The Bands of Public Sector Supplier Engagement
“To really leverage vendor partnerships, solution providers need an in. For the public sector, that entre has to go beyond the program to the individual behind it who understands the market nuances and challenges that can hold partners back.”
From the article 25 Public-Sector Channel Leaders (ChannelWeb Network, March 19, 2007)
In one simple statement within the confines of a single article there has never been a better or more succinct explanation of what plagues public sector procurement practice today. Especially in the area of supplier development and engagement!
As you review the backgrounds of the “leaders” featured in the ChannelWeb article, one cannot help but note that 11 of the 25 individuals listed have at least 20 or more “years in the public sector,” and for the most part all represent large, multinational suppliers.
While experience is not the sole domain of the corporate giant, the relationships that are developed over a period of two or more decades combined with the high level of what I refer to as “cross pollination employment” activity certainly provide the needed “in” referenced in the article. An “in” which is by its very nature exclusive and therefore is not extended to include the vast majority of the supply market.
The Bands of Engagement
Over the past several years I have extensively researched and where possible monitored supplier engagement practices in both the public and private sectors. While there are some elemental differences linked to political influences and considerations within the public practice itself, by and large the hierarchy or “class” distinction relative to suppliers has remained constant. I call this hierarchy the Bands of Supplier Engagement (Bands Graph).
The “natural” evolution of these bands is not due to the exclusive nature of relationships alone, but is also part of the fall-out from the erroneously broad application of a flawed vendor rationalization strategy. My November 27th post titled “The Continuing Dangers of Vendor Rationalization” expands on the challenges associated with the utilization and subsequent misapplication of vendor rationalization as a means of driving both efficiency and bottom-line savings.
However, one cannot logically suggest that relational influences do not provide avenues of opportunities that are for the most part unavailable to the so called masses. In fact, to deny this as a crucial factor in public (and private) sector decision-making would in and of itself raise an issue with creditability.
That said there are degrees of influence that have created grey areas of ambiguity that is similar to the carton of milk whose expiration date is within a day. The milk is not necessarily bad, but nonetheless it leaves a somewhat questionable taste in your mouth.
It is within this context of understanding that the individual supplier bands or classes have been identified, and are explained below.
The Masses: Representative of the majority of suppliers who are detached, somewhat cynical and for the most part disinterested in pursuing opportunities originating from the public sector. (Once again, it is important to note that the high level of disengagement is not limited to the public sector. Many private sector organizations continue to struggle with an eroding supply base and the resulting negative consequences.)
The Strategically Displaced: Like gamblers buoyed by past windfalls, this group of suppliers are in the most unenviable position vacillating between stirring-up the emotions of the unsympathetic “masses” when a perceived injustice occurs within the public acquisition process and, delicately navigating the reefs of relational elasticity with bureaucratic taskmasters who hold out the carrot of replicating past victories.
The In Crowd: Representative of the select few suppliers who through direct relationships (i.e. cross pollination employment) with key government decision-makers have nestled themselves and their respective organizations into the enviable role of incumbent. Referring once again to the March 2007 ChannelWeb article, very few suppliers have the needed “in.”
Way Forward Polarization
Given the seemingly diverse and contradictory nature of the three different classes of suppliers, it was really quite an amazing feat on the part of the Canadian Government in terms of how the Way Forward initiative first unified then polarized the vendor community as a whole. This I believe is a mistake that the current leadership will not duplicate in the future.
What is interesting is that public sector procurement and the bureaucrats who drive its policies are not so different from the very politicians they often bemoan as being nuisances and interlopers. I am thinking of a former Treasury Board executive’s comments relative to my reference to a letter written by the former Minister of Agriculture and Agri-Foods. The Minister, Andy Mitchell wrote to me expressing his interest in the novice (nee new and unique) approach associated with my methodologies and insights. To paraphrase the Treasury Board executive’s response, “it doesn’t matter what he says, he may not be around after the next election.” Of course Mr. Mitchell wasn’t, and nothing further came of it.
The similarity of course is that like the electorate in the last Provincial election in Ontario (in which only approximately 50% of all eligible voters actually cast a ballot) a largely disengaged and cynical supply base neither asks the tough questions, nor has the majoritarian clout to both demand and exact the needed answers. As a result, continuing supplier abstinence limits the ability to effectively challenge public-sector decision-making in any meaningful way. This means that the let sleeping dogs lie analogy is likely being embraced by senior level bureaucrats within the Canadian Federal Government. Like politicians, and unless you spend $24 million in a seven month period instead of the budgeted $1.7 million – a folly that all Canadians can easily grasp, you are not likely to stir-up the needed motivation to effect change.
