As I wrote a few months ago, the deadline-day deal in the world of football is typified by a time-poor purchaser, who is often cash-rich from having made a sale on the last day and is now trying to make a deal quickly.
Our ‘Levy-nomics’ example in this case is Liverpool’s purchase of Andy Carroll in January 2011. On the last day of the transfer window, Liverpool sold their disaffected star striker Fernando Torres for £50 million and needed to replace him. Andy Carroll’s previous club, Newcastle, was in the perfect position; in Liverpool they had a desperate club who’d just sold their star asset and were now cash rich and time poor.
Liverpool paid Newcastle £35 million on the last day of the window, widely seen as a huge overpayment. Fast forward two years and Andy Carroll has now joined West Ham for £15 million having scored six goals in his two years at Liverpool – a net loss of about £20 million, or £3.3 million per goal if you prefer.
While we will never know what pre-contract discussions took place, it would appear Liverpool had not prepared adequately for the possibility that they would have a public influx of cash combined with a need to enter the market.
The lessons that we can take from this apply just as easily to procurement as they do to football transfers. The key principles of Levy-nomics in this instance are as follows:
- Don’t bury your head in the sand. An upcoming tender can be intimidating as it requires mobilising a lot of resources and spending money for something that might not happen. But if you develop a plan and stick to it, you’ll be better prepared when the likely scenario comes around.
- Buy for value, not for price. If you consider the price you’re paying only in the context of the tender, you can lose sight of the value. Paying £35 million for one player when you’ve just sold another for £50 million can look like a £15 million profit. If looked at objectively though, is £35 million good value?
- Use the right contract. If you know a tender is coming, it is perfectly acceptable to enter into pre-contract agreements with suppliers. Or alternatively, consider tools such as framework contracts or volume-based price bands.
☛ Justin Hughes is a supply chain expert at PA Consulting Group