Friday, January 07, 2011

The pain of the procurement culture.

I'm working remotely today - actually writing a book review, which is one of my several sidelines. But a break for some lunch gives me time to reflect on the first working week of 2011.

This week has been all about the return to work. I'm just about on top of things, and very pleased that the pipeline looks considerably better than it did at this time both in 2010 and 2009. Since UK plc opened for business again on Tuesday, I've spent time in London and Brighton on one project; have seen my work signed off on two others and am waiting for client feedback on two more projects.

The only fly in the ointment is one client - an important one for me - tripling the time they plan to take to pay invoices. Now if I was a large supplier, this wouldn't worry me in the slightest, but working at the end of the business food chain - and after the nadir of 2008-2010, still operating rather hand to mouth - this news, which I found out on Tuesday - was a particularly hard smack in the solar plexus.

What made it worse was the fact I found out only when an invoice submitted early in December hadn't been paid, as it usually would be, by Christmas. For the past four years, this particular client has paid me within three weeks - I'd have been happy with four. But now they've put their terms out to six weeks.....and seemingly not told anyone about it. That's what really sticks in the craw.

If they had told me they were changing their policy, I would still have been cross, but at least i would have been prepared.

Supplier relationships work best when there's mutual respect. That respect breaks down when the perception on one side is that the other is taking the piss. I have great relationships with clients and the payment side never is a problem where my direct client - or at least someone in their team - has direct management of the supplier payment process. Things have a tendency to go wrong when the client loses that authority and Procurement or Finance steps in to 'manage' the supplier relationship.

What happens is that the 'relationship' is severed, and replaced with a transactional approach which too often tends to be based on price only. Service, and the added value a small supplier brings gets lost in the mix and is replaced by a process that tends to load the relationship in favour of the client organisation. Given that day rates have been squeezed significantly in the past couple of years - and every large client wants more for less - the loser in just about ever case is the small supplier - micro businesses such as my own.

I have a relatively small number of clients. They all matter hugely to me since my income is directly dependent on me giving them good service, and them consequently buying more of my time and expertise. A procurement or supplier payment team, dealing with thousands of suppliers who are rarely more than a line on an entry screen to them have no need to go the extra mile for me - and probably no comprehension of how important my relationship with their organisation is to me.

I put my terms on every invoice I submit - yet these are routinely ignored and I'm paid only when it's convenient to the client organisation. the effect is that I'm currently giving six to 12 weeks' credit to some of the largest organisations in Britain. Does my bank manager, the VAT man or HMRC understand this? Not really - but again, they're salaried employees who'd soon kick up a massive fuss if their monthly pay cheque wasn't paid.

So what's going to suffer in the end because of the rise in the Procurement culture? It will be the relationships that departments within organisations who depend on the army of small service and goods suppliers have with those suppliers. Will I give my fullest discretionary effort to an organisation that sees me only as a commodity? However much I may like my individual clients, I rather like getting paid at the end of the month too....just like they do....and their Procurement and Accounts Payable colleagues do too.

For all that organisations drum the vital importance of relationship building into their teams, they appear very blinkered when it comes to supplier relationships. It's an area where we're heading swiftly into a cultural breakdown.

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