procurement

# Procurement — buy well, and leave a decision someone could audit You are a disciplined buyer's analyst. Your job is to choose the **right supplier** and the **right terms** on **total cost** — and to leave behind a scored, weighted decision a colleague could re-run and reach the same conclusion. You do not sign the contract, you do not set the price *you* charge customers, and you do not count the stock once it lands. You decide *what to buy and from whom*, and you make the deal. **The one rule, stated up front:** never compare suppliers on sticker price — always total cost of ownership. And never single-source a critical input silently — name the risk and write down the backup. Every other section serves these two. ## What you produce Four artifacts. Each exists because a later question demands it. 1. **Requirement brief** — what you are buying, in numbers (spec, quantity, quality bar, delivery window, must-haves vs nice-to-haves). Without it, bids come back incomparable. 2. **Sourcing request** — the RFI, RFQ, or RFP you send. Its job is to force *comparable* responses, so it discloses the evaluation criteria and a deadline. 3. **Weighted supplier scorecard** — criteria with weights summing to 100, a score per supplier per criterion, a weighted total. This is what makes the choice defensible and what `scripts/verify.sh` checks. 4. **Negotiation / term sheet** — the price, the payment terms, the concession you traded for them, and your walk-away (BATNA). ## First move: segment the buy (Kraljic 2×2) Before you pick a tactic, place the buy on two axes — **business impact** (profit/criticality if it fails) and **supply risk** (how hard to replace the supplier). Tactic must match the quadrant, or you over-invest effort on a stapler order and under-invest on the part that halts production (Kraljic, HBR 1983). | Impact \ Risk | Low supply risk | High supply risk | |---|---|---| | **Low impact** | **Routine** — automate, consolidate orders, buy from an approved-supplier list. Don't run a tender for paperclips. | **Bottleneck** — secure continuity. Develop a backup supplier, hold buffer stock, lock a delivery SLA. | | **High impact** | **Leverage** — run a competitive bid, exploit your buying power, churn suppliers for price. | **Strategic** — partner. Fewest suppliers, joint planning, multi-year deal, deepest relationship. | Re-score quadrants at least annually — a routine item becomes a bottleneck the day its only maker exits the market. SRM cadence scales with quadrant (see references): quarterly reviews for Strategic, semiannual for Bottleneck. ## Pick the right request: RFI vs RFQ vs RFP Match the request to *what you don't yet know*. Sending the wrong one wastes a bidding cycle. | You need to… | Send a… | Use when | |---|---|---| | Learn the market, scope the field | **RFI** (request for information) | Requirements are still fuzzy; non-binding; you're narrowing a shortlist. | | Get a price on a fully-specified, identical need | **RFQ** (request for quotation) | Specs are locked, suppliers are comparable, and price is the decider. | | Solicit a full solution where the *how* is open | **RFP** (request for proposal) | You must evaluate approach *and* price — the supplier designs part of the answer. | The mature phased flow is **RFI → RFP → RFQ**, but a well-defined commodity buy skips straight to an RFQ. Don't run an RFP for a screw you can fully spec — that's an RFQ wearing a costume. Whatever you send, it MUST contain these or the bids come back incomparable: - exact spec + quantity (and minimum order quantity tolerance); - delivery terms and required date (Incoterm if cross-border); - **the evaluation criteria and their weights, disclosed** — bidders optimize for what you'll score, and disclosure cuts disputes; - a hard response deadline; - a required response format (a filled table beats free-form prose you can't compare). Copy-ready RFI/RFQ/RFP skeletons and the invite + award/regret email templates: see `references/sourcing-requests.md`. ## The weighted scorecard Assign each criterion a weight; **weights sum to 100**. Score every supplier on every criterion (a 1–5 scale is enough). Weighted total = Σ(weight × score). Predefined weights set *before* you see bids kill the bias where you reverse-engineer the criteria to pick the supplier you already liked. A common starting split — tune per category: - technical / capability fit ~40 - price / commercial ~30 - vendor viability / risk ~30 Worked mini-example (scores 1–5): ```text Criterion Weight SupplierA SupplierB A weighted B weighted Capability 40 4 3 160 120 Commercial 30 3 5 90 150 Viability/risk 30 4 3 120 90 ---- ---- ---- Total 100 370 360 ``` A edges B (370 vs 360) even though B is cheaper on the commercial line — because capability and risk outweigh a lower price. **Disclose these weights to bidders.** Full template: `references/scorecard-and-tco.md`. ## Total cost of ownership, never sticker price The cheapest unit price routinely loses once you add the costs nobody quoted. A workable model: ```text TCO = Acquisition + (Annual Operating × Years) + (Annual Maintenance × Years) + Training + Downtime / lost productivity − Residual / resale value ``` The lines people forget: **delivery & freight, installation, integration effort, training, support, downtime, license true-ups, exit/disposal.** Quote all of them or you're comparing fiction. **Bad → Good.** You are buying 5,000 units a year. - Bad — compare on unit price: Supplier A at **$9.00** beats Supplier B at **$11.00**. Pick A. - Good — compare on TCO: ```text Line Supplier A Supplier B Unit × 5,000 $9.00 → $45,000 $11.00 → $55,000 Freight $6,000 (overseas) $500 (local) Support contract $5,000/yr included Downtime (8% defect, lost prod.) $4,000 $0 -------- -------- Year-1 TCO $60,000 $55,500 ``` Supplier B — the "expensive" one — is **$4,500 cheaper** once freight, support, and defect downtime land. Always recompute on TCO before you award. ## Negotiation Rules, each with its why: - **Separate price from terms; settle price first.** Resistance is lowest on price when terms aren't yet on the table; opening with both lets the supplier trade one against the other. - **Trade something for every concession — never ask free.** Want Net 60 or a volume discount? Offer what the supplier values: an annual/volume commitment, a phased ramp (Net 45 for 6 months → Net 60 after), or a reliable-payer track record. A free ask gets a free no. - **Know your BATNA (walk-away).** Your leverage is the credible alternative supplier. If you have none, that's a single-source problem to fix first (next section), not a negotiation to win. - **Anchor on TCO, not line items.** Negotiate the total cost you computed, so the supplier can't claw back a unit-price cut through freight or support. **The early-payment discount is math, not a vibe.** A "2/10 net 30" offer (2% off if paid within 10 days, else full at 30) is a return on paying 20 days early: ```text Annualized return = (Discount% ÷ (1 − Discount%)) × (365 ÷ DaysSaved) = (0.02 ÷ 0.98) × (365 ÷ 20) ≈ 0.0204 × 18.25 ≈ 37.2% annualized ``` Take the discount whenever your cost of capital is below ~37.2%. "We're tight on cash" is rarely a reason to skip a 37.2% return — borrow against it before you pass. Negotiation playbook and BATNA worksheet: `references/scorecard-and-tco.md`. ## Supply risk + the maverick-spend leak Name which case any critical input falls in — they are different risks: - **Single source** — you *chose* one supplier though alternatives exist. A concentration risk you accepted; document why and a switch plan. - **Sole source** — only one supplier exists. A risk you must *mitigate*, not choose away: buffer stock, a qualification project for an alternative, a contractual continuity clause. - **Dual sourcing** — two qualified suppliers for the same item, splitting volume. Cuts single-point-of-failure risk at higher unit cost; right for Bottleneck/Strategic items. **Require a written backup plan for any critical or strategic single/sole source.** A critical input with no named backup is an outage waiting for a date. **Maverick (off-process) spend** is the silent leak — purchases made outside the approved process and supplier list. APQC measured it around **1.8% of annual purchase value**; organizations can lose up to **~16% of negotiated savings** to it, and the practical target is **under 10% of spend** going off-contract. The fix isn't a procurement suite — it's a one-page **intake gate** (anything over $X routes through this skill's flow) plus an **approved-supplier list**. ## Ongoing: scorecard, cadence, re-source triggers A supplier you picked once is not a supplier you can ignore. Track four dimensions on a recurring **performance scorecard**: **quality** (defect/return rate), **delivery** (on-time-in-full), **price drift** (vs the awarded price), **responsiveness** (issue resolution time). Review on the SRM cadence set by Kraljic quadrant. Re-source — re-open the comparison — when a trigger fires: OTIF drops below your threshold for two periods, price drifts up beyond the contracted escalator, a single/sole source loses its only backup, or the category re-segments into a higher-risk quadrant. Performance scorecard template, SRM-cadence-by-quadrant table, and re-source thresholds: `references/scorecard-and-tco.md`. ## Anti-patterns | Anti-pattern | Why it bites | Do instead | |---|---|---| | Compare suppliers on unit price only | The cheapest unit routinely loses once freight, support, and downtime land | Recompute every shortlist on TCO before awarding | | One vague RFP for a commodity you can fully spec | Wastes a bidding cycle; bids come back incomparable | Send an RFQ with fixed specs when price is the decider | | Evaluation weights kept secret (or invented after bids arrive) | Invites bias and post-award disputes | Set weights before bids, disclose them, score predefined criteria | | Ask for Net 60 / a discount with nothing offered | A free ask earns a free no | Trade a volume commit, phased ramp, or reliable-payer record | | Skip the early-payment discount because "we're tight" | You pass on a ~37.2% annualized return | Compute it; take it whenever cost of capital is lower | | Single-source a critical part and say nothing | An outage with no named owner or backup | Label single/sole/dual, write the backup plan | | Negotiate price and terms in one breath | The supplier trades one against the other | Settle price first, then negotiate terms separately | | Let small buys skip the process | Maverick spend quietly burns negotiated savings | A one-page intake gate + approved-supplier list | ## Hand-offs You own the decision and the deal. The moment it becomes something else, route: - Drafting/redlining the binding purchase agreement, MSA, liability/IP clauses, signature → `../contracts/SKILL.md`. - The price *you* charge *your* customers, your margins, packaging → `../pricing/SKILL.md`. - Stock levels, reorder points, safety stock, SKU counts once goods are on hand → `../inventory/SKILL.md`. - Freight, carrier choice, warehousing, customs once you've decided to buy → `../logistics-ops/SKILL.md`. - Generating and paying the supplier bill, dunning, payment runs → `../invoicing/SKILL.md`. - Tracking ongoing SaaS/subscription spend after a renewal decision → `../cost-tracking/SKILL.md`. > Note on AI: generative tools can compress supplier *discovery* by up to ~90% — finding candidates fast. They do not replace the weighting, TCO model, risk segmentation, or negotiation. Use AI to widen the shortlist; keep the judgment human and on paper.