When we started seeing “procurement” on legal services RFPs a lot of people mistakenly thought that procurement was only for buying pens and pencils. As legal procurement — or as some prefer to call it “legal sourcing” — is on the increase, I wondered if there were any similarities between legal procurement and, for example, other kinds of procurement such as manufacturing procurement.
I spoke with procurement consultant Bruce Morrison and was surprised to see that there are many similarities. Before starting his own business in supply chain consulting, Bruce was the vice president and head of production procurement for 21 years at GlaxoSmithKline (GSK) and a member of the company’s Global Procurement Leadership Team. His experience in manufacturing procurement provided me with some great examples of the similarities between the manufacturing and legal procurement.
Here are some examples:
On-Time Delivery & Quality — Manufacturing procurement is focused on supply and product quality. Delivery time is critical as products feed the production line; and on-time delivery and quality are key. We could say the same for legal services. For much of the delivery of legal services, timing is critical, particularly for litigation. If a class action case is coming to trial, then everything needs to be in place at the right time. The lawyers on the case need to be top-notch — the best “quality that one can buy.”
A product is easy to analyze as to whether it is the right quality for a particular job and can be given a test run. On the other hand, lawyers need to have built up their credibility as to the quality of their service. Both manufacturers and lawyers rely heavily on their reputation to build loyalty and trust.
Both manufacturers and law firms use similar costing systems; for example, component costs, (identifying each component of a product — or matter), also known as “should-cost modelling.” This is the process where a supplier product is broken down into its respective components and each cost identified to enable both companies to look for cost-reduction opportunities.
Capacity Management — Capacity management is another important element of manufacturing procurement. If a supplier does not have the capacity to fulfill the order, then the manufacturer is in big trouble. Poor planning leads to delays or misalignment and that drives additional costs. The same is true with law firms. I saw a law firm turn down a bid because they knew that they did not have the capacity to provide great service within the time constraints. The feedback from the client was that the law firm would remain high on their radar because of their honesty and would be strongly considered for the next RFP.
Pricing & Specifications — Physical goods can be divided into their component parts to see if certain elements can be priced better. For example, toothpaste tubes can be divided into packaging components, raw materials, and shipping — with each component carrying its own cost.
This is a collaborative process where the manufacturer and procurement professional work together to arrive at the best price. Each party can decide upon which components can be changed and what would be the optimal specification. To illustrate: the packaging can be redesigned with cheaper materials; the design could be changed from a 5-color job to a 2-color job; or delivery can be shifted to road freight instead of cargo planes.
Law firms can work collaboratively with their clients too, by unbundling some of their services and pricing various elements individually. Take for example litigation, which can be divided into several key service areas, such as:
- Discovery — eDiscovery could be used, or it could be outsourced;
- Expert witnesses — a number could be decided upon in advance; and
- Prospective trial — a bonus given for handling the matter out of court.
On the commercial side, the manufacturer also can give rebates for meeting target volumes or offer shared benefits from efficiency improvements such as the better coordination of manufacturing runs to reduce overhead costs, or shipments that can be delivered at one time rather than across multiple deliveries.
Similarly, some law firms in certain circumstances may offer alternative fee arrangements including a bonus for a positive result or discount for an unfavorable result.
Tools of the Trade — Both manufacturers and law firms use similar costing systems; for example, component costs, (identifying each component of a product — or matter), also known as “should-cost modelling.” This is the process where a supplier product is broken down into its respective components and each cost identified to enable both companies to look for cost-reduction opportunities. Likewise, pricing and legal project management professionals at law firms look at the whole cost to determine whether it is realistic.
You may be thinking “Well, that was interesting but how does it apply to me in my legal practice?”
It applies because it helps you think like your client in the manufacturing field. Now you have insight into what their procurement people are implementing across their purchasing strategy, and you can make sure that your firm matches their expectations from the legal services side.
At the end of our discussion, Bruce and I decided that there are a lot of similarities between manufacturing procurement and legal procurement. And, not surprisingly, the most common factors were that both sides in both industries were seeking great service and great quality at a fair price.