There is a growing sense of frustration in the services industry at the way cost-focused procurement has taken over the decision-making process in the appointment of suppliers. This has become especially prevalent in the Gulf and is often leading to the end user of the service not getting who they want ... nor even having much say in the whole process.
This shouldn’t be happening. Procurement is an important strategic tool, and when a process is properly conducted, everyone benefits. The supplier quickly gains a clear understanding of the buyer’s requirement and how it fits in with the client’s commercial objectives and corporate strategy, and if appointed, is able to work to a proper brief, on commercially beneficial terms.
The end user can be satisfied that a transparent competitive process was run, that rigour was applied in assessing the supplier’s capabilities, and that a proper commercial assessment was made both of the supplier and the competition. There is full accountability.
This works well with the sale and supply of goods; but in the services industry, and especially in public relations, the principle of ascertaining a certain technical standard and then shortlisting the cheapest simply doesn’t work. Standards vary widely, according to the experience, knowledge, skills and intellectual capabilities of the individual people in the consultancies being invited to tender.
Further muddies the pitch
Matters are made worse by the requirement to price a fixed set of deliverables in an identical manner to make supplier comparison easy. Again, this is fine for the procurement of goods or equipment. But it fails to give suppliers of services, which are necessarily people-driven, sufficient scope to showcase their individual ideas and creativity, because they have to stick to a rigid framework.
In truth, international companies should be wary of complaining too loudly. Many of them took advantage of embryonic domestic organisations and programmes — particularly in the public sector — in countries such as the UAE, who had no way of benchmarking whether they were getting good value or not. Frequently, they did not.
Now, though, the pendulum has swung too far the other way. The communications industry, especially, is becoming commoditised, and procurement has to share some of the blame, because it has forced consultancies into a straightforward race to the bottom. The result?
The successful agency is paid an insufficient fee to put its best people on or devote enough attention to the account; the end user gets disappointed; and the reputation of the industry suffers as a whole.
Could do with a reset
The procurement of services needs to be conducted more strategically, so that the results-driven interests of the end user are prioritised over cost reduction. There needs to be more dialogue between the end user and those invited to bid, so that a better understanding of the scope and a managing of expectations as to what can be achieved can be provided before a final decision is made.
More detailed and more formal feedback to unsuccessful bidders is also essential. There needs to be more than “We’re sorry to inform you that on this occasion you have not been successful”, which is no use to anybody.
It would be much better for procurement to tell it like it is, because detailed reasons why suppliers have failed would improve the quality of their bids in future. One can only conclude from the reluctance to give such feedback that the only reason bidders are unsuccessful is because they weren’t the cheapest!
Which is probably unfair, because it may not always be the case. In the UK, the Government Communications Service provides detailed written responses to unsuccessful bidders as to why their bids failed, leading to a significant improvement in the quality of thinking and strategic alignment between communications firms and government programmes.
Agree in advance
One way to avoid a race to the bottom on price might be for end users and procurement to agree a budget, which could be shared with all suppliers invited to bid, together with a scope of work. Suppliers could then simply submit technical bids, showing what service and what resource they would be able to provide for that price, with the winner selected on technical ability — and chemistry — alone.
Even better, invite a group of suppliers to submit a price against the scope, take the average or median from all those submitted, and then conduct the same process as above. I can’t see any reason why this wouldn’t achieve the key objectives of transparency and accountability on a level playing field.
It would also help in-house teams make a more compelling case for sufficient budgets to enable bidders to win on more criteria than just price. The required scope and objectives are what need to be identified first, not the budget. In our industry, the best may not always be the most expensive, but it is never the cheapest.
As my grandmother used to say: “Pay half, pay twice.”
Archie Berens is Managing Director at Hanover Middle East.