(October 14, 2008) Given the current U.S. financial crisis, all business leaders should pause to reflect on an underlying root cause of what has become a national wake-up call.  That root cause is a fundamental lack of transparency.  While greed and leverage may have provided motive, lack of oversight and transparency ultimately provided opportunity for gaming the financial system by some to the detriment of us all.  In the end, the financial system tumbled because industry oversight was relaxed and established, best practice lending rules were not followed.   Business leaders, wittingly or unwittingly, have been at the core of the problem by not being forthright about their actions.  A primary tenet to managing sustained business success is being open and honest in all dealings; no midnight requisitions, no back room deals, and no agreements on a wink and a handshake allowed.

Procurement is a business discipline that is especially vulnerable to questionable dealings.  This is often the area where vendor-client relationships are managed and is generally where money is committed for goods and services.  Operationally, procurement is too often seen as a tactical element of business.  Enlightened executives, however, see procurement as a strategic opportunity.  And if conducted with an underlying foundation of openness and transparency, procurement will contribute to substantial savings while setting the course for long-term, sustained and positive performance. 

A high level of transparency in the procurement discipline requires not only strong policy and enforcement commitment but also a sophisticated means to document activity and compliance.  Recent advances in information technology now make it possible for procurement professionals to have workflow and communication systems that achieve nearly 100% transparency. 

The print industry presents one example where a methodology is available to deliver dramatic cost reduction while achieving full procurement transparency.  The print buying organization works with a procurement management firm using a U. S. Patented methodology to match buyers with print suppliers who can produce their work for less when the work is completed at off-peak production times.  The supplier is willing to reduce its normal fee in exchange for running a job under conditions which more fully utilize fixed staff and equipment investment.  On average, the buyer's savings experience is in the range of 40 or more percent while the suppliers actually improve their overall profitability.  This level of savings can be achieved and sustained when the methodology is indelibly documented and information is openly exchanged through a sophisticated, web-enabled workflow and communication system.

The competitive and patented methodology is the key.  Here is how it works:

First, the buyer supplies the print management firm with a list of suppliers with which it has established favorable working relationships.  From this list, the print management firm creates a database of preferred suppliers for the buyer.  The buyer then determines specific objective attributes that represent qualitative and quantitative supplier characteristics.  These attributes typically include print production capability, quality performance levels, and supplier profile information.  Once the buying organization identifies a need, the job is described through specifications.  By automatically comparing supplier attributes to job specifications, the database identifies a subset of suppliers qualified to perform the project.  The specifications, in solicitation format, are then simultaneously distributed to members of the subset, allowing those suppliers to submit price quotes based on their own state of production and capacity.  The suppliers are permitted to bid high, low, or not at all without affecting their opportunity to receive future solicitations which match their attributes.  This objective method ensures that a supplier's action on a particular job does not set precedent which could otherwise affect future expectation.  If a supplier were to offer a low price on a particular job based solely on available capacity, traditional procurement thinking would lead the buyer to expect this price in all future similar transactions.  Conversely, if the supplier were to bid high or not at all due to its production being at full capacity, a procurement paradigm might lead the buyer to label the supplier as non-competitive or disinterested and exclude it from future opportunities. 

The method being used by the print management firm allows for the buyer to seek out open capacity within its supplier network and enjoy the savings of the work being produced at a dramatically reduced cost.  Suppliers benefit because they no longer need worry about the future impact of precedent, and they are not required to hold unprofitable idle production time in ready reserve for their premiere customers.

Once bids are in, the buyer can then confidently award the job to the low bidder because the bid price has come from a supplier that the buyer objectively pre-qualified.   All activity, from creation of solicitation to awarding the job, are permanently recorded in the workflow and communications system allowing for automated accountability and record keeping.  Transparency is further achieved once the bid is awarded because all suppliers responding to the solicitation are automatically notified of the bid results.  Once the print supplier is selected, the buyer then uses the web-enabled communication and workflow software to administer and manage print revisions, approvals, production, receiving and billing.  This tool allows all involved to see how the job is progressing, who is responsible for what and when actions are needed - another level of transparency.

This competitive and patented methodology works to drive prices down by an average of 42 percent.  Buyers benefit by maintaining a preferred supplier database sufficiently large enough so that at any point in time a number of suppliers feel compelled to win work at any price just to fill their own unused production capacity.  The patented methodology changes the process from one of a supplier determining pricing based on what they perceive to be what the buyer is willing to pay, to a process where the supplier bids based solely on its own production needs.  This allows each supplier to bid high, low or not at all based on its production schedule and without negative repercussions.  Pricing for any particular job does not set future pricing expectations.

If a similar system had been in place for goods and services provided by the financial services industry, we may not be reading head lines that begin with "Credit Crisis," "Cash Crunch" or "Bailout Deal."  Other industries can, and will benefit when this business method is adopted into their procurement process.  In 1933, the U.S. Supreme Court Justice Louis Brandeis famously praised honesty and transparency in public policy with the phrase "Sunlight is said to be the best of disinfectants".  Seventy five years later, it's time for business leaders to open the blinds.
                                                                                                                                                     
Michael Jackson is chief operating officer of American Print Management  (888-876-5432) an industry leader in working with print procurers to reduce their hard-dollar costs of print marketing, direct mail, commercial print and packaging.