5 Best Ethical Procurement Strategies
Posted by Jeff Golfman on Oct 16, 2017
I have been an Eco-Entrepreneur for the past 26 years trying to make the world a better place. What I have learned is that how we buy stuff, and how we make decisions are major factors and key drivers that determine our impact on the business, society, and the planet either positive or negative.
Every business buys stuff. It is essential to the operation. The process upon which businesses make buying decisions however are not equal and most business are actually achieving the opposite and unintended results versus their stated Corporate Social Reasonability (CSR) mission and values.
Large business enterprises, governments, healthcare, public traded companies and educational facilities all aim to be open and transparent and fair in their buying. The old ways of accomplishing this are no longer relevant to the new Triple Bottom Line socially responsible economy.
The Request For Proposal (RFP) or Tendering process is a commonly used practice utilized by procurement managers in an effort to try to create a fair and open way for companies to source materials, products or services from vendors. However, this process is often far from open and fair and, in most cases, is just plain exclusionary and unethical.
Theoretically speaking, the RFP process is supposed to provide a “win-win-win” outcome for the company and the vendors involved, as well as society – the company gets a product or service at a fair price, the vendor is earning enough to make a profit and society benefits from a high quality product or service that is financially rewarding (think sustainability).
In most cases, the company issuing the RFP does itself an injustice by sticking to this out-dated process. The theory behind the RFP bidding process is that it is supposed to provide a level playing field for all bidders to put their best proposal forward and, therefore, the company benefits and the vendors are all treated equally. This premise, however, is flawed.
Unfortunately, the reality of the RFP process is far from this ideal. Yes, it protects purchasing managers by providing job security as it gives the impression of a fair and inclusive process, and allows senior level decision makers to distance themselves from rolling up their sleeves and getting into the nitty gritty. It is for these reasons that the traditional single bottom line bidding process has persisted.
A Common Buying Process:
The typical buying scenario begins with a company creating and distributing an RFP, a Call For Bids or a Request For Proposals, to which vendors respond, all in an effort to secure the contract. This distribution is published ‘publicly’ on a website or media channel in order that ‘everyone’ has the same notice and the same access. This “shot gun spray and pray” approach certainly sounds open and inclusive on the surface, and provides Senior Management, Owners and Bureaucrats the friendly sound bites to provide downside political protections, if needed. It is therefore no doubt that this system perpetuates.
If you look deeper into this process, the realities are often far from the rosy picture painted. Often times, vendors are forced to drive down their prices to an unprofitable margin or offer a lower quality service or product to win the bid and, therefore, a less than desirable user experience is created for society. Many times a vendor will offer an exceptionally low price to drive out the competition and win the contract, only to later issue many ‘change order’ notices and unannounced hidden charges after they have started the contract. This is an especially common occurrence in custom manufacturing, products, services, construction and renovations.
As a vendor I have been both a winner and loser in many RFP bids. Over the years I can honestly say that the contracts that I have won have all been at lower profit margin than is financially sustainable and the contracts that I have lost have typically been because the best overall solution for the client was not the winner. Procurement managers most often select the lowest price bid in an effort to save their company money and take a low political risk decision. Who can blame them?
Perhaps the most unethical outcome of the typical procurement process is that the company`s current or favourite vendor, friend or family-member is often awarded the contract. This results in wasted time, money and resources for the other vendors who never actually stood a chance despite the façade of openness and inclusiveness. This happens because the company will usually meet with their current / favourite vendor before putting out their RFP to get organized prior to issuing the calls for proposals. Most of the time the incumbent vendor has their exact and unique specifications included and written into the request, or the company will tailor their RFP for this desired vendor. Therefore, the only vendor that has all of the information required to successfully win the bid is the company`s existing or favourite one.
To make matters worse, the company putting out the RFP will usually have disqualification rules that expels any vendor from the pool of potential candidates; for example, those who contact them for clarification or more information about the request. This creates even more of an unfair advantage for the current vendor and a complete lack of transparency and inclusiveness for the others.
