A new method for addressing our procurement constraints

If you love exploring logic, you’ll grab this challenge. Which is the most complex system, A or B?

In case you’re wondering, the answer is A - because there are no linkages between the boxes. In system B, you only need to make a change to the box at the bottom, and the effect flows through the whole system.

The Theory of Constraints gives us a toolbox to work on complex problems, by identifying the cause-effect linkages between them. Once a root cause is identified, Theory of Constraints tells us to apply all our efforts into fixing that (rather than attempting to address all of the undesirable effects that we experience).

We tried this method to analyse and determine the root causes of procurement concerns. To have a go at this exercise yourself, grab some Post-Its and whiteboard pens.

Will you come up with the same root causes that our group of senior leaders from Tier 1 Construction companies did? We’re keen to know! Here’s how to start:

We began with a list of the constraints that have been identified by suppliers and by clients. You can pick some of these, if you agree with them, or choose your own constraints.

Write each constraint on a (separate) Post-It Note. Make sure they are complete sentences that explain the effect of the negative observation.

Now, choose two that seem to be related. Decide which one causes the other, and draw an arrow between them. For example:

Test your logic, by saying (for example): IF there is strong emphasis on lowest price, THEN suppliers will aggressively seek variations.

Continue to add to your logic ‘tree’, with the arrows generally going upwards. When your diagram is mostly complete, look for negative feedback loops – i.e. arrows that go from an effect towards the top of the logic tree, to drive effects near the bottom of the tree.

These usually show that the system will get worse and worse – until the root cause is identified and something is done to relieve it.

Here is what our logic diagram looked like when we finished. I’ve deliberately made it small so you can’t jump to conclusions… try it for yourself! 

Then – the satisfying part – was identifying a small number of ‘injections’ that could change those negative feedback loops into positive ones, and make a whole-scale change to all of the undesirable effects that were identified by both clients and suppliers.

This is what our diagram looked like:

Theory of Constraints is a powerful and effective new way of looking at our procurement challenges. Instead of addressing many different concerns experienced by suppliers and clients, let’s look at the root causes, and apply all of our efforts into resolving those.

If you’re interested in this method, I strongly recommend you read “The Goal” and other books by Eli Goldratt who developed this method originally in the 1980s.

We’ll be keen to know if you came to the same conclusions that our team did! Please share your thoughts.