On first thought, you might read this title and think, “Has this woman lost her mind?” But once you get the gist of this, it may become apparent that disinterest is smart. The idea of a disinterested third party (DTP) isn’t new, but the concept is underutilized.
The practice of disinterested third parties (DTP) is a tool to help align the business needs with procurement needs and strategic direction through a party that has zero interest in the transaction. And when I say zero interest, that means that the DTP doesn’t get finder’s fees, rebates, or incentives of any kind. If the DTP brings a solution to the table involving any incentive, it is fully disclosed upfront.
“Middlemen” often have some incentive to put forth a product. I have seen multiple instances where installers/integrators and distributors recommend a solution over another one (and even try to flip specifications) to solutions with rebates available or an end of the year quota is involved to continue receiving sales leads from the manufacturer. For instance, for all projects over $100,000, then a 3% rebate is issued on that project. While this is a common practice, it does create a bias towards particular solutions to the exclusion of others. If a company is seeing a tangible benefit for that feature, that is one thing. If it is used to limit competition for no real project reason, then that is something entirely different.
Beyond incentives, there are multiple reasons to use the DTP approach. To start, sometimes, procurement doesn’t understand what they are trying to source. The lack of understanding can be particularly troublesome with technology, contracts, real estate, and other things that are outside of the standard procurement daily activities.
Listed features that provide vendor lock-in are not always viable or necessary for functionality. Things like color specifics, or performance specifics above and beyond what is required are good examples. Suppose an RFQ is issued for all cars, and a line is included that all vehicles considered have at least 240 on the speedometer. The speedometer limitation knocks out about 95% of the cars available. While this speed may be a preference, the actual need to drive at 240 miles an hour may never be needed. If the speed limit is 75, the overage to 240 will likely carry a price elevation that provides no real tangible benefit to the project, and choices are drastically limited.
To source products, procurement will rely on IT, real estate, and other departments to bring potential solutions to the table. This list is likely based on solutions these folks already know, as most people already work full-time jobs, the initial tasks of sourcing the vast array of possibilities may be through very cursory searching. Often, employees rely on vendors (interested), networking (potentially disinterested), or products to which they have already been exposed, limiting overall options. Functionality intricacies and great features for products outside of their purview may be a fantastic feature, time saver, or cost saver.
Companies can issue RFI (Request for Information) documents that can broaden the scope, but they may not have the bandwidth, expertise, or desire to expand the realm of possibilities. While relying on vendors is a nice shortcut, and many times a fantastic experience, checks, and balances are prudent. “Because we have always done it this way,” becomes the phrase of the day. This practice limits growth and stifles innovation.
Vendor bias is a thing. All vendors set aside marketing budgets to attract and retain customers. I know of one case in which a vendor purchased a potential customer a 4-wheel drive ATV to guaranty a win. While that certainly isn’t the norm, it is wrong; and it does happen. Vendors can dangle legitimate things (training, free product, rebates) in front of users to sway influence. Brand loyalty can also be a problem when solutions are grandfathered in without consulting any other possibilities. We all like to increase our resume impact. Many of us are resistant to change. We are human, after all. That bias, consciously or subconsciously, sways decisions.
For larger companies, vendor management is a daunting task for the procurement team. Once vendors are on the approved list, it almost takes dynamite to remove them. While being on the list is great for some companies, it can lead to a significant price creep with no realization of value for the increased pricing. Don’t get me wrong; there is NOTHING wrong with paying a bit more if there is a value to that premium. Convenience is not always in equal measure to the price premium. There should be a tangible benefit worth the price delta. I have heard too many times about companies that got on a vendor specification or approved list only to take the business for granted and ghost the user. The value to the premium price should be something worthwhile like design assistance, logistics support, forecasting, or something that makes life easier using that product or service. It’s always a good idea to keep vendors on their toes.
The occasional RFI can be an incredible means to check out other options and learn if pricing+value is on par. Note, I said pricing + value. The lowest bid is not always the best value. With the addition of a disinterested third party, time for in house resources are freed for other tasks while someone else with no stake in the outcome (and likely a broader scope of potential solutions) helps in the process. Of course, the final decision belongs to the company, but there is a lot to be said for the invaluable input.
Even in your procurement team is seasoned, there is often a language barrier or ambiguity in the terms and services sought. The DTP can assist in writing a clear scope of need, sourcing vendors, leading vendor interviews, and leveling responses. A good DTP will play devil’s advocate whether you employ them for a few hours or the entire RFI to project process. Many are IT professionals with a broad background of experience and well worth the time. For more information, please visit our website. https://strategitcom.com/services/procurement-services/
