It Hurts The Bottom Line
Today’s post is by Robert Rice, Account Manager at SafeSourcing.
Yes, mistakes happen and are part of any purchasing process; but with right tools from the right company, those mistakes can be diminished greatly. Here are 10 of the most common mistakes made in the world of purchasing.
Mistake 1: Not understanding the philosophy, needs and motivations of the procurement organization. Price is important, but other factors count too. For example, in this tough economy, procurement may be pushed hard to implement and obtain immediate cost discounts or cash-flow improvement. This may give you an opportunity to lock in business with better payment terms immediately, while a competitor may require lengthy qualifications.
Mistake 2: Not developing a written specification for vendors to bid on. The specification needs to state your goals, a detailed description of what you’re purchasing, the terms you require, a maximum quote, and when you need responses back.
Mistake 3: Assuming the procurement department knows your value plan. If the department is considering two widgets, and one is $400 and the other is $800, then the $400 tool wins, right? If the widgets are measured on cycles before replacement, the $800 tool is the clear winner. If the procurement staff doesn’t understand this, the $400 tool wins.
Mistake 4: Buying based on price alone can have a reverse effect on your net gain. The cheapest product or service isn’t always the best choice. You may end up having to replace a piece of cheaper equipment or have more maintenance costs if you would have spent a little bit more money and received better quality. Or the initial cost is very low, but after the purchase you find out additional fees that start to add up. Evaluating all costs is the best way to ensure you are getting the best deal.
Mistake 5: Thinking reverse-auction award decisions are based only on price. In most reverse auctions, price is not the only factor clients consider. If the client doesn’t publish that the “lowest bidder wins,” then, in most cases, factors other than price are used in the award decision. Vendors that only sell on price are bound to lose.
Mistake 6: Not acting quickly to pass on commodity-driven cost increases. If a vendor is selling a product that has a cost structure that is significantly impacted by the cost of commodities, then you need to act quickly on pursuing price in the rising market. Procurement professionals will be more receptive to your passing on the commodity increase while the markets are still high – especially if they can pass it onto their customers. Once the markets fall, price increases will be resisted.
Mistake 7: Not capturing price by using your ability to help manage your client’s risk through material hedging, managing inventory, etc. For example, say the vendor sells stretch wrap. The client is concerned about future price increases due to unstable stretch wrap prices. You can get a premium price if you can help alleviate the risk by providing a fixed price that relies on your ability to hedge your stretch wrap purchases.
Mistake 8: Taking a misguided view of strategic partnerships. Your partnership is not an entitlement to getting the best price. The greatest benefit to the vendor is a stronger position to keep the business by locking in clients over time. You have worked hard to be named as a strategic partner, but now is not the time to rest. That partnership provides you an opening to create strong relationships with the executive staff and their purchasing department. Creating those relationships will pay big benefits when your competition tries to unseat you.
Mistake 9: Not getting involved in the client’s new projects. By helping them understand a procurement approach that saves them time and money, you can create a win-win relationship.
Mistake 10: Don’t skimp on research. You should know the basics, price range, your requirements, and the names of vendors that can provide the product or service and how long the purchasing process usually takes. You can’t afford to waste time contacting vendors that cater to small businesses if you are a big company.
You need to ask yourself, “Do I have the time and or manpower to do this?” Everyone one of these mistakes can be avoided if you develop a partnership with SafeSourcing. We have the e-Procurement tools and knowledgeable staff at your disposal ready to save you time and money.
Robert, or any member of the experienced team at SafeSourcing would be happy to discuss how SafeSourcing can help you with your eProcurement planning. For more information, please contact SafeSourcing.
We look forward to your comments.