To say that a process is complex is not the same things as saying it is complicated.
When we describe something as complicated, we say it is difficult to understand or to analyze. For example, chess is a complicated game. The Shannon number describes the number of possible moves, on the order of 10123.
For something else to be complex, it must be part of a system.
“Complexity characterises the behaviour of a system or model whose components interact in multiple ways and follow local rules, meaning there is no higher instruction to define the various possible interactions.
“The term is generally used to characterize something with many parts where those parts interact with each other in multiple ways, culminating in a higher order of emergence greater than the sum of its parts. The study of these complex linkages at various scales is the main goal of complex systems theory.”
This is not a distinction without a difference. It could not be more relevant for the modern enterprise with its multiple moving parts and the implication of cascading consequences of failure from behavior within and across these different pieces.
Procurement in the contemporary context is both complicated and complex. Most companies have evolved complicated bureaucracies around procurement, requiring systems to implement the rules, with administrative organizations to enforce them.
This is done ostensibly for the purpose of obtaining value-for-money. Another key purpose is risk management: protecting the organization against fraud, waste, and abuse.
All of this activity exists within the broader complex adaptive system of the marketplace. The way in which the buyer interacts with suppliers and with other buyers has consequences.
For its putative benefits, complexity has costs.
Beyond the obvious administrative drag and inflated transactions costs, it can mean that the buyer misses out on potential suppliers, alternative solutions, or, generally, competition for its spending dollar.
Within the enterprise itself, bureaucracy, and complexity act as a tax on the political capital of the Chief Procurement Officer and her staff.
It is entirely possible that the administrative pain of the procurement apparatus has the complex consequence of leading product to exclude it from early-stage conversations about design at a stage where procurement could have a meaningful positive impact, for example.
Here are three ways to reduce the complexity of procurement.
First, standardize wherever possible. Do this within the enterprise and do this across the enterprise. Consider using standard questionnaires to vet suppliers. They can update these dynamically in a “lockbox” held by a trusted third party to which buyers are granted access.
Second, use templates for RFPs and RFQs. set up common ways of asking for quotation on commonly purchased items. For example, multiple departments within the firm may purchase the same technology. Give them the ability to use a template to request a quote. Encourage them to request quotes instead of using a punchout catalog to obtain more dynamic pricing reflective of shifting conditions across suppliers.
Third, decentralize procurement. It’s happening anyway. Make it easier for people within the enterprise to purchase goods and services by giving them the tools to do so, while maintaining audit trails and procurement department oversight. An ancillary benefit of doing so is that procurement staff can focus on higher value-added activities such as contract management and vendor performance evaluation.
This is what we have built at EdgeworthBox: a platform to connect buyers and suppliers to one another with tools for easing vendor administration, sharing structured data within and across firms, and social networking between buyers and other buyers, suppliers and other suppliers, and buyers and suppliers with one another. We’d love to talk to you. Give us a shout.