRR) or a River of No Return (RoNR)?"

I’m guessing you would prefer to watch the Marilyn Monroe flick rather than adding another measurement to track!

But don’t worry: RoRR isn’t something that you’ll have to track or calculate, but it may prove useful in your work. Here’s how.

The Nature of a Problem

Before you start solving any problem, you should understand it first. In particular, you should be able to answer these two questions:

1. How frequently does it occur?
2. How much impact does it have when it does occur?

The answers to these help you take the first step towards a solution, or even whether a solution is necessary.

Some issues occur so infrequently that spending any time in trying to fix them would be counterproductive.

Others have such a tiny impact that they similarly aren’t worth solving.

While problems can overwhelm a business with either their frequency or their impact. Those ones are worthy of your attention.

The Nature of a Solution

Broadly speaking, solutions to procurement problems fall into two categories: Algorithmic and Heuristic.

Problems that require an algorithmic solution tend to be the frequently occuring, low-impact variety. For example, buying stationery from multiple sources, high in consumption, relatively low impact in the scheme of things.

Solving them is about applying a known process. You just have to put the time in, or find a way to perform the process faster. These are the problems on one bank of the River of Reasonable Return.

Other problems are more complex. They require a completely new approach, a completely new process. These are the problems on the other bank of the river.

However, for all the other problems in between, you need a blended approach.

Consider this example:

Imagine that you’re a procurement category manager within FMCG.

You’re managing marketing spend and dealing with Point of Sale (POS) Suppliers for all the promotional activity. These are the people that do the posters, bin ends, gondolas, etc. We’re talking millions of dollars!

You are asked to source for innovation and reduce costs at the same time.

The standard approach you take is - source the addressable spend. All you’re doing is applying the same process you’ve always applied, like so:

Firm up the requirement (one off + repeatable), send out an RFP or RFQ to a few suppliers locally and overseas or go to a print manage, get responses back and negotiate a deal.

Objective achieved. 5-10% savings! High fives all around!!

But is that really the best way to solve this one?

Consider how this problem is connected to the others you might face.

After all, there are far more opportunities for impact above just how much you’re spending on each supplier. You can find opportunities for savings from the time someone decides it is needed, through design, forecasting, production, delivery, installation in store and disposal.

Looking at the interconnectedness of this problem to others is how you uncover more and more opportunities.        

This enables more innovative thinking and value generation, supporting revenue growth and cost out as well.

This approach extends even further, though: it informs the design of product, how it can be used, even how it’s recycled or disposed of.

The benefits in this case are well beyond the 10% mark.

This is where the River of Reasonable return lies.

So when you’re facing a new problem, don’t consider it in isolation.

You’ll be missing opportunities if you do.

RoRR Credits: Dhiraj Rajaram - Founder, Mu-Sigma