Procurement Basics: Managing Monopolies

People like choices, especially when wanting to avoid feeling trapped. Having no options

Perhaps you are reading this for just such a reason?

Our reaction to the term monopoly is often negative. Governments around the world have established competition laws. The USA has the 1890 Sherman Anti-Trust Act largely established to curtail the ‘unfair’ practices of the Standard Oil Trust and so on

But let’s hold on a moment

As discussed in my other post “How much genuine Supplier Competition is there?” Monopolies may for various reasons be self-imposed. 

We often choose to create monopolistic relationships in our best interest - Preferred Suppliers anyone?

My first tip then, is to ask the question ‘Just because you have a monopoly supply situation – does it really matter?’ 

It may offend the righteous buyer’s sensibilities, but let’s remain objective. Is it costing us significantly more in any way – and if so, what is the effort/benefit of change? If the answers are ‘not really’ and ‘difficult/minimal’ then simply ensuring that ratio remains or improves should be enough 

The next (or perhaps more sensibly, first) step in dealing with a Monopoly is the classic caveat emptor!

Before you sign up consider the long-term implications and potential exposure you might face. Do your Supply Positioning*, Total Cost of Ownership, ensure you consider how potentially dependent you may become. Undertake a Risk Analysis* to understand the implications of, and how you would deal with, a failing in your 5 Rights of Procurement*. You should also consider external factors, how they might change and impact the supply e.g. Technology being superseded (PESTLE# is a good reminder for this)

Once understood, make sure you cover these aspects as best you can in your contract

Coming back to managing an existing monopolistic supply where we have issues to resolve. There are more scenarios than we have time for here but our options range from the blindingly obvious to the more involved 

The technique I’ve found most helpful is to run some thought experiments with my colleagues on various scenarios e.g.

‘What would happen if…’ 

‘How could we…”

‘What would be the cost/benefit of…’

‘What are the risks associated with…’

‘Where could we be in 3 years time if…’

Asking those questions on various scenarios:   

-         ‘What would happen if we…’  Stop buying

-         ...Reduce demand

-         ...Change specification

-         ...Change working/contractual practices (e.g. frequency of order, logistics)

-         ...Buy non-OEM

-         ...Only buy the ‘Black Box’*

-         ...Do it ourselves (Make-or-Do vs Buy)

-         ...Buy more

-         ...Find/Develop competition

-         ...Develop our relationship (are we good customers..?)

-         ...Buy them

Since we are initially undertaking thought experiments, we can be as crazy and creative as we like – what we are looking for are actual (or implied) negotiation points and/or actions we can take to redress the balance of power, either in the short or longer term

The Key Points here are:

1)     Caveat Emptor – avoid buying a problem in the first place, understand and try to pre-empt potential Risks becoming painful Issues*

2)     Don’t waste time and effort on low cost/impact issues you’ll struggle to change anyway

3)     Work with your colleagues to evaluate monopoly-managing scenarios. You may identify direct and immediate solutions and/or you may develop a plan for change – good luck!

If your Procurement Policy, Sourcing process, Skill levels etc. need a rethink - give me a call, I can help you

I hope this is of interest and useful; please feel free to Comment, Share and Like (or shoot it down!) Please also have a look at my other posts; mostly about buying stuff, some more tongue-in-cheek

Thanks and regards

Andy

*See my other Procurement Basics posts on these topics

# In case you forgot: Political, Economic, Social, Technology…