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Why Information About Markets is Your Superpower in Government Procurement


“A Sari. Can you tell me more?”

A few years ago, I was on my way to India. As I was about to leave for the airport, my wife pulled me aside and said she needed me to buy something for her.  In other words, she had a purchasing requirement.

“Can you buy me an Indian sari while you are in Delhi [India],” she said as she put her hand on my shoulder as a gesture to get my full attention.

A last-minute procurement request about something I don’t know much about as I’m walking out the door. All of a sudden, I was anxious. I was tense. Not only was it a last minute request, but it was also unclear and vague. Plus, what did I know about purchasing a sari? NOTHING.

I’m sure anyone that has been in government contracting can relate to my situation … a customer that gives you a poorly defined requirement at the last minute.

“A sari?” I said with a quizzical look. “Can you tell me more? Is there a particular style? Color?”

Even as she started answering, my mind wandered off as I thought about all the other questions any of us would have for any purchasing requirement?  Where can you buy a sari? Are there any particular stores [suppliers] that are better than others? How much should it cost?”

My wife’s answer to the last question: “Spend what you think is appropriate.” Well, okay then! I just smiled as I knew it was a loaded answer.

What I quickly knew in that situation was that I lacked information, specifically market information. I needed to do more market research to understand the requirement, learn the market, identify any potential suppliers (or stores in this case), understand costs/price and negotiation strategies. My predicament may have been for only one sari but the situation was not that different from what we face on a daily basis in government contracting. We are often given unclear, vague requirements, asked to navigate complex, chaotic, fast-changing markets, figure out which suppliers may be qualified, and then asked to negotiate a good deal. A challenging task to say the least.

Buying a Sari and Economic Theory

So what was I to do in my situation where I lacked critical information on how to buy a sari? What can others in public procurement do when they face a similar situation … and still deliver good procurement outcomes?

I would argue, MARKET INFORMATION IS THE SINGLE BIGGEST FACTOR IN DELIVERING GOOD PROCUREMENT OUTCOMES.  Not process, not regulations … INFORMATION.

IN FACT, ROBUST MARKET INFORMATION CAN BE A SUPERPOWER TO POWER ALL PURCHASES.

This is not just my opinion. The importance of information as a key characteristic of any good market transaction, where buyers and suppliers trade goods and services, has been established for a long time ago by economists. Stated simply, economists have proven through data and evidence that ALL PARTIES MUST HAVE EQUAL INFORMATION AS PART OF ANY EFFECTIVE BUYER/SELLER TRANSACTION.
When a buyer goes to market without sufficient information, the other party has an inherent advantage, resulting from what economists call INFORMATION ASYMMETRY
When a buyer goes to market without sufficient information, the other party has an inherent advantage, resulting from what economists call INFORMATION ASYMMETRY. In other words, one party has significantly more information than the other, putting one party at a major advantage over the other.

When information asymmetry exists, the results can be devastating, for both buyers and suppliers. Government issues solicitations that don’t make much sense to suppliers, conducts poor negotiations, and ultimately gets a deal that may never deliver the intended outcome. Suppliers are also frustrated. They may not really understand the requirement. They may have to propose a pricing structure that doesn’t make sense to their business.

Ultimately, our missions suffer, people suffer.

 


The Trusted Source for Sari Purchasing

So what can we do to address the lack of information and become smarter buyers? Let me take you back to my story.

I’m standing in a chaotic market in New Delhi, sweating profusely in what I believe was 120-degree heat. There were people, everywhere you looked. If you’ve ever been to Times Square in New York City during a holiday, you can imagine what the scene looks like.
Trusted sources are critical for market research

As I weaved my way through the crush of bodies and smells, I was anxious about what lied ahead.  Luckily, I had done my market research and learned the INFORMATION I needed in order to be a sari buyer.

My uncle, who lived in Delhi, happened to know a lot about saris. I’m not sure why he knew about saris but that’s another story. After I told him about my predicament, he took time to ask me some very smart questions. What occasion is the sari for?  What styles does she prefer? How tall is she? I didn’t know the answers to everything but I had my mobile phone ready and got her on the phone.

After learning the answer to those questions and more, he provided his sage advice on which part of Delhi to go, which stores to consider. I trusted his advice in that he had lived in Delhi for decades and knew every corner of the city. A trusted source, one that has the experience and the data to get you answers, is always important when doing market research. I sure had one in my uncle.

 

Rubber Meets the Road – Time to Negotiate

After stumbling through a few stores, I was at the place where I would ultimately cut a deal.  As I talked to one of the salesmen, he started throwing saris down on the table one by one. Pretty soon, the entire table was covered. After a bit of indecisiveness, I was able to pick out what I hoped would be the sari of my wife’s dreams.

Now it was time to negotiate. Just then, I remembered one important piece of information that my uncle had given me:

“Whatever price they tell you, offer one-tenth the amount, and don’t pay any more than 1/4 of the quoted price.”

Talk about vital information I would’ve never known if I hadn’t done my research. I had haggled before, but never that aggressively. After a bit of back and forth, I ended up walking out of that store, with a sari, at a good price…and ultimately a happy wife.  That may be the best outcome of all!

Information is Your Superpower – You can be a Procurement Hero Too!

So what’s the key takeaway here. It’s quite simple.  Information and knowledge about a market is the single most important factor in delivering good procurement outcomes.  Economic theory has told us that for as long as I can remember. We also all have personal experience that I’m sure tells us the same.

To all the government contracting and program professionals out there, I would like to issue you a challenge today:

START MAKING INFORMATION ABOUT MARKETS YOUR SUPERPOWER AND BECOME A SUPERHERO IN YOUR ORGANIZATION.    That means:

  • Understand the requirement.  Make sure you understand the requirement, which problems it addresses and what outcomes will be achieved.
  • Ask the right questions. Make a list of questions before you start any market research. That should guide your research.
  • Find trusted and relevant sources.  Answer your questions. Challenge yourself to be more informed than your customer.  Become an expert on the market.
  • Structure your findings into actions.  This can mean determining which evaluation criteria matter, which suppliers to invite, how to negotiate.

We will have a separate piece to answer these and more questions.

My mission, our mission at Public Spend Forum and GovShop, is TO CREATE OPEN MARKETS so that buyers and suppliers can come together and solve problems effectively and efficiently.  I truly believe INFORMATION is the way to ultimately create better procurement, create better outcomes, and create a better world.

Please email me directly at raj@publicspendforum.net if you want to become an Information SuperHero!


Images Courtesy of Shutterstock

 

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