Thursday, September 27, 2012

Some things just shouldn't be transparent (my response to Jonathan Webb)

Before I launch into this subject, a few caveats are in order.

First, the piece that I'm about to reference appeared at the Procurement Leaders website. Procurement equals buying. For the last 15+ years, my job has involved some aspect of selling.

Second, procurement officials buy a lot of things, from toilet paper to automated fingerprint identification systems. Barring any evidence to the contrary, I assume that the author is talking more about toilet paper and less about automated fingerprint identification systems. In my opinion, entirely different factors apply when you are buying something that is not a commodity. (I could say more about this, but I won't.)

With those out of the way, let's look at what Jonathan Webb recently said. He introduces the topic by stating something that even I, Mister "Nothing New Under The Sun," agree with:

Will social media change the way we buy? Twitter, Facebook and blogs have changed the way many live their lives. A new class of smartphone junkies has appeared, their faces lit up with the soft glare of screens which document their existence on photos that are shared to the world.

And let's face it - I probably share more with people today than I would have shared fifty years ago. Can you imagine me running around in 1962, posting these paragraphs on laundromat bulletin boards?

Webb then notes that Chief Procurement Officers (CPOs) are not necessarily following this trend. Maybe they're using LinkedIn, but procurement officers aren't always (using the term in vogue these days) "transparent."

Webb asks, "why not?"

It would be fascinating to see negotiations or tenders conducting online. Perhaps the hashtag #thisismyfinaloffer may have more credence if the speaker is accountable to the general public.

Again, I'm assuming that Webb is talking about commodity procurements here. But even here, I see a basic problem with Webb's suggestion of more transparency in procurement.

The main issue is that the Chief Procurement Officer is not the only party in the transaction. And there are valid reasons why the other party won't agree to transparency.

Let's say, for example, that a city is buying laptop computers. And let's assume that Dell and HP are the two finalists in this particular procurement. In Webb's transparent world, the negotiations would be public. Imagine a scenario like this:

CityOfOntario: $500 is the maximum we will pay.

DellInlandEmpire: @CityOfOntario that is fine if it doesn't include warranty

HPSanBernardino: @CityOfOntario we will offer 3 month warranty

But now remember that if transparency existed now, then it also existed in the past.

DellInlandEmpire: @CityOfOntario when HP offered 3 month warranty in @CityOfCompton they charged $600

CityOfCompton: So @HPSanBernardino we're invoking clause 3.22. Please offer retroactive refund of $100 per computer

To tell the truth, I can't really argue with this particular scenario. Contracts often have clauses that state that the buyer must get the lowest price, but there's not a good way to enforce it. Who can argue with transparency here?

But here's where I begin to have a problem.

HPSanBernardino: @CityOfCompton I can't speak for @HPLosAngeles because I don't know that territory's cost structure

CityOfCompton: @HPSanBernardino @HPLosAngeles please provide profit loss statements on a territory basis

HPCorporate: @SEC we need to talk

Why would the Securities and Exchange Commission get involved in this scenario? Simple - HP (and Dell) are publicly traded companies, and there are strict controls on what they can say, and what they cannot say. Usually a publicly traded company will report its earnings for the entire company, or perhaps for certain large divisions, but the profit/loss statement of small individual units is usually not public information. Any territory manager who provided such information would be guilty of leaking trade secrets.

In short, there are legal limits on transparency.

So it's ludicrous to talk about transparency for a purchaser, when the seller is legally prevented from being equally transparent.

Your thoughts?
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