It's worth weighting for! How Purchasers are making incorrect decisions

State of Flux

'It's worth weighting for' Viewpoint, Supply Management Magazine.<br>
Purchasers are making the wrong decisions because they are weighting the wrong criteria. State of Flux recommends the decision-analysis technique called 'swing weighting'.

The best-practice weighting techniques used when generating requests for proposals (RFPs) are incorrect and can lead to poor purchasing decisions.

This is particularly alarming considering the fact that RFPs are used to make decisions that aggregate to billions of pounds. A more accurate method for RFP generation would be the adoption of swing weighting.

Take, for example, an organisation that is looking to realign its IT service providers to a single supplier. If all the available suppliers provide the service at roughly the same price then this criterion would clearly be irrelevant.

However, best practice technique is to weight the criteria before the supplier responses are received. So, if price is the most important consideration, the purchasing team assigns this criterion the most weight. This will clearly corrupt the results of the RFP because most of the weight is assigned to a criterion that won't tell you anything.

Let's say the next most important criterion is customer service and the suppliers vary greatly. If the price is weighted too heavily through direct weighting, then differences in customer service will be neglected.

With prices essentially the same, this situation is detrimental because the important disparities between suppliers lies in customer service, not in price. Customer service should be given the highest weight to correctly assess the different suppliers on the two criteria.

We can see how the absolute weighting process can result in a bad procurement decision. The main - and recurring - error made throughout the procurement profession is to assign weights to criteria based on their absolute importance to the purchaser. In this example the important factor was cost, yet because of this approach the team has drawn the wrong conclusion.

The aim of an RFP is to compare the relative performance of suppliers and select the best vendor. Before the weighting process begins the sourcing team should ask themselves the question 'How big is the difference between suppliers, and how much do we care about that difference?'

Decision analysis practitioners refer to this technique as swing weighting. This process takes into account the value added in each criterion between the best-performing and worst-performing supplier for that individual criterion. The weight is assigned according to the value added, rather than the absolute importance.

If the team had used this technique it would have been clear that the difference between costs for the suppliers was very small. Given they do not care much about such a small difference then they would have assigned a lower weight.

Cost would have been given a very low weight and other criteria, such as customer service, that had large differences in value added between suppliers, would have been given greater weight. This method would have correctly identified the best vendor for IT services.

The gap between academia and industry often seems extremely wide; however, procurement professionals should look to the field of decision analysis to adjust its weighting techniques when performing RFPs.

Decision analysis is a field that helps people and organisations to make structured and logical decisions and assess how people evaluate different options on multiple criteria. This is not unlike the RFP process, yet, to our knowledge, no implementation of decision analysis within procurement has been made.

The new technique is as time-efficient as the current methods, but the benefits to accuracy can be significant.