At the beginning of my career, I was taught professionally how to sell, and have continued to use those skills ever since. But I was never taught professionally how to buy. Indeed, I suspect that few people are and yet buying is just as important as selling. Over the years I must have been responsible for spending billions of pounds on products, ingredients, components, packaging, advertising and other marketing services, many other forms of services like professional advice and consultancy, licenses to use technology, distribution services, labour, computers and software licenses, furniture, stationery, the list is almost endless. In some cases, there were professional managers of procurement but even here there can be problems because procurement should be a shared responsibility, not a delegated one.
I recently read a fascinating book on this subject, Bad Buying
by Peter Smith.[i]
Peter has over 35 years’ experience in procurement and supply chain as manager, procurement director, consultant, analyst and writer. Peter is the Managing Director of Procurement Excellence Ltd, a leading specialist consulting firm. He is recognised as one of the U.K.’s leading experts in public and private sector procurement performance improvement. Peter has an MA in Mathematics from Cambridge University where he is now a Fellow. The subtitle of his book is “How organisations waste billions through failures, frauds and f*ck-ups.”
The first part of the book deals with failure and he gives numerous examples of where companies and governments go wrong. He emphasises the need to get the Specification right. Too many buyers seem to be focused on price when what really matters is having the right product. You need to understand the market and there will be occasions when people seem to bring you something that is too good to be true and indeed is therefore certainly not true. He covers the importance of choosing suppliers but not getting too dependent on one. Maintaining a competitive position in your supply chain is vital.
He gives a bad buying award to Schlitz beer. In the 1970s Schlitz was still number two in the United States, having been the largest producer of beer for much of the first half of the 20th
century. But they adapted the recipe in order to save cost and gradually drinkers became uneasy about this change and competitors wasted no time in drawing attention to it. One of their processes involved using silicon gel and as the US Food and Drug Administration was going to force firms to list all product ingredients on the packaging, they decided to find an alternative stabiliser. But this even changed the appearance of the product and eventually the issue became public, and Schlitz had to organise a secret recall of some 10 million bottles of beer.
Smith explains how to negotiate and how to understand the way incentives work both for good and bad. He tries to understand how governments get it so wrong. He asks why do politicians, senior executives and government officials sometimes buy in ways that can appear to be wasteful, logical or plain stupid, to the outside observer at least? He suggests there are three major drivers for the failures: corruption, arrogance and impatience. He finds particular fault in EU projects. A 2014 report by the European Court of Auditors claimed that 20 EU financed airports in Estonia, Greece, Italy, Poland and Spain misspent large sums of EU taxpayers’ money for more than a decade. The auditors looked at eight airports in Spain, five in Italy, three in Greece and two each in Estonia and Poland. Between 2000 and 2013 some €666 million from the European regional development and cohesion funds were spent on these facilities, with most of the money going on building terminals and runways in airports forecast to attract new passengers. But the projected growth rates rarely came to pass, and no less than €129 million of the money was spent on ‘entirely useless’ projects.
Smith argues you should trust no one (at least not suppliers). You need to learn how to cope with change, citing the extraordinary delays in Crossrail and now HS2. He gives a bad buying award to Brandenburg airport. Flughafen Berlin Brandenburg Holding GmbH (FBB) was set up in 1991, with the aim of building what was planned to be Germany’s third largest airport. It would reflect the growth of Berlin after the Wall coming down, the status of the city as the capital of reunified Germany. A private consortium would own and operate the airport. A competition was held but the decision was challenged successfully by the bidder who lost the tendering process. The two bidders then combined with a consolidated bid, but the state authorities decided that the airport should not be privately run after all. The two consortia were eventually paid off with €50 million each for their efforts. After almost 15 years of planning, construction began in 2006. During construction it became clear that the €2.8 billion budget wasn’t going to be enough – it was already up to €4.3 billion by 2012. In 2010 there was a ceremony to celebrate the supposed completion of construction work.
In summary, you must focus on people, the success of any organisation comes down largely to that in the end, and improvement almost always requires people to change their behaviour. And as people increasingly rely on machines then buying will get worse because it is by talking to people that you will really find out what is going on.