Exemption from the Competitive Process: Calculating the Costs of Convenience

Posted on November 5, 2009

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5.3.9.1 Exemptions from the Competitive Process

In certain unique circumstances, organizations will not have the ability to go through a competitive process for their procurement activity. This section covers non-competitive purchasing when an organization goes directly to one supplier to meet the requirements of the procurement.

There are two main types of direct awards.

  1. Single Sourcing is the use of a non-competitive procurement process to acquire goods, services or construction from a specific supplier even though there may be more than one supplier capable of delivering the same goods, services or construction.

April 2009 Supply Chain Guideline, Version 1.0, Province of Ontario

It is interesting that in many instances the very guidelines that are designed to streamline the procurement process can and often do undermine the collective objective of driving best value decision-making on the front lines.

In fact a study by a panel of experts reviewing Ontario’s procurement practice a few years ago highlighted the fact that buyers are generally reluctant to engage new suppliers.  The reason given is that they do not have either the resources or the time to establish the level of relationship that is necessary to gain the confidence in a new supplier’s ability to deliver.

In the following excerpt from a white paper I wrote in 2009 on preserving supply base integrity, I highlighted a similar finding relative to the purchase of specification-defined goods or services:

“. . . identifying and then qualifying suppliers is inherently an onerous task that normally limits the buyer’s selection to a core group of “known” suppliers.  In the numerous studies I have conducted on the impact of a buyer’s unwillingness to extend their engagement of suppliers beyond the comfort of familiar relationships, increased cycle time was clearly identified as a major obstacle to the adoption of a new process or acceptance of a new technological platform.”

While there are certainly instances in which a “non-competitive procurement” process can and even should be used, the real issue is when said “exemptions” are relied upon in those instances in which competition would better serve both the buying organization and its supply base.

This is due primarily to the fact that limited supplier engagement results in what I refer to as the erosion of the supply base.  This erosion ultimately leads to gradual but steady increases in costs over time, with a corresponding decline in service levels.

What makes an eroding supply base even more problematic is the fact that it becomes increasingly difficult to identify and quantify the negative impact because the intelligence funnel through which spend data is captured becomes incredibly narrow.

This leads to what I refer to as the artificial cost reference points upon which performance is measured, but no longer reflects real-world market conditions.

It is one of the main reasons why the Department of National Defence in Canada paid a 157% premium over the then current market price for the Indirect Materials that were used to support their IT infrastructure.

In a challenging economy, the consequences associated with any unnecessary premium due to an inability to effectively engage suppliers is even greater.

It is for this reason that the recent press release from Strategic Relationships Solutions Inc. (SRS) regarding the launch of their new RFPBlaster is both interesting and timely.

According to SRS, the RFPBlaster “offers high quality, ready-to-use Request for Proposals (RFPs) for IT managers and procurement specialists.”  The release goes on to say that “RFPBlaster enables faster time to market at a lower cost and with less risk,” meaning that organizations can “readily tap into and benefit from decades of procurement expertise with one simple and cost effective suite of tools.”

While SRS is a sponsor of this blog, one of the reasons why I have been enthusiastic about their solution has little to do with their technology – although it is impressive.  What I have found most interesting about SRS and now this new element to their total offering is the fact that clients can “readily tap into and benefit from decades of procurement expertise.”

What this means is that while the technology has to be strong, they are not simply talking about a pick-and-use terminology menu to construct a perfunctory RFP.  What SRS delivers through RFPBlaster is the intelligence that through technological innovation can be streamlined to enhance the reliable engagement of the appropriate versus convenient number of suppliers required to deliver maximum value.

On November 19th I will be welcoming to the PI Window on Business SRS Founder, and the lead visionary behind the solution, Andy Akrouche to discuss both the consequences of limited RFP competition and how it led to the creation of the RFPBlaster.

 

RFP Blaster Logo

Procurement done right just got easier

 

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