Hardcore Purchasing: Not What we Advocate

I had the opportunity this past week to have coffee with Paul Zaleski. Paul's a Director at Cost Reduction Analysts: http://expensereduction.com/analyst/paul-zaleski. He is a very qualified and experience business leader whose current focus is helping small to mid-sized companies determine savings opportunities in both MRO and non-direct expenditures. Companies of any size can easily be spending too much if they are not focused, on constantly assessing the market and looking for opportunities. Smaller companies have less human resources and thus are not doing this assessment and subsequent sourcing work to ensure they are getting the best pricing, service, and quality they can. They are probably leaving a lot of money on the table.

In our conversations, we were talking about the purchasing function and why we couldn't be purchasing guys. Mainly, we would negotiate what we would determine was a fair deal and pick the "best" supplier. Hardcore purchasing guys would not stop here. They would turn the pricing thumb screws another two to four turns on the suppliers. I like to say that these kinds of people have the "purchasing gene." Normal people cannot do this. People with the purchasing gene, enjoy doing it. I most certainly do not have that gene. Furthermore, I add that if you do not have the purchasing gene and work in a hardcore purchasing group, i.e. everyone else has the purchasing gene, you will be a miserable person. I told Paul that the auto companies were so hardcore in purchasing, that they squeezed the profits right out of their suppliers and forced some into bankruptcy.

Pul then told me that he knew an automotive purchasing agent who told him, "I am judged by how many companies I put out of business."

It was shocking to hear that someone actually say this. In talking more about this, I told Paul that I have known hardcore purchasing people whose only concern is beating their financial numbers with no concern for the well being of the supplier. If such hardcore purchasing agents are also managing a big spend, so much the worse for the suppliers. The pricing competition to land the business can be fierce. If the supplier is not astute they could land the business and find their margins seriously compromised.

Needless to say, this scenario does not make for good partnerships. The supplier's focus is not necessarily on service, quality, and partnership but rather to cut their own costs to gain some margin.

Price should never be the only factor in choosing a supplier. It is a very important factor... huge for that matter. It just should not be the sole factor. Service and quality are also important. The willingness to jointly work on cost, service, and quality improvement projects also must be considered. There are countless stories about a supplier winning the business on price alone and then falling down on service or quality to the point of eliminating the expected savings.

One of the problems is that contracted pricing, being in dollars, is easy to measure and compare when a material or service is put out for bid. The service, quality, and continuous improvement components are by comparison harder to assess and are often anecdotal or judgement calls.

It is important to carefully prepare the Request for Proposal that outlines the volumes, service, quality, and continuous improvement requirements. The same maxim many of us use when we ask five painters to bid on painting our homes probably applies: throw out the highest and lowest cost option and seriously evaluate the middle three.

Remember, if the price seems too good to be true... you will probably get exactly what you pay for.