Five Big Steps to Better Procurement Decision Making

Every moment of every day, businesses are faced with an endless stream of decisions, some with relatively small impact and others that could have the power to move entire markets. Yet a recent survey by McKinsey & Company has found that only 20% of corporate decision-makers believe their companies have mastered consistently good decision making. This deficit becomes especially crucial when procurement decisions need to be made: far from a simple and straightforward process, corporate decision making on potential purchases is plagued by complexity and complications.

With so much hanging in the balance, the need for guidance on solid procurement decision making becomes clear. Giorgia Prestento, Founder and Director of advisory firm Optimal Decisions, offered advice to Raconteur which was centered on five key steps: clearly define what you want to buy and who should be involved; collect data; come up with a range of options; agree on a shortlist; and select the best option from these.

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Beginning by determining exactly what is going to be bought and its use cases, businesses then need to define who will be involved in the decision-making process. Bringing together a buying committee with specific roles and soliciting input from end users will help decision makers understand the wider impact of their selection. Decisions without data are little more than really good guesses, making the need to gather and evaluate information about vendors and all requirements within the business a critical second step in the process.

Group dynamics often result in the first idea being the one most followed by others, so developing a range of choices as a third step can help decision making committees avoid the risks of groupthink and potentially uncover better options. Once options have been enumerated and evaluated, a separate meeting should be set to narrow down to a shortlist, implementing a fourth step that takes advantage of the fact that humans use different parts of their brains to generate creative ideas and sift out the best options.

Finally, a decision must be made. According to Randall Peterson, professor of organizational behavior and academic director of London Business School’s Leadership Institute, good leadership becomes critical at this stage, and voting should be avoided to limit the risk of emotional investment in a particular solution turning into investment in its failure. Leaders should ensure that all voices — not merely the loudest — are heard, and that each member has the ability to buy into the final call.

Procurement decisions can have a major impact on a company’s future, and while no process is perfect, business leaders following these steps can give themselves and their companies the best chance at making consistently good decisions.