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A new approach to Procurement?

Moorhouse recently worked alongside a UK based organisation on a significant strategic procurement programme. The organisation had a clear customer focus and sought to improve end user outcomes by procuring a best-in-class service. It was open to switching some major contracts from a single large supplier to multiple specialist vendors in order to achieve its desired outcomes. In particular, we found effective planning and the setting of ambitious but realistic timelines was key to a successful RFP process.

What is Supplier Optimisation?

Sustainable supplier optimisation often starts with an emphasis on rationalisation – moving to fewer, larger contracts. This initially involves a focus on cost, but there is often also a drive for more volume through fewer suppliers which can trigger greater efficiencies and discounts. In many ways this works. It allows economies of scale to filter through to pricing, and potentially reduces overheads on contract management. This is the traditional thinking, the traditional strategy. And it has worked for some time.

Traditional approaches are becoming obsolete

However, there are inherent complications with this traditional approach to sourcing strategy.

Large suppliers often have significant internal red tape and may not be open to innovation nor responsive to change. They can be less agile and less able to respond to a customer’s requirements. Large suppliers are also less willing and able to work in partnering agreements with smaller, more innovative suppliers who would bring new perspectives to the service.

We are seeing the most successful organisations tearing up the old rule book and looking at radically different approaches to working with all suppliers. They recognise that ‘rationalisation’ can have a number of draw backs, and too often leads to single, large scale suppliers monopolising contracts.

To gain an edge in an increasingly competitive environment, organisations are now seeking to provide ‘revolutionary’ and ‘best in breed’ services. Buyers are increasingly wanting to source innovative, agile suppliers to help support them, and they are looking to multi-vendor solutions to drive better quality and efficiency.

This has necessitated a review of the status quo and traditional approach to procurement strategy.

But, multi-vendor solutions do not always go to plan

In February 2018, a well-known fast food firm specialising in deep-fried poultry moved its supply chain to a joint venture logistics contract between DHL and QSL seeking to make price and efficiency gains. However, the botched outcome made national news as hundreds of its outlets were shut when the new vendors failed to fulfil their delivery obligations. The decision to move to a single depot ultimately proved problematic for KFC, leaving it with little contingency in a crisis. When a series of traffic accidents on the M6 began to stall its lorries ability to reach the new single warehouse, the organisation began to struggle to fulfil deliveries. The series of accidents and the new single warehouse, combined with a new IT system and a recent transitioned service created a perfect storm. Ultimately, there was too much change running in parallel, alongside a reduced ability to mitigate delivery risks.

The example provides a detailed case study in what can go wrong when implementing a multi-vendor solution, and KFC was forced to return to Bidvest (its original supplier) for help in bailing it out. As it happens, KFC marketeers were able to turn a PR disaster into a PR triumph with some very self-deprecating advertising (“FCK – We’re sorry”). All in all a costly exercise for the organisation.

So, what do multi-vendor procurement programmes need to get right?

It is clear that a multi-vendor approach carries inherent risk and associated challenges so, to address these challenges, we have idenfitied four fundamental steps to facilitate success:

1. A defined strategy from the outset: Organisations need a clear sourcing and requirements development strategy which is understood by all, and includes a clear vision and objectives. There should be a clear operating model for the service or supply chain, including the scope of services for each supplier and the interdependencies between each provider. Typically, a multi-vendor solution will be most effective where the strategy prioritises level of service, innovation, collaboration and agility, rather than price and simplicity.

2. Allow proper time for effective planning: A dedicated planning period is critical before diving in on requirements, during which organisations need to ensure they have alignment between senior decision makers and those implementing and delivering. Organisations need to allow time to work through complex multi-vendor scenarios including scenario planning and alignment of dependencies. They should gather requirements iteratively, institute a continuous review and acceptance cycle, and obtain formal sign offs throughout. This will enable quick and clear sight of progress and agreements.

3. Focus on outcomes, not on detailed requirements: Buying organisations are often too prescriptive about the end solution. Buyers should consider what can be left to be defined by experts within the supply base, allowing suppliers sufficient flexibility in how they deliver the required outcome. The supplier can then be held to account via KPIs and measurable outcomes – rather than focusing on the process steps taken in delivering those outcomes.

4. Transition and delivery execution: The transition and delivery phase of a sourcing process, RFP or supplier optimisation is crucial, and investment in resources to deliver the new model is essential. This should not be de-coupled from the initial strategy process and it is vital that consideration be given to implementation and transition throughout the procurement. This requires further exploration and will be the subject of a subsequent piece.

Moorhouse recently worked alongside a UK based organisation on a significant strategic procurement programme. The organisation had a clear customer focus and sought to improve end user outcomes by procuring a best-in-class service. It was open to switching some major contracts from a single large supplier to multiple specialist vendors in order to achieve its desired outcomes. In particular, we found effective planning and the setting of ambitious but realistic timelines was key to a successful RFP process.

Whilst adding a level of risk and complexity, a multi-vendor supplier approach can provide organisations with the opportunity to increasingly tailor and enhance their end product or service. Care must be taken to avoid the pitfalls experienced by KFC. But, these challenges can be overcome with a clear strategy, adequate planning, and a focus on outcomes to be delivered.

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Author

Alex Goodman Senior Consultant