Fun with Procurement Episode 2 Recap - How to Spice up your Specifications

We’ve seen how excited you’ve all been for our new podcast, and if you missed our first episode, you can find our recap here!

For our second episode – How to Spice up your Specifications – CEO Rob Kissick and Head of Category Nathan Swinney return with a new host, Marketing Executive Emma Edwards.

So, what is covered in our newest episode?

  • Our trio covers:

    • The five rights of procurement and how they impact the procurement process, including some lesser known, yet still very important rights, bringing the total up to seven.
    • They also give you the tips to make sure you never miss out on important specifications, understand the risks and make sure your specifications are the best they can be.
    • The importance of SLAs and KPIs are explained and the difference between them in the procurement process is discussed as they go.
    • Finally, the difference between input and output-based specifications are explained.

If you would like to watch/listen to this episode, click here to start watching and be sure to subscribe so you never miss an episode!

What are the five (or seven) rights of procurement?

Procurement, as covered in our last episode, is a step-by-step plan that focuses on a journey to save you money with contracts. So, what are these initial five rights?

Nathan explains:

“So we've got right price, right quality, right quantity, right time and right place.

The premise of those five rights is that if you've addressed them in your procurement, in your specification…then theoretically, that should address quite a number of the risks around specifications.”

Essentially, these cover a basic blueprint for writing specifications. If you’ve got your budget accurate as well as the quality of product or explanation of the goods, works or services you can then focus on time of delivery and where you need this to take place.

By covering all of these aspects when writing up your specification, you can address a number of risks that could occur. But what is a specification exactly?

A specification is a description of what you are seeking to buy, whether that be goods, works or service. Depending on what you are looking for, your specification can be as detailed or open as you would like it to be. As Nathan mentions, “It’s a shopping list”.

So, what are the other two rights?

If we think of the first five as your shopping list or check list delivering food to your house, the other two would be where you would get your food from in the first place. These are the right source and right service.

Nathan continues:

“Procurement these days is associated with how we source things. Where do things come from? We think about social value, carbon consumption, the environment. So becoming professionals and now looking at where is the right source for our goods and services, not just in terms of quality, time, price, and quantity... And then right service is actually then the softer side of things, which is, actually, is it delivering? Is it doing what it said, is the service, correct?”

Sourcing has become a major aspect of the procurement process, with the government recently focusing on the importance of social value specifically, it’s a good idea to spend some time to figure out where and how you’d like to source your goods or services.

This is doubly so if you’re a school or MAT, with the new Net Zero Carbon initiative, that lays the foundation for organisations to give off zero greenhouse gasses. Ensuring your specifications lay out the importance of this to potential suppliers is paramount.

Figuring out the right service is entirely dependent on what you need. This can be through making sure potential suppliers can deliver on specific variables that may not be typical for the product you are looking for.

When writing your specification, covering the rights of procurement can mean that you can go into a lot of detail, sometimes that detail can hinder more than help depending on what it is that you are looking for.

Rob uses the famous example of NASA and their search for a pen usable in space:

“There’s the classic example with pens, NASA spent millions and millions of pounds developing a pen that you can use in space.

And I think when they got up to the international space station, they were there with their million pounds of investment into a pen that they could write on, the Russians were there with a pencil.

And it's about what's the right specification. Actually, a pencil works perfectly fine in space. And so you can spend an awful lot of time thinking and over specifying things that actually, you can look at something slightly differently and get the same or better result.”

It’s important to make sure you specification is correctly documenting what goods or services you need but going into too much detail can sometimes run the risk of suppliers charging you more for a product that you requested whereas a cheaper option that you missed out on may exist.

Be critical with your specification and be sure to leave enough time to properly consider your specification. Look back through previous contracts, what worked well? What didn’t you address in your previous contracts that could have led to something going wrong with the contract?

You don’t need to reinvent the wheel with each specification, build upon your previous work and with time, you will create specifications that pinpoint the exact requirements for your procurement journey.

How to address and mitigate risks when writing your specification

Addressing and mitigating risks in your specification can be difficult, especially in procurement, as Rob mentions:

“When you're thinking about procurement, everybody has a different view of what they want the outcome to be quite often. It's about trying to try to understand when you're building a specification, the lens that different people are viewing the solution through, and then the end goal.”

Writing specifications shouldn’t be a job for one person, it’s a group effort. The best way to mitigate risks is to remind yourself what it is you need and what the end goal of that need is for your organisation. By keeping both the need and the end goal at the forefront of the specification writing process, you and your team can focus on accomplishing your procurement goals.

On the other hand, making sure there aren’t too many people writing the specification is also important. We all know the term ‘too many cooks spoil the broth’. Trying to write a specification for a system is an example of how too much input can cause avoidable risks, for example, your sales team may want specific functions, then your finance team may look at it with a different lens, which your operations may then have differing opinions on again.

This is why we recommend that you figure out your absolute essentials first, as Rob mentions "you get somebody who shouts the loudest, gets that onto the specification and suddenly the price goes up by 20% as a result of that.” Overfilling your specifications with functions and needs can cause your entire plan to unravel or not deliver for your organisation.

Another key factor in risk avoidance is ensuring you are not creating one specification for a multitude of categories. Unfortunately, there is not a one size fits all rule for these specifications, each category has different needs that must be fulfilled. While the five rights of procurement help as a blueprint, it’s always good to ensure that you deviate when necessary to avoid unnecessary risks.

Purchasing a ream of paper will require different risk analysis than grounds maintenance for example.

Fortunately, there is a way you can save time on your specification writing while still remaining accurate in risk avoidance, that is through using a Procurement Risk Matrix. Nathan explains it in this episode:

“One of the things that we help a lot of clients with is something we call the procurement risk matrix, which is a very straightforward document. But what it does is it allows a buyer to understand across a whole menu of different risks.

What are the core risks for this procurement and where have we addressed those in the spec? It's a checklist basically, firstly, to flag up what is a key risk. And then secondly, to flag up where in the specification we have addressed that risk or in the contract terms or as part of the supplier evaluation.”

If you would like to get in touch and make use of our Procurement Risk Matrix, contact us and our procurement specialists will be in touch to help you straight away.

Each category is equally important and by starting fresh every time you procure a new category, you will benefit from it in the long term.

How are SLAs and KPIs important to procurement and what’s the difference?

SLAs and KPIs are terms thrown about a lot in the procurement process, but what actually do they mean?

An SLA stands for Service Level Agreement, these are a specification of what exactly you are expecting from your supplier.

A KPI stands for Key Performance Indicator, these go hand-in-hand with SLAs because they are used to measure the performance of the supplier to see if they have delivered against that initial Service Level Agreement.

Most importantly, both of these tools can be included within your specification. Nathan mentions the importance of SLAs and KPIs as they ensure that:

“…the supplier is absolutely crystal-clear what service levels you're expecting, and they are absolutely clear on what they're going to be measured against and to be held accountable for and having both of those into a specification.

And they don't have to be hugely complicated. You know, we often say, four or five good KPIs are better than a whole schedule of 20 plus, because again, you've got to consider how much time, effort and cost it's going to be to gather the data, to check whether they're performing against those and to manage and monitor those…”

The importance of these two terms – especially when writing your specification – is the fact that they clear off any ambiguity for both your organisation and your potential supplier.

From including your SLAs and KPIs within your specification, a potential supplier will be able to spot where your priorities lie across the five rights of procurement. Remember, a specification is as important to you as it is your potential supplier too!

Rob mentions that KPI’s can go a long way in spotting problems within your contract as well. “I think with KPIs, they just enable you to be able to say, hang on, that's not quite worked this month. Why is that? And enables you to nip problems in the bud quite quickly, rather than them kind of evolving.”

By spotting these problems quickly, you will be enabled to quickly add value and find support before the problems become unbearable. From the procurement specialist perspective, being able to look at a contracts SLAs and KPIs and figure out how the contracts performance has steadily declined or improved is vital in the long-term procurement process.

What is the difference between input and output based specification?

The final topic covered in this episode was input and output based specification, what are they? How do they help your procurement journey?

As Nathan explains, an input specification is prescriptive, like your shopping list:

“So I would like to think that listeners, when they do their grocery shopping, have a shopping list. That's a great way of not being tempted by isles and offers of things that you don't really need but think, oh, actually, yes, I'll just have 1, 2, 3 of those, because a shopping list by its nature is an input specification.

It's an exact list of what you're requiring. You've determined the level of quality, you've determined the quantity, you've said exactly what it is that you require and there's no ambiguity is absolutely unequivocal as to what, what information is on that list.”

So then, an input specification is a clear set of expectations laid out for your suppliers, so that when it comes to award the contract to a potential supplier, there is no ambiguity as to what you hope to achieve form the contract.

An output-based specification is essentially the opposite, as Nathan continues in his grocery shopping analogy:

“…taking the grocery shopping example is where you say, do you know what? I fancy something nice for tea, and I'll go to the shop to see what there is. So the only thing on your specification for that is the words, something nice for tea, you've not actually specified what it is you want in what quantity, in terms of what ingredients you need. You are looking for an outcome, which is something nice for tea.”

By not prescribing to a specific set of expectation, instead focusing on the end goal – the delivery of a service or good for your organisation – means that potential suppliers can come to you with offers that you may not have expected beforehand. Whereas, with input-based specifications you will need to be absolutely sure you know what it is that you need before speaking with potential suppliers.

Typically, input based specification puts you in the position of the procurement expert, you know exactly what it is you need, and you know that it will do the job that you require it to do. This is something you are also telling suppliers, you know exactly what you need and all they need to do is agree that they can do it, from there, your terms can be set.

Output based specifications puts emphasis on the supplier, you are essentially giving them the ideal outcome, with the supplier then figuring out how that outcome can be achieved.

Nathan backs this up by saying:

We want a new catering service. We're not going to tell you what's on the menu. We're not going to tell you how to deliver it. We just want a really excellent catering service that will deliver nutritional meals and, make everybody in the organisation happy. So you leave it up to the supplier then to suggest service levels, to suggest specifications as to how they would meet that need.”

One of the advantages to this is that the suppliers are often the experts of innovation, they know what they can deliver and may suggest ways of delivering a service that you could never have thought about as the buyer. The obvious disadvantage to this is that there is no guarantee this could happen, you may end up overspending without knowing.

Achieving a balance is key. Especially with output-based specifications. Find the needs, the essential requirements that need to be delivered no matter the circumstances and use that as your starting point.

When evaluating the suppliers’ quotes, with an input-based specification, you can evaluate primarily on price as you would have determined every other factor in your specification through including the rights as previously mentioned.

With an output-based specification, evaluating quality can be more important than price, however, we do recommend that if you are going to commit to an output based specification, include a budget ceiling to highlight to the supplier how much you are willing to work with for that particular contract.

To conclude:

Overall, spicing up your specifications is about taking the time to recognise what type of specification would be best for each procurement opportunity, there’s not a right or wrong answer per se, it’s more about realising which would better work for you at any given time.

Ensuring you are customising your specifications for each contract and not reusing specifications makes sure that suppliers cannot take advantage of you and instead, work in tandem with you.

Specifications are vital for your procurement journey, be sure to take the time to properly write them, include your SLA’s and KPI’s, get the best value for your contracts!

Alternatively, if you are still struggling with writing your specifications, then be sure to contact us and we will help put your mind at ease with our procurement specialists. You can also check out our other services and find out what other ways we can help you achieve savings across your organisation.

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