Typically, in this process the incumbent supplier holds all the information, has the inside scoop on the project details, and has all of the information. The information that is released to the ‘public’ for bidding is usually incomplete information and lacks the real information required to make an informed proposal for the company. Case in point is that only the current vendor knows important pieces of information like: the actual price being paid by the client, the actual volumes consumed, the level of efforts required, the on-the-ground nuances of working every day with the client etc. And, most importantly, only the that vendor truly knows what questions to ask and what challenges, opportunities, pitfalls and obstacles need to be factored into the bid.
They Did What?:
A perfect example of the short comings associated with common procurement practices can be described in a rather bizarre bidding experience that I endured several years ago. While running a locally crafted, sustainable and handmade furniture company, I responded to an RFP put forth by my local Public Library for new custom made common area furniture for their facilities. Out of the dozen or so bids that were submitted for consideration and upon opening of the bids, it was revealed that my furniture company was the lowest price bid, as well as the only local manufacturer. In spite of this, our furniture company was deemed to be ‘non-compliant’, so we were disqualified from the process.
Why you ask ? Because our submission was accompanied by a life-time warranty on our locally made furniture, while the RFP called for a 3 year warranty. How is this ethical and who does it benefit? The answers: It`s not and no one. This is a lose-lose-lose situation.
The most logical and ideal choice with the most benefits would have been to award the contract to the lowest bid (the company saves money), from the local vendor (supporting and investing in local jobs and businesses) and, of course, the highest quality product with the greatest warranty (supporting society through a better customer experience, and the environment by preventing the inferior product from being dumped in a landfill after 3 years, as well as the additional financial and physical resources it would take to create the replacement furniture).
There are many businesses, governments and education facilities who have tried to make the bidding process more transparent and inclusive and have added some strategies like a “weighted bid” (where price is not the only criteria used to award the contract). Some managers hold a vendor meeting or Q&A process to get information out to all bidders. Others implement alternative strategies to make their bidding process more fair. These are all noble and valuable efforts yet they are built on top of a flawed and outdated procurement system that is designed to maintain the status quo.
In today’s world of triple bottom line thinking (corporate social responsibility, transparency and inclusiveness) the typical procurement process simply no longer fits and no longer works.
An Ethical Solution:
My belief is that operating business with a triple bottom responsible and sustainable strategy is what is best for the long term viability of the vendor, the client and society. Operating ethically and taking leadership.
There is a more ethical, beneficial triple bottom line (win-win-win process) that could be implemented . This new model is similar to the process for hiring new employees. For example, you shortlist a few people that you think maybe a good fit, meet with them 2-3 times to do questions and answers to get a feel for each other, and review the job description, the budget and expectations. You may check references. You may do a small test project or probation period. Then you select the candidate you’d like to hire.
Therefore the 5 Steps for an Ethical procurement process are :
1. The company shortlists 2-3 potential vendors.
2. The company meets with the shortlist in person, shares full information, provides full open book transparency on their current buying habits, prices, budgets, specifications, volumes, needs, restraints, pain points. In the meetings with the potential vendors, an open and honest dialogue is created where all questions are answered including on site visits and orientations.
3. Then the vendors armed with the complete picture of what is required, the budgets and the volumes come back to the client and present in person their best proposed solution.
4. The company may decide to take a vendor for a test drive with a small pilot project before jumping in.
5. Then the client chooses which vendor to hire while rewarding the client with the best overall solution / best overall value and providing the winning vendor with a fair and sustainable revenue stream.
Jeff Golfman has been an eco-entrepreneur with a passion for innovation, protecting our planet and healthy living for the past 27 years. Jeff is the Founder and President of The Raw Office which helps companies exceed their sustainability goals, save money, and publicize their bonafide eco achievements.
Click here to see how The Raw Office provides Ethical Procurement options to businesses by utilizing full transparency, financial savings and environmental improvements : https://www.rawoffice.com