This in turn exacerbates the challenges faced by independent lobbyists (re individual suppliers) and associations such as ITAC. And with a recent Government analysis that recognizes the steadily declining level of supplier involvement, the ongoing “dialogue” between senior bureaucrats and vendor representatives are not likely to produce any meaningful outcomes anytime soon.
One merely has to refer to the Commonwealth of Virginia’s eVA program, which was launched in 2001 (coincidentally within the same time frame that the Way Forward program was also introduced), to clearly see the stark contrast in both the approach to supplier engagement and the corresponding results. (Note: refer to the Yes Virginia posts (Parts 1 and 2) in the Procurement Insights Blog for details of the eVA program.)
With the Virginia initiative (which, in a twist of irony, senior Way Forward champions had supposedly modeled the Canadian program after), the Commonwealth’s supply base has grown from 20,000 in 2001 to 34,000 in 2007. The distribution of business has also increased from 23% of all suppliers receiving orders in 2001 to more than 40% in 2007. Finally, and this is the most telling statistic, in 2001 only 1% of the targeted $3.5 billion in spend was processed through eVA. In 2007 that number has increased to more than 80%. And this was all accomplished with an On-Demand (now called Software as a Service) pricing model.
No such numbers are available relative to the Government of Canada’s program. And even if they were, it is unlikely that the results would come close to demonstrating an outcome similar to that of Virginia’s eVA initiative.
This then leads to a number of hard questions including why, if two similar initiatives having started at roughly the same time, produced completely different (polar opposite) results?
The paucity of answers has of course led to wide-spread speculation. This includes assertions of incompetence in key areas of senior management to high levels of corruption and a deliberate attempt to euthanize the SME community in terms of winning government contracts. While I do not necessarily agree with these positions (at least not at this stage), nor will I pretend to have all the answers, I do believe that many of the issues originate with traditional mindsets surrounding purchasing in general. This includes the persistent view by senior executives that rather than being a strategic contributor to a dynamic vision, purchasing professionals within the Government are seen as nothing more than a functional cog in an adjunct accounting (or IT) exercise.
Unless the Government of Canada’s thought leadership experiences an epiphany of significant magnitude, or there is an equally impressive reversal of sagging supplier interest, it is very unlikely that any meaningful or sustainable changes will take place in the foreseeable future.
The RFx Mirage?
In an effort to gain a more in depth understanding of the reasons behind increasing levels of supplier apathy, particularly in the public sector, I have recently participated (indirectly) in a number of Requests for Proposals etc. (RFx’s) at the Federal, Provincial/State and Municipal levels.
The impetus behind this exercise actually began in 2005 when I spoke at an automotive industry conference for suppliers.
Consisting of more than 200 senior executives, the following is just a sample of the comments I received from the audience:
“I do not think that buyers spend any time at all analyzing RFQ’s . . . once they have sent them out they go directly to the price auction and get on a phone and those who cut the price get the business.”
“We spend too much time working on RFQ’s . . . the RFQ process chews up dollars and time for something that is going to bring us no return.”
“It (RFQ’s) will have a negative effect on my business . . . we should charge the issuers of RFQ’s for responding.”
These of course represent only the tip of the proverbial ice berg. There is a general perception that the RFx process is ultimately little more than an elaborate fact finding mission that is geared toward bolstering and justifying a pre-ordained outcome. Otherwise known as an exercise in decision justification.
At its best, the public sector RFx process can act as a negotiating mechanism to leverage down prices with a preferred supplier. This of course only works if the RFx exercise provides a true reflection of market conditions and prices. Something that is virtually impossible to do without broad supplier engagement. Refer yet again to my post on the dangers of vendor rationalization.
At its worst, the public sector RFx process is considered to be an ineffective legislative requirement which needlessly lengthens the procurement cycle in which a “gravitational leaning” toward a particular vendor already exists.
Over the next few weeks I will report back to you on the results of my research.
The more I talk with organizations on both sides of the transactional fence the more I am reminded of a line from a movie (The Thomas Crown Affair, not the Steve McQueen – Faye Dunaway release, but the newer version). Dennis Leary, who plays a detective in pursuit of Pierce Brosnan’s Thomas Crown, was asked why he would continue to pursue the art thief whose main occupation was buying and selling corporations.
Leary’s response that “besides making him mad” (he used more colorful prose), he would do what they (his bosses) “tell him to do.” However and here is the connection, during the same time that he worked the Crown case he arrested a real estate fraud artist and a guy “who was beating his kids to death.” So if they (being his bosses) ask him to continue pursuing Crown for what he considered to be a painting that “only mattered to a very few, very silly rich people” he would do it.
It is unfortunate, but many suppliers share the same sentiment regarding public sector procurement. They will do it if they have to, or have time to but almost always feel that their efforts can be best spent on other, more productive and fulfilling activities.
Have a question for Jon or want to leave a comment?