In a world that focuses on cost how do you know what value adds your vendors are giving you if you don’t encourage them to tell you?
Today’s post is by Mark Davis; Sr. Vice President and COO at SafeSourcing.
One of the biggest gripes that suppliers have about procurement departments and Strategic Sourcing partners they work with is that they only care about getting the lowest cost and nothing about the value of what they are currently or can bring to the table. Unfortunately there has been a precedent set by the procurement and “reverse auction” companies that has rightfully created this gripe in many suppliers.
Not every strategic sourcing company nor every procurement department sees things like this. Many want to evaluate everything; the extra services suppliers can bring them, the rush orders at no charge, the extra reporting that is given at 10:00pm on a Friday night, the waived fees, and of course they also want to look at price. The problem that procurement teams face is that when all they are given by an internal owner or from the suppliers themselves is list of prices and a brochure it makes it very difficult to justify paying 15% more for company A when they appear (through prices and a pamphlet) to offer the same service or product as Company B.
Today’s post is for suppliers and their customers alike because it cuts through the “price is all that matters” conversation to get straight at what matters: value. Suppliers need to be responsible for proving it and attaching monetary value to it and customers need to put more controls in place to ensure they get it.
The Value of Free – In a recent post we talked about the cost of FREE. Today we are talking about the VALUE of FREE. Every Christmas the newspapers double in size as retailers fight for consumer attention. When the same exact television is offered by two different retailers for the exact same price a decision must be made and when the consumer sees that one retailer is offering an extended warranty as part of the price the decision becomes easier because there is something free included, but that free has value to the consumer. Business procurement is no different. If two companies have the same price for their plastic bags or even if one company is slightly higher but offers to ship directly to your stores and the other will ship just to a distribution center where additional costs to go to the stores are incurred, there is a measureable value to that free service. What may have been a higher cost for bags is now a lower total cost of ownership because you just dropped your costs to ship the bags to the stores.
At SafeSourcing we are constantly talking to our suppliers and customers about the importance of value and that while cost cannot be ignored, the overall value is what are trying to pinpoint in the projects we run. The only way to accurately do that is to understand the “extras” a supplier can bring or is currently bringing to the table and attaching value to that. Only in this way can a true decision that is best for the customer truly be made. Tomorrow we will take a deeper look into the other ways value can be established. For more information on how we can help you evaluate your current or future suppliers and the value they can bring you or on our “Risk Free” trial program, please Contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.
We look forward to your comments.