Monday, May 24, 2010

The Pros & Cons of Supplier Transparency

Earlier this month, I posted a blurb entitled "Should You Share Your Selection Criteria & Weightings With Suppliers?" This post generated some interesting debate both here and on LinkedIn.

One common bit of feedback came from government buyers. These are people who are very constrained by the laws that apply to their work. A few asked, incredulously, "Why wouldn't you disclose your selection criteria and weightings?"

Well, I think that it is important to acknowledge that there is a big difference in public sector procurement vs. private sector procurement. This is a difference that I don't think that all public sector buyers understand.

Simplified, public sector procurement is all about being fair to the taxpayers (of whom suppliers are a subset) whereas private sector procurement is all about doing what is in the best interests of the shareholders. A private sector's procurement department disclosing complete information to suppliers may not be the best idea for a number of reasons, not all of which apply in all situations. Here are just a few:

  1. Because you paint yourself into a corner where you cannot change, even if you learn something through the solicitation process which even the most experienced procurement professionals often do.
  2. Because complete disclosure may compromise the confidentiality of competing suppliers' information.
  3. Because it gives the losing suppliers ammunition to argue your decision in a debriefing when, let's face it, it's not a private sector purchasing agent's #1 priority to make losing suppliers happy.
  4. Because suppliers can lie in their bids when they know how important an area where they are weak is to you.
  5. Because suppliers may realize that they don't have to be as competitive when they know that certain criteria (e.g., price) has a relatively low weighting.
  6. Because it separates the truly knowledgeable suppliers from the less-knowledgeable ones - the truly knowledgeable ones will score high because they know what is important and don't have to have criteria spelled out for them to deliver an attractive proposal.

So, what are the benefits of being totally transparent? Here are a few:

  1. If you are operating fairly and impartially, the supply community - and perhaps internal stakeholders - feels that there should be nothing to hide. Any withholding of information is perceived as trying to "cover up" something that wasn't completely ethical.
  2. It helps suppliers focus on what your needs are instead of guessing.
  3. It fosters open communication with the supply base, which will need to continue throughout the term of the relationship when collaboration and continuous improvement are expected to produce additional financial benefit.
  4. To comply with laws that apply to certain purchases.

When you have the choice (i.e., when you are a private sector buyer), I personally do not advocate total secrecy or total disclosure for every situation. It is a judgment call on the part of the head of procurement to decide which approach to adopt, either on a case-by-case basis or as a standard operating procedure. Just as you would decide whether a reverse auction or a sealed bid is an appropriate form of bidding for a single purchase.

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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