Preposterous procurement

I am honoured to have been invited to take part in a panel discussion at IBC (International Broadcasting Convention) 2010, hosted by Adrian Scott with a keynote by Gavin Schutz, President of Azcar. The subject is “Procurement: how to get a win-win” . I am to represent ‘the maker’ in the discussion, we also have representatives for ‘user’, ‘buyer’, ‘seller’, and ‘purchaser’.

For those of you outside the wonderful world of ‘broadcast’ (and there will be much hand-wringing this year about what the heck that word means today), I’ll need to explain how, in theory, broadcasters purchase equipment and services.

As many of the broadcasters in Europe are public bodies, they must abide by the EU Public Procurement Regulations. For suppliers of equipment, these kick in if the cost of the equipment is £155,442 (er, exactly).

For most broadcasters I’ve worked with the standard procurement procedure works something like this (actually this is a gross simplification).

Become a recognised supplier Don’t worry about what you might supply, that comes later. First things first: agree all the legal stuff about your financial, commercial and technical capability. At the same time we can also cover corporate social responsibility by checking that you offer equal opportunities in employment, training of staff, environmental policy, and safe systems of working. They’ll expect to see documents to demonstrate all that, ticking the box that says “I’m not a terrorist” is not enough for a broadcaster.

Often a broadcaster will appoint an exclusive supplier in an area, sometimes for as much as 5 or 10 years.

Specification of the equipment Now the broadcaster draws up a detailed specification of exactly what the equipment that they require should do.

When I said ‘detailed’ I meant pages and pages of guff that describes, in laughably general terms, exactly what the equipment should do.

At this stage, I have been explicitly prevented from discussing requirements with the broadcaster, so there is no chance to refine or modify the requirements.

Tender Now the equipment suppliers get to work to prepare a document that demonstrates how their particular widget satisfies every last detail of the specification.

The specification can be 30, 40 or 50 pages long, so you can imagine how long the tender is, and how long it takes to prepare.

Again, absolutely no communication with the broadcaster, except the procurement department, in order to ensure fair play.

Broadcaster examines tenders With all the competitive tenders submitted, it is now time for the broadcaster to weigh them against each other. I’m at a loss to know how they do this without it taking ridiculous amounts of time.

Perhaps they do just weigh them. Whatever the process, at this point they are making a decision based entirely upon what the manufacturer’s sales organisation has said in the tender.

Good grief, I think everyone at IBC this year will know not to take everything every sales person says at face value.

Equipment is delivered and user trained Finally, perhaps 18 months or 2 years later, the carefully selected (and now out of date) equipment is delivered, installed and the user is trained in how to use it.

For the first time a real dialogue is entered into between manufacturer and user. Unfortunately, the outcome of that dialogue for the user is usually disappointment: “You mean it doesn’t do X? But we do that the whole time…”

Let’s just stop for a minute and think about what the consequences are in a fast moving technology industry. Without any real dialogue between the user and the manufacturer, we’ve no chance to understand fully their needs. This might not matter when you are supplying 3G woggles and widgets, but when it is a highly complex piece of evolving software, it is lunacy. For a manufacturer this breaks the creative dialogue between us and our users. Not our purchasers, suppliers, integrators, or financiers, but our users. Only our users can show us what they need to do, and we are the only ones who can show them what it may be possible to do in the future.

So how are we to innovate in such an environment? The short answer is that you cannot do so reliably. You might do so for a short amount of time if you hire users, but their knowledge goes out of date quickly.

I have seen one solution to this at some, unnamed, manufacturers. The process starts with a dialogue between the user and the manufacturer. Demos, trials and all of that good stuff happen until the user is convinced and the budget is approved. All good.

Next, the manufacturer provides a sanitised specification that makes all the features of their product sound general, but buried in the detail are “lockout specs” that they know their competitors cannot fulfil. The user then hands this to their procurement department and the process continues as normal. Very bad.

Any manufacturer looking at the spec will immediately spot the “lockout” and refuse to waste their time on the tender process. Sometimes the process falters at this point for lack of a quorum of tenders, but more often, friendly manufacturers are cajoled into tendering on a “you tender for this, and I’ll tender for your lockout” agreement. All really bad, completely anti-competitive and probably illegal.

What the broadcasters fail to recognise is that this is all an unintended consequence of their attempt to create a process that can demonstrate value for money and fairness: huge expense, masses of time wasted, anti-competitive behaviour, tied to the wrong supplier, no innovation, and worst of all, the wrong products purchased.

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One Response to Preposterous procurement

  1. Ryan says:

    I see companies all of the time block innovations because they can’t get their heads around the benefit of a new way of doing something— the status quo police are out to get you. See this posting in Forbes magazine http://bit.ly/c7mPoT

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