\u201cTrust but verify\u201d is a phrase associated with the 40th US President, Ronald Reagan. But it is a phrase that I\u2019m sure many Chief Procurement Officers use when directing their procurement teams.<\/p>\n
Don\u2019t miss updates on Procurement & Supply Chain, Subscribe here!<\/p>\n
This phrase is most applicable to procurement situations when you are working with a supplier with whom you have a long-term relationship. For certain situations, it\u2019s not appropriate to do a formal RFP every two years to ensure fair market pricing.<\/p>\n
But if that long-term supplier proposes pricing on a new product or service or needs to revise pricing on currently purchased products and services, how do you know that pricing is fair? Do you just trust them not to inflate their margins because they are a long-term partner? Or do you seek that little bit of assurance that the supplier is \u201cplaying nice?\u201d<\/p>\n
I believe in trusting but verifying. How to go about that verification process requires a little thought.<\/p>\n
Some people believe in doing RFP\u2019s solely for the purpose of verifying pricing. While, in some cases, I may get pricing from another supplier where it is easy for that supplier to prepare such pricing, I would not show the incumbent that competitor\u2019s pricing. That is unethical. I also consider it unethical to ask a non-incumbent supplier to do a lot of work to prepare pricing for comparison\u2019s sake when there is no chance that the supplier would earn your business.<\/p>\n
Some of the activities that I do recommend, each of which may be more appropriate than others in certain situations, include:<\/p>\n
1. Preparing a should-cost model<\/p>\n
2. If it is a previously purchased item, comparing the change in pricing with the change in a recognized, published price index over a matching period of time<\/p>\n
3. Making the submissions of cost breakdowns a routine part of doing business with suppliers<\/p>\n
So what if you\u2019ve verified that your supplier\u2019s pricing is unreasonable?<\/p>\n
Negotiate! Negotiating doesn\u2019t mean that you don\u2019t trust your supplier \u2013 it just means that you are doing your duty as an agent of your organization.<\/p>\n
And it doesn\u2019t have to be hardball negotiation. In cases where your company\u2019s input purchase costs determine whether or not it will win business, there is a lot to be said for managing the supplier relationship so that it feels like your company and the supplier are on the same team. For example, saying something like \u201cLook, if we can keep costs down, we can win this much more business for both of us\u201d is a way of negotiating as a partner, not as an adversary.<\/p>\n
While \u201ctrust but verify\u201d is associated with Ronald Reagan\u2019s legacy, perhaps \u201ctrust, verify, then negotiate if your trust was misplaced\u201d will be associated with mine. Check Wikipedia in 30 years.<\/p>\n","protected":false},"excerpt":{"rendered":"
\u201cTrust but verify\u201d is a phrase associated with the 40th […]<\/p>\n","protected":false},"author":12,"featured_media":4102,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-3048","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n