In business, how you buy stuff is often more important than it seems.
In the long and distant past, I was the supply director for a large telecoms company involved in lots of technology and software purchasing. It was an eye opener to me, as I was given the job more as a change agent than as a buying professional and I had to climb a fairly steep learning curve; eventually I became a Member of the Institute of Purchasing and Supply. The lessons I learned at the time were many and varied and can be summarised thus:
- Buying is often a strategic activity and it demands some serous thought and professional input.
- It is hard to maintain a broad range of professional expertise in house, but not having it in house puts you at the mercy of your suppliers.
- You must always be experts at buying those things which differentiate you in your market, or which are significant controllable costs.
- Large suppliers tend to treat you with contempt, no matter what your budget, and it is always best to choose a supplier that is competent but also to whom you’re a key client.
- There is plenty of scope for corruption.
- Oh, yes, and senior management love to meddle in it, mostly because multi-level selling tends to target them with both perks and ego-boosting attention.
Although it’s been a while since I was personally involved in supply management, I was interested to see that people are pumping money into a newish purchasing intermediary called the Blur Group, which has just been floated on AIM and is now £4M or so better off; it is backed by all sorts of notables, including ITV Chairman Archie Norman. It calls itself a business-to-business online procurement group: the company website pairs-up buyers and sellers of services; originally just creative services, but now it is broadening its scope into IT. Blur acts as an intermediary between small suppliers and large clients, so this got my juices flowing somewhat as, at least in principle, this seems to make a lot of sense.
The problem is though that it makes buying seem so simple. You just post your requirement, get hundreds of offers and select the best ones. Well, for more straightforward, let’s call them tactical, purchases that all works fine, but for more strategic buying decisions you require a more thoughtful approach. There is a danger when outsourcing procurement activity like this that you also end up outsourcing expertise and it is very important that you are an expert buyer, no matter what process you use, for those things that represent significant controllable costs, or are key to what makes you different.
Bigger picture issues to one side, whilst I can see the benefits to buyers – an apparently broader and deeper market which is easier to access, I can’t see how suppliers benefit particularly. Both parties pay fees to the intermediary, but the supplier then has to compete head on with its competition and who wants to do that? Businesses should do everything they can to avoid direct competition. If I was an established supplier, rather than a newer entrant that may get market access it might not have got any other way, all this would make me want to look for alternative relationship models with key clients.
Even though it is more established in the creative world, to my mind the Blur Group has a long way to go to prove its business model: revenues of just $1.5M in the 6 months to June might be 75% up on last year, but EBITDA losses have more then trebled to $483, 000. I will be very interested to see just how much traction Blur get in the IT space and if investors’ enthusiasm for the recent flotation was actually justified.
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