The definition of insanity…or the emperor has no clothes
Albert Einstein is attributed with saying that the definition of insanity is, “doing the same thing over and over and expecting different results.”
If you shoot pool with a garden hose and you can’t put a ball in a pocket, do you continue with the hose or find another cue stick? Do you continue to look in the mail box for your mail during your lunch time when the mail comes at 2:00?
Why then do we continue to go through the costly process of “Market Basket” price comparisons for indirect materials that produce flawed results effecting questionable supplier selections?
Market baskets are also an example of the youth that exclaimed that the emperor had no clothes on.
Everyone [almost] embraces the market basket concept as a safe and acceptable solution to supplier selection because they cannot think of any other way. Most feel that it is a safe way to satisfy management’s question, “how did you select the supplier?”
Well….THE MARKET BASKET HAS NO CLOTHES ON!!
Suppliers cringe when they receive Request for Quotes (RFQ) and then they apply tried and true methods to question the data and basically cloud responses. This makes it impossible for an objective decision process.
A recent Market Basket requested that 1,800 SKUs be priced; it was sent to nine suppliers. The result would have been hilarious if it were not so sad. After five weeks, the responses were received with less than 40% of the parts priced. There was little consistency among parts quoted among the responders.
There were some parts that had a 1,000% variance. One quote for a 3″ Stainless Pipe had a price of $2.00 [FOR WHAT?] Extended values could not be compared accurately because different parts were quoted by different suppliers using different sources. In frustration, the company withdrew the RFQ and reissued another RFQ [the same thing hoping for a different result…sound familiar?] for 250 SKU’s for parts purchased in the current year.
Since MRO inventory turns slowly, these parts will probably have price changes before the RFQ is awarded. The opportunity to low ball is open because price relief is forthcoming due to the elongated time from request to award. The company cannot requote when the selected supplier requires relief, because it reflects negatively on the selection process. Responses coming back will produce the same inability to pick the best source…. the definition of insanity. Meanwhile, five months have passed without any value received.
Stop shooting pool with a garden hose; find a better path to sanity.
Vengat commented:
Well said Mr.Krauter. Your write-up made us to think twice when we create any more market basket. By saying that i also want to pen down that finding cons with existing method is comparatively easy than finding a optimum solution.
We would be glad if you could suggest few things which can be done in lieu of creating a market basket or even eliminate the way we currently do. Thanks.
d.dunlap commented:
Like all things involving humans, its subject to human error- or "ineptness". If a "quote" for specific product(s) is requested and it is not received completed/late or at all, then it tells you alot about the supplier: they don't care, they don't know their product or both. If they don't care or know their product, they won't care about your business prior to sale, they won't care about it during or after. It seems like a good selection process.
Paul commented:
The comments are as valuable as the article.
jr - Spartanburg, SC commented:
Market basket = Classic mistake. Who teaches this?? Practical EXPERIENCE says it doesn't work or as Mr. Krauter puts it 'THE MARKET BASKET HAS NO CLOTHES ON!!'
Jim commented:
I Agree
DH commented:
You're exactly correct! There is so much opportunity for abuse with this method it is scary. All this assures is that you are guaranteed to select the most unethical supplier. We need to come up with a better way of evaluating suppliers that considers commitment to service, responsiveness, flexibility, eco-awareness, etc. as well as price.
C.scott commented:
Mr. Krauter,
Thanks for the article. This sounds very familiar to me. What's our solution? Look forward to reading your next article.
Coll
J Greenberg commented:
Mr. Krauter: Good article. As a Strategic Buyer at a growing MRO purchasing and inventory management company, I can relate to the challenges you've discussed.
I look forward to your next article.
J. Greenberg
KW commented:
Mr. Krauter,
The article is will timed. We in purchasing have been doing this for years with the same results. It is time for a more prudent way to select and manage suppliers. Keep up the articles
Bob commented:
I am glad to finally see somewhat write what we all know is true. Pick the best possible partner and the lowest cost of ownership will follow...closely. Pick the lowest price market basket and a new supplier will follow...quickly
R. Savage commented:
Mr. Krauter,
Thank you for your article. It gives one a moment of pause and a real sense of focus.
R. Savage
