Better Procurement: Platform vs. Panel
Author: Tim Cummins
The use of 'supplier panels' is relatively widespread in modern procurement, especially in categories such as professional services. The concept behind them is that they bring greater speed and efficiency to supplier selection and - in theory - reduce costs. In practice, some argue, they undermine value, stifle innovation, threaten integrity and more likely increase costs.
Concept and reality
The idea behind supplier panels is to reduce the complexity of managing multiple suppliers. It supports increased compliance by limiting choice. In theory, it may generate lower negotiated rates.
In practice, panels tend to include only the larger, multi-capability providers, since otherwise competitive tension is lost. These providers are typically the most expensive and frequently the least creative; creativity is more normally associated with smaller niche organizations that specialise in specific fields. These organizations also run with much lower overheads and much greater flexibility in winning business.
Panels not only limit the flow of new ideas, they also reduce the likelihood of challenge. For example, a recent report suggested that legal advice may be compromised because panel members become more concerned about maintaining their position than they are about honest (but perhaps uncomfortable) advice to their client. Similar concerns arise with regard to the bigger consultancies and audit firms, frequently accused of lacking objectivity or failing to ask tough questions.
So if not panels, how should organizations manage the market? The answer could be through platforms. Just as the Cloud is opening up the choice of software applications, so Cloud-based platforms, powered by artificial intelligence, can offer access to a host of suppliers – without the complexity of the past. Platform providers such as Globality and Tradeshift are taking much of the hard work and risk out of market management, going beyond the services of a provider like Amazon by overseeing key areas of compliance and quality.
So which will win, or is there room for both? My bet would be on platforms.