Buyer-Seller Chess Games Ultimately Don’t Work

In the ancient game of chess the object is to beat your opponent. A collaborative, trusting strategy has no place in this struggle for ultimate power and domination. Instead, players try to out-strategize and out-maneuver their opponent to get the “win.”

It is very common for companies to use “strategic” approaches to win in the game of procurement.  A.T. Kearney’s paper on “The Purchasing Chessboard” plays up the analogy and creates a 64-square chessboard of procurement strategies based on “power” to win.

The ATK paper offers advice on “buying in a seller’s market,” noting that the balance of procurement power has shifted from buyer to seller or supplier.

“Consolidating supplier markets, rising energy prices and the growing demand for raw materials in emerging markets have fundamentally changed the purchasing framework,” ATK says. “Suppliers are more powerful than ever, which means buyers must adjust quickly to a new playing field.”

With more companies operating today in a seller’s market, ATK has developed The Purchasing Chessboard to help buyers “adopt new tools and strategies to compete effectively on a new playing field.”

For one thing the current seller’s market means that the old purchasing strategies “such as pitting suppliers against one another, or simply requesting price reductions, do not work.”

ATK says the purchasing chessboard comprises 64 methods, “each representing a stand-alone, differentiating way to work with suppliers to reduce costs and increase value. These methods are derived from 16 approaches and four purchasing strategies.”

The four major purchasing strategies outlined by ATK are:

  • Leverage competition among suppliers
  • Seek joint advantage with suppliers
  • Change the nature of demand
  • Manage spend

Three of those four are based on re-asserting market power and seizing the transactional advantage, while the fourth—seeking joint advantage with suppliers—occurs only when buyers and suppliers in a transaction “have equal market power.”  Mmmm…let’s think about this. Only be collaborative when you don’t have the muscle to win outright. It’s this kind of grudging and forced cooperation: “Suppliers and buyers work together to generate ideas for optimizing costs and then agree to share in the respective benefits. What begins as an ad-hoc program could eventually turn into a longer-term strategic alliance between buyer and supplier.”

While promoting collaboration – it’s not the kind of credible approach that can win the hearts and minds of suppliers to help you win in your own business game. I much prefer the sincere and credible Vested approach that emphasizes a shared-value and outcome-based approach.

Simply put, working together should not be an ad hoc admission that you don’t have enough power to control the market. Playing the power game deteriorates trust; it’s really just a shell game grounded in old-school thinking where everyone works for their own best interest.

The Vested way starts with the idea of working together—to take a vested interest in developing a broader definition of success based on sharing value and the win-win.

Chess is played on a 64-square board, which is I suppose is where ATK got its idea for The Purchasing Chessboard. But chess is also often referred to as the “64-square madhouse.”

[Image credit: Chess by sarahkim via Flicker cc]

Comments

  1. Brian Vowels says:

    Over the past few years, I witnessed the shift if procurement power that you mention in this post. The companies (buyers) in which I do business with tend to be healthy, growing and financially secure if they work within a collaborative environment or practice vested outsourcing. When I see buyers playing the power game or forcing competition for the lowest possible cost, we know, as suppliers, that the buyer’s organization has challenges that force them to act the way they do. It could be aggressive competition, falling stock prices, etc. I sometimes wonder if aggressive procurement tactics are symptoms of impending business model collapse.

  2. Brian Vowels says:

    Over the past few years, I witnessed the shift if procurement power that you mention in this post. The companies (buyers) in which I do business with tend to be healthy, growing and financially secure if they work within a collaborative environment or practice vested outsourcing. When I see buyers playing the power game or forcing competition for the lowest possible cost, we know, as suppliers, that the buyer’s organization has challenges that force them to act the way they do. It could be aggressive competition, falling stock prices, etc. I sometimes wonder if aggressive procurement tactics are symptoms of impending business model collapse.

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