The three rules of ‘Levy-nomics’

26 September 2013
Football fans will have seen the summer transfer window has again been a busy period for European clubs with money changing hands, careers resting on the outcome and people jumping on planes to resolve last-minute deals. All of which brings to mind (admittedly for people of a certain disposition) the challenges of procuring for a new tender or project. The tender could be for a new product or service, or a larger scale of an existing product or service. Either way, the response time can often be inadequate for a full procurement process, but a bidding process with no supplier lined up can be very risky from a pricing and supply point of view. But if you got to market with an idea who will win, and potential suppliers know this, it can also be deadly if the supply base is limited or there is a sole-source scenario. Consider Gareth Bale’s £85 million world record transfer to Real Madrid. The Tottenham Hotspur chairman Daniel Levy had two main options once it was settled Bale wanted to join the Spanish team. He could conclude the sale, and then go to market with a very public world-record transfer fee in his pocket or deal on the assumption that the transfer will go through but with uncertainty on his side. The ‘Levy-nomics’ theory here was if you go to market when you’re short on time and the world knows you’ve just had a significant cash influx, you’re going to get a worse deal than if you go to market with your pockets empty but a carrot dangling. The lessons that we can take from this apply just as easily to procurement as they do to football transfers. These are the key principles:
  1. Have a plan. Trying to develop a plan at the same time as delivering it when running a tender is extremely challenging. Build the plan with no tender on the table and then it can be ready for when it’s needed. Levy had a clear plan of who he wanted to buy, what he was prepared to pay and he stuck to it.
  2. Maintain competition for as long as possible. Trying to get a good deal from a sole source supplier or when the market knows you are cash rich and time poor is very challenging. Use the uncertainty to your advantage while suppliers are still hungry to be involved in the new deal.
  3. Review and learn. At the end of the process, see what worked well and what didn’t and then refine your plan. Making one mistake is allowed. Make it twice or three times and you could find yourself managing in a lower division.
Justin Hughes is a supply chain expert at PA Consulting Group
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