Saturday, August 21, 2010

Trial by Tabloid in Motor City

The Detroit News reported recently how the city's Chief Procurement Officer Andre DuPerry is looking to shake up Motown purchasing by re-examining the preferences Detroit businesses are given during the contract process. DuPerry, appointed by Mayor Dave Bing in December 2009, believes the city could save $22M a year by addressing Detroit's dependence on local third-party companies that charge inflated rates. Two small distributors, T&N Services and Hercules, receive particularly harsh treatment in the article for selling the city everything from office supplies to toilet paper to cleaning services at apparently outrageous markups. T&N CEO Tyrone Talifer understandably defends his company's position, citing as an example the taxes paid by his employees that flow back into the city's coffers.

I have to admit my very first take on reading this article was "go get 'em Andre!" but on reflection I would say T&N and Hercules get shabby treatment in the piece. Can they really be blamed for selling products and services at prices that the market will bear? Is it their fault they've been given the opportunity to operate in an industry structure with weaker competitive forces than those faced by my daughter's lemonade stand? Of course not. The primary driver of the margin extracted by both companies is the local vendor preference policy set in the city's purchasing ordinances. The "felon caught in the flashbulb glare" picture of Hercules President Belinda Jefferson is tawdry journalism, disrespectful of all small business owners who navigate the unpredictably contoured landscape of the monthly cash flow statement.

Now, do I have any problem with DuPerry seeking to drop strategic sourcing depth charges into the still, glassy waters of Detroit's overprotected contracting environment? Heck no! Go for it Andre! The sky high prices paid by Motor City's government typify public sector contracting policies where the protectionism dial's needle has swung way into the red. By all means, get some contracting best practices in place to make the government's scarce budget dollars go further. Leverage the total city spend with national suppliers, negotiate aggressive volume-based discounts & rebates, and implement compliance management measures to ensure government departments use the new agreements. Oh and guess what? It will actually be possible to maintain a targeted level of spend with your city's local suppliers by either setting aside a (sensible) portion of annual requirements for SWMBE vendors and/or requiring that the national providers subcontract a minimum percentage of annual requirements to SWMBE (I'd recommend a combination of both). And with the improved reporting available from today's electronic procurement and contract management systems it will be easy to validate that the big guys are actually fulfilling their contractually committed obligations to Detroit area businesses.

So to repeat, I have no beef with CPO DuPerry setting about his business as city procurement tsar and mending broken public sourcing practices. My only beef is with those who place blame at the feet of the benefactors of these broken sourcing practices.

So Motown, go get the savings dollars and squeeze those markups! Protect local area businesses through best practice strategies such as minimum SWMBE quotas and setting and enforcement of SWMBE subcontracting targets with national suppliers. And T&N and Hercules - get ready for real competition that will initially hit your bottom line but in the long run will transform the efficiency of your operations and create real value for you going forward. And to those media commentators looking for the easy sound bite, show a little respect for those industry participants making hay while the sun shines. As far as the economy is concerned it's like living in New England - enjoy the weather now but wait around another 15 minutes and you'll be scrambling for your coat and umbrella.

Monday, August 9, 2010

The Art of Clanger Avoidance

If you're a consultant - or you've hired consultants - you've probably heard the expression "nobody ever got fired for hiring the Big 6". The idea is that if a big name consulting firm drops a clanger on a client engagement then the person responsible for bringing them in can't really be blamed because I mean, how often do these guys screw up? We must just be unlucky! If a boutique is selected however and something blows up then the hiring individual is likely to be tarred and feathered for leaving the company's valuables in the care of a bunch of fly-by-nights who obviously didn't know their pivot tables from their pyramid principles. Interestingly I was speaking to a grad school buddy of mine just last week who recently left one of the big firms (to go open a beach bar, go figure...attaboy!). He was telling me how a few weeks before he left, he was part of a large team helping a software company shorten their product development cycle, respond quicker to changes in customer needs, and generally become more nimble in the marketplace . To cut a long story short the client ended up firing my friend's firm because they weren't able to respond quickly enough to issues that arose during the project and changes in direction the client wanted to make in scope and approach to address these issues. I thought this ironic (and not a little funny) since the firm had obviously sold itself as being able to help this client turn, spin and triple flip on every dime that came its way. Should they have considered a smaller consulting firm that was more likely to be eating its own dog food when it came to nimbleness and flexibility? Or did that seem too far to extend the neck when the comfy cushions of big firm security were within easy reach? Who knows, sometimes it's not that simple. There are certainly plenty of examples out there of big firms that have successfully oared their clients through rapidly changing currents. It does make me think though that companies looking to hire consultants for engagements that intrinsically are most likely to encounter unexpected pockets of mid-air turbulence should apply considerable weight to evaluating the candidates' abilities to guide their clients through a project's occasional bumpy moments to a smooth landing. Lengthy chain linked methodologies are the ones I've seen most often get wrapped around the axle of a less than smoothly unfolding project work plan. Look for pragmatism, flexibility, a willingness to reconsider the last few steps taken and adjust course if some new data suggests that might be the wisest move. Worried about that small firm risk? Ask for a few more references than you would the big guys to quiet your concerns. Unless of course those Big 6 cushions are looking too comfy....Hey, you want an easy life? I know a beach bar owner who needs a partner....