Procurement & Vendor Management

Welcome to Procurement & Vendor Management at Kaern Schools. This course is for founders building real companies — the kind of people who suddenly realize that the success of their product depends on a supplier in another time zone whose name they barely know. Procurement is not back-office paperwork. It is the discipline of deciding what you make versus what you buy, who you trust to deliver it, and how you protect your company when the world shakes.

Who this is for: Founders and operators of Kaern startups who buy goods, services, or components from outside parties — which is all of you.

Outcomes: By the end, you will be able to build a procurement strategy, run a structured supplier selection, negotiate contracts and SLAs that protect you, manage vendor relationships over time, design for supply resilience, and use total cost of ownership and spend analytics to spend smarter.

Your tutor: I'm Otto. I spent years on the sourcing side of cycleX, a hardware company that learned most of these lessons the hard way — late shipments, single-source disasters, contracts that looked great until they didn't. I'll teach you the version we wish we'd known on day one. We'll work, we'll argue, and you'll leave with judgment, not just vocabulary.

Let's begin.

Module 1: Procurement Strategy & Make-vs-Buy

Learning objectives

• Distinguish procurement strategy from tactical purchasing.
• Apply a make-vs-buy framework using strategic importance and capability.
• Segment spend by criticality to focus effort where it matters.
• Articulate how procurement decisions shape a startup's defensibility.

Lesson 1.1 — What procurement actually is

Teaching script:

Let me start by killing a myth. Most founders think procurement means "buying stuff cheaply." That's like saying cooking means "turning on the stove." Procurement is the strategic decision about what your company should be good at owning versus what it should rent from others.

Here's the analogy I use. Imagine you're building a house. You could mill your own lumber, fire your own bricks, forge your own nails. You could. But you'd never finish the house. So you buy the nails and pour your energy into the architecture — the part only you can do. Procurement is deciding, for every nail and beam, "is this mine to make, or someone else's to supply?"

At cycleX, early on we tried to manufacture our own battery packs because we thought it was "core." It nearly sank us — we were terrible at it, and a specialist did it better and cheaper. Meanwhile we outsourced our firmware, which was our edge, and lost months getting it back. We had the make-vs-buy line in exactly the wrong place.

Why does this matter? Because every buy decision is a bet on your identity. Get it right and you focus your scarce founder-energy on what makes you special. Get it wrong and you bleed time and money on commodity work — or you hand your crown jewels to a vendor.

So here's my question for you: which one thing does your company do that no supplier on earth should ever touch?

Lesson 1.2 — The make-vs-buy framework

Teaching script:

Now we make this concrete. I want you to plot every significant input on two axes. One axis: strategic importance — does this differentiate you, or is it a commodity? The other axis: internal capability — are you genuinely better at this than the market, or are you fooling yourself?

Think of it like a restaurant. The signature sauce, the recipe diners come for — you make that in-house, fiercely, even if it's hard. The napkins? You buy them. Nobody picks a restaurant for its napkins. The danger zone is the dish you believe is signature but is really just a napkin with ego attached.

At cycleX our "make" list eventually shrank to firmware and the cleaning algorithm — two things, total. Everything else we bought, and the company got dramatically healthier. Founders consistently over-claim what's core. The instinct to control everything feels safe but it spreads you thin.

Why it matters: every hour spent making a commodity is an hour stolen from your differentiator. Buying isn't surrender — it's focus.

Look at your own startup right now: what are you making that the market would happily sell you better?

Worked example:

A Kaern startup, BrewLoop, sells subscription cold-brew kits. They listed inputs and scored each from 1–5 on strategic importance and internal capability:

| Input | Strategic importance | Internal capability | Decision | |---|---|---|---| | Coffee blend recipe | 5 | 5 | Make | | Brewing hardware | 2 | 1 | Buy | | Subscription software | 4 | 2 | Buy (then revisit) | | Packaging | 2 | 2 | Buy |

The recipe is their soul — make. Hardware is a commodity they're bad at — buy. Software is strategic but they lack capability today, so buy now and reassess as they grow. Packaging is a napkin. The grid turned an emotional debate into a one-page decision.

Hands-on exercise:

List the 8–12 most significant inputs your company buys or makes. Score each 1–5 on strategic importance and 1–5 on internal capability. Plot them. Circle every item scored high-importance/low-capability — those are your risk items (strategic but you're weak). Write one sentence per circled item on how you'll close the gap or de-risk the supplier.

Common mistakes:

1. Treating make-vs-buy as a cost decision alone, ignoring strategic differentiation.
2. Over-claiming what's "core" out of pride or fear of losing control.
3. Deciding once and never revisiting as capabilities and scale change.

Check for understanding:

1. Why can buying a component be a more focused decision than making it?
2. What two axes drive the make-vs-buy grid, and which quadrant is most dangerous?
3. Give an example of something your startup over-claims as "core."