Rethinking Agile Procurement and Contracts
One of Edward Deming’s 14 Prinicples from his book Out of the Crisis (1982), contains a very astute principle that procurement should grasp:
End the practice of awarding business on price tag alone. Instead, minimize total cost – move towards a single supplier for any item, on trust.
I was recently interviewed for an article on agile procurement and contracts by Cath Thompson for the Procurement Leaders Global Intelligence Network.
The current thinking and policies for procurement in organisations does not match the agile values and principles. There are infinite tales of troubled projects as a result of fixed price (implicit fixed scope) using agile approaches.
Comparing vendors/partners on fixed price is fraught with danger when product development is inherently unpredictable and uncertainty is the natural order. This is more complicated when vendors attempt to put a price on the work when the team that will work on the product development hasn’t even been assembled (self-organising teams plan and estimate their own work).
Organisations and teams are complex adaptive systems (human systems) that interact and connect with each other in unpredictable and unplanned ways. Complex problems require experimentation and learning. As a result each team will approach creative/knowledge work differently and will highly likely produce different results even when teams have the same starting conditions. Pitting vendors in a competitive position against each other in order to get the best price under these inherently unpredictable and uncertain circumstances wastes time and energy.
Agile approaches
are counter-intuitive to [procurement] expertise built on containing risk and ensuring value for money through rigour, clarity and specificity
– Cath Thompson
However, there is a way forward for procurement – it will require a change in mindset to one that understands the need to develop a long term relationship with the vendor/partner beyond just the immediate contract transaction. Procurement needs to realise agile ways of working are easier to govern as a result of increased transparency and visibility, ability to adapt, increased collaboration based on trust, and focus on working solution.
Here’s the link to the entire text of the article – Reinventing the office (Cath Thompson, Procurement Leaders, September/October 2015)
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not an uncommon problem Chris…being a “service provider” one we encounter all the time! and from our side its difficult to quote fixed scope and still agree to be agile….it means that a lot of the other performance sliders tend to end up where we don’t want them…obviously these views are my own and not necessarily those of my employer….