Procurement’s 7 Deadly Sins. Part III: Three Bids in a Buy Abuse
What is Three Bids and a Buy Abuse?
Almost every major evolved enterprise procurement team since the 1970s has something called a “Three Bids in a Buy Policy” which states, “If you're going to spend more than a certain amount of money, you have to include at least three bidders on the actual bid”. This policy establishes the minimum acceptance standard for the amount of competition on a bid. But over the years, this purposefully minimum standard has become the de facto standard at many Fortune 2000 companies. Meaning that many procurement teams stop at three suppliers instead of including as many suppliers on the bid as possible. It is believed that this practice thereby erodes millions of dollars of value each year for even the small companies.
One of my favorite and fabulously witty CPO colleagues is Sue Spence. Sue is the Chief Procurement Officer at FedEx, and she calls Three Bids in a Buy, “Three Bids in a Cloud of Dust”, because the dust is all of your opportunity evaporating and not driving any real value. So the question is how much value is this abuse costing your business?
“Three Bids and a Buy” is Really “Three Bids and a Cloud of Dust”
- Sue Spence: Chief Procurement Officer, FedEx
What would Evolved Procurement Look Like?
What is Procurement as it was intended? Consider for a minute a mysterious alternative universe. A universe where procurement nirvana has been achieved on every bid that your organization had last year. What would that look like? How would that be fundamentally different from the realities of today's procurement practices? One future-state pivot would include using 300 suppliers on every bid that you could instead of just three. In the 300-supplier bid process, you would be able to purposefully look for the innovators in every category that you were buying in and include their differentiated product offerings to benefit your business. You would bring new process innovation, new business models and new product innovation and be able to capitalize on something I call a supplier’s hunger quotient.
“Hunger Quotient” - the extent to which a supplier might be willing to submit a materially advantageous deal due to their desire for deal.
- Walter Charles: Multi-Industry Chief Procurement Officer
This hyper-competition would increase the number of suppliers by 100 times. You would be able to effortlessly exploit all 64 value levers in Kearney’s chessboard. You’d be able to unpack the cost drivers on every major bid from a price-only to the top 100 elements that might be influencing that price. Between the 100 times more suppliers and 100 times more cost granularity from the price, you’d be powering up the strength of your bids by 10,000 times (100 X 100 = 10,000). Lastly to get to actionable bid insights you’d might be able to get the bid analytics done in 2.5 days instead of 2.5 months.
I know what you’re thinking, this sounds like some futuristic science fiction! Admittedly, when juxtaposed to our current state-of-the-arc practices, I also agree that this future state sounds like science fiction. But I am here to tell you that this is science fact! Pointedly, I have used a new raft of tools and processes at 4 of the Fortune 500 companies that I have had the privilege of leading as CPO. In the process, my teams and I unlocked between 150% and 299% more value for those companies. I believe that every company that is reading this article can benefit from these next generation approaches.
Moreover, you can join my blog to find out how and help your company escape the stupidity of these tragically flawed status-quo processes.
Several years back, I shared with an audience something I called the Physics of Procurement. It is as true today as it was when I first shared it.
The PHYSICS OF PROCUREMENT
· COMPETITION brings FRICTION
· FRICTION creates HEAT
· HEAT creates LIFT through process innovation, business model innovation and product innovation…
· LIFT creates VALUE like SAVINGS, AGILITY, RESILIENCY, and Improved CASH FLOW
Said directly, more competition creates more value. How many CPOs know the degree of competition on the bids they have? How many CPOs know how much value is lost by the abuse of the three bids and a buy practice? Sadly, too few of us can answer these questions. But if we could, how game-changingly impactful could that be? Importantly however, you don’t have to continue to accept this today due to the new raft of tools that are new making their way to the market. I personally have used next generation supplier discovery engines to find more suppliers faster than googling and less expensively than asking consultants. PLEASE SIGN UP FOR MY FREE BLOG NOW at www.waltcharles.com and I will be sharing how you can learn who I’ve used to get relief from these issues. I will also be asking some of my ~30,000 LinkedIN followers, many of whom are Supply Chain and procurement professionals, to share their perspectives in future blog updates as well. PLEASE join the CONVERSATION BY JOINING TODAY.
What are the Impacts of this 3rd Deadly Sin?
When 3 bids and a buy is overused to the exclusion of executing a robust sourcing process, massive value can be lost. Tragically, most CPOs today can't tell their business or their management how many deals went through last year and how many millions of dollars went through the previous year without going through a robust competitive process. That's not a metric we typically capture.
A New Procurement Methodology Offers Relief
This is where I introduce you to a new Procurement Methodology that has been trade marked by Pierpont Holdings LLC. This proprietary process is called Constraint-Less Bidding MethodologyTM, and it represents a breakthrough for all of the Procurement folks struggling with the “3 bids and a Buy” deadly sin. If you didn't have the constraint of going to three bids in a buy, how many people would you go out to bid to? What new industry 4.0 tools might you need to utilize in order to drive value from this expanded list of suppliers. How might your existing processes need to be adjusted to better take advantage of these next generation tools? How might you need to rethink the capabilities of your team to navigate the many value eroding challenges associated with competitively sourcing deals. These questions are what constraint-less bidding is intended to get after. I think that this new process is such a tremendously powerful unlock for Procurement processionals around the globe that I am offering to personally get you connected to the solutions providers and consultants that have helped me deliver an impressive track record of success as a CPO. Below are the 5 things you can do TODAY to get more free information and get you started on your digital transformation journey!
What You Can Do About it TODAY in Your Business…
If you think your team is abusing this 3rd deadly sin, then here is what I recommend you do:
1. JOIN my FREE blog at www.waltcharles.com by entering your email address at the “Stay IN The LOOP” below
2. SHARE my blog article with ANYONE in your network that is struggling with any of the “SEVEN DEADLY SINS” mentioned
3. ADVOCATE THESE NEW APPROACHES at your BUSINESS – email me at waltcharlesiii@gmail.com to get help
4. FOLLOW ME on twitter @officialwaltcharles
5. TEXT “TOOLS” to 786-566-1766 if your Company has over $1B in Sales and you need help.