WEB EXCLUSIVE: Breaking the Iron Triangle of Procurement
This web exclusive comes from William Gindlesperger, chairman and chief executive officer, e-LYNXX Corporation.
Getting quality projects delivered on time and at the lowest price possible has always been a challenge. That is because traditional procurement methods have failed to solve the quality-timeliness-cost dilemma of being able to provide a product or service for a low cost while delivering top quality work on time.
Historically, a facility manager (fm) needing top quality on a rush order for custom goods or services expected to pay a premium price. On a limited budget needing a high quality product, non-expedited delivery was the norm. On a limited budget needing expedited delivery, less than optimal quality could be expected. While two of these three elements—quality (“good”), timeliness (“fast”), or cost (“cheap”)—were attainable, no one could expect all three. That is why they have been called the “Iron Triangle” of procurement.
Trying to break the “Iron Triangle” has been an exhaustive and expensive effort. It has meant sourcing vendor after vendor, job after job, with an ever changing field of vendor candidates. Once identified, the logistics of producing, documenting, and delivering a project often have been disjointed and executed with less than ideal workflow and communications. Of course, project management stresses detail, planning, scheduling, order, and well defined timelines, but computerizing everything with a turn-key solution has been elusive.
Automated vendor selection (AVS) is a procurement approach that ties sourcing, selection, and workflow and communications together. AVS makes it possible for the fm to consider only vendor candidates qualified to produce a specified product or provide a defined service. These vendors are selected by the computer when the fm’s database of pre-qualified vendors matches their qualifications with the buyer’s detailed job specifications in a separate database.
Each selected vendor knows three things:
- Others against which it is competing are likewise qualified,
- Quality and on-time delivery requirements are clearly specified and must be met, and
- Low bid wins since quality and service are a given.
In order to compete successfully, each vendor must identify its own otherwise idle production capacity. To fill that open capacity, each vendor must offer deep discounts of 25% to 50% or more from normal pricing.
Low pricing varies from vendor to vendor, depending on which vendors have downtime available for any given project to be produced at any given time. Because each vendor has been pre-qualified and each project has been appropriately specified, the fm does not have to worry about compromising quality or on time delivery, even though the job is being produced at a deeply discounted price.
Thus, the “Iron Triangle” is broken. Price is no longer tied to quality and timeliness of delivery.
This innovation is what can makes AVS integral to methods and systems for buying custom goods and services. The average savings on custom goods and services, most notably printing (direct mail, marketing, publications, labels, packaging, and commercial print), is 42%.
However, AVS by itself does not deliver the 25% to 50% cost reductions. This only occurs when the procedure is used with a series of procurement best practices.
Regardless of the industry involved, attaining “good, fast, and cheap” has given those using this procedure a competitive advantage, because the savings gained can be applied to pricing, development, staffing, or even profits.
Gindlesperger, founder, chairman, and chief executive officer of e-LYNXX Corporation, invented the AVS procedure—the technology integral to e-commerce—designed to optimize cost reduction in the procurement of all custom and specification-defined goods and